Annual Report 2018

VALUING OUR PEOPLE
CUSTOMER FOCUS
TEST AND LEARN
A GREAT PLACETO WORKCUSTOMER CAREPEOPLE WHO LIKE
WHAT THEY DO
DO IT BETTERINNOVATIONCUSTOMER SUPPORTCLEAR AND HONESTCOMMUNICATIONTEAMWORK

Financial
highlights
Admiral offers car, van,household and travel
insurance in the UK and
the Group includes
Confused.com, a leading
price comparison website.
Outside the UK, Admiralowns four insurance andseveral price comparison
businesses.

Group’s share of profit before tax*1(£million)£479.3m
2018

0% Ogden basis

2018-0.75% Ogden basis£479.3m£413.3m

2017*3£405.4m

2016£284.3m

Turnover*1(£billion)£3.28bn2018£3.28bn

2017*3£2.96bn2016£2.58bn

Contents
Company Overview

Corporate Governance

Financial Statements

01

Financial Highlights

62

Introduction from the Chairman

113 Independent Auditor’s Report

02

Chairman’s Statement

64

Board of Directors

122 Consolidated Income Statement

06

Our Culture

66

Governance Report

74

The Audit Committee

123 Consolidated Statement ofComprehensive Income

Strategic Report

80

The Group Risk Committee

12Group at a Glance

85

14What We Do

The Nomination and GovernanceCommittee

16

Business Model

88

The Remuneration Committee

18

How We Do It – Our Strategy

90

Directors’ Remuneration Policy

20

Chief Executive’s Statement

100 Annual Report on Remuneration

22

Q&A with David, Cristina, Milena
and Geraint

108 Directors’ Report

24

Chief Financial Officer’s Review

26Group Financial Review

31

UK Insurance Review

40

International Car Insurance Review

44

Price Comparison Review

48

Other Group Items

51

Year in Pictures52

Principal Risks and Uncertainties

58

Being a Responsible Business

Admiral Group plc · Annual Report and Accounts 2018

124 Consolidated Statement of
Financial Position
125 Consolidated Cash Flow Statement
126 Consolidated Statement of Changes
in Equity
127 Notes to the Financial Statements
179

Parent Company Financial Statements

182 Notes to the Parent Company Financial
Statements
189 Consolidated financial summary (unaudited)

Additional Information
190 GlossaryCompany Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Group’s statutory profit before tax(£million)

Earnings per share(pence)Return on equity*1(%)£476.2m

137.1p56%

2018

0% Ogden basis

2018-0.75% Ogden basis£476.2m

2017*32016

2018

0% Ogden basis£410.2m

2018-0.75% Ogden basis£403.5m

2017*3£278.4m

2016

2018

56%

118.2p2017*355%

117.2p2016

137.1p

37%78.7p

Net revenue(£billion)

Customers*1(million)Full year dividend per share*4(pence)£1.26bn

6.51m

126.0p2018
2017*32016£1.26bn£1.13bn£1.02bn2018
2017*3
2016

6.51m
5.73m

2018

126.0p114.0p2017*3
2016

5.15m

102.5p

Solvency ratio (post dividend)*2 194% (2017: 205%)*1	Alternative Performance Measures – refer to the Glossary for definition and explanation.
*2 Unaudited: refer to capital structure and financial position section later in the report for further information.
*3	The Group’s 2017 financial results were reported on an Ogden discount rate -0.75% basis. 2018 reported results reflect the impact of a change in assumption for the Ogden rate
to 0%, with the equivalent results on a -0.75% (Pre-Ogden) basis also included above. Refer to Glossary for further information on the Ogden discount rate.
*4 2018 dividend includes an additional dividend of 11 pence per share relating to the increase in post-tax profits from the change in Ogden discount rate assumption.

Admiral Group has delivered another positive
set of results in 2018: record turnover, profit,
dividend, strong return on capital, strong
solvency ratio and record customer numbers.

PeopleCustomers

Community

Page 06

Page 08

Page 10Admiral Group plc · Annual Report and Accounts 201801

Company Overview

Chairman’s
Statement“On behalf of the Board I would like to thank everyone
at Admiral for their continued hard work andcontribution to the Group’s results in 2018.”
I continue to be impressed by theenergy, dedication and passion shownby all of the 10,000 people at Admiral.

impact on our 2018 profits. Excluding
this our profits would have been slightly
up year on year.

Our focus on customer service, ourdistinctive culture and our contribution
to the communities in which we operateremain at our heart. This has resulted
again in a positive set of financial resultsin 2018.

The Group has continued to grow withturnover increasing by 11% to £3.28
billion. Customer numbers increased
strongly by 14% to 6.5 million.

Admiral is now 26 years old and over
the years has become a much bigger
and more diverse organisation througha strong track record of organic
growth. We remain true to our values
and approach which are as relevant
now as they always have been. We
have a straightforward and highly
focused strategy where we continue toconcentrate on our core market of UK
insurance while taking what we know
to overseas markets where we are now
seeing some encouraging results. At thesame time, we are exploring how we canmake use of our core skills in other areasof insurance and in the personal loans
and car finance markets in the UK.

2018 OVERVIEW
Admiral Group has delivered anotherpositive set of results in 2018: record
turnover, profit, dividend, strong returnon capital, strong solvency ratio andrecord customer numbers. Yet again our
results have been impacted by Ogden(Personal Injury Discount Rate), thistime in a positive way. Following Royal
Assent of the Civil Liability Bill in the
UK Parliament just before Christmas,
the Group has applied a best estimate
assumption for the Odgen rate at 0%,
which has had a significant positive

02

Admiral Group plc · Annual Report and Accounts 2018

The Group’s share of pre-tax profit
increased by 18% to £479.3 million,
heavily impacted by the change in Ogden
rate (assumed 0%). Earnings per shareand return on equity increased by 17%
to 137.1 pence (1% increase to 118.2
pence excluding Ogden impact) and
one percentage point respectively. The
Group’s solvency ratio remains robust at
194% from (205% in 2017).
UK insurance continued to be dominatedby UK Motor where we grew the numberof vehicles we insure by 9% to over 4
million. We have seen some deteriorationin the 2018 loss ratio; this has been
more than offset by favourable claims
development of past years, part of whicharises due to the change in the Ogden
discount rate. We have reduced our
growth in the second part of the year inline with our normal prudent approachand focus on value rather than volume.
We continue to invest resource inimproving our core skills in UK Motor
including investing in technology to
improve our efficiency and the service
we provide to customers supporting thecontinuing shift to online servicing.
Household insurance continues to growbut the result has been impacted byadverse weather and subsidence events
resulting in a loss of £3.0 million forthe year (profit of £4.1 million in 2017).
Turnover is now £146.0 million andproperties insured have increased by
31% to 0.87 million. Customers buy fromus either using price comparison sites(which continue to grow significantly),or directly and, increasingly, using ourMultiCover offering, building on the
success of MultiCar.
Our Financial Services business
continues to grow in both Personal
Loans and Car Finance, with a loans
balance at year end 2018 of £300
million. We continue with our test
and learn approach. The early signs
are positive; we see the potential todifferentiate and expect this to be
an increasingly significant part of ourbusiness in future.
We are continuing to invest in ouroverseas insurance businesses, which
is bearing fruit with reduced losses
overall and our European insurersdelivering overall profits as outlined at
our European investor day in September.
Turnover and customer numbers arecontinuing to grow materially by some
20% and 18% respectively and we now
have £0.5 billion of combined turnoverand 1.2 million customers outside theUK. We remain optimistic in deliveringsignificant long term profit for theGroup. In particular, ConTe has seen
significant growth, now insuring 580,000
vehicles, and increased profits due toloss ratio improvement. At ElephantAuto in the US we have refined thestrategy and are seeing positive loss
ratio development as well as improved
customer loyalty.

Company Overview

Strategic Report

As a result of Brexit, we have established
an insurance company and an insuranceintermediary business in Spain to support
our European operations.
In our Price Comparison (PC) businesses,
Confused in the UK increased revenue andprofits. In Confused, Rastreator and LeLynx,
we continue to invest in a range of market
verticals which are growing well as well as
investing in delivering an improved customer
experience. Our US comparison business,
Compare, has experienced challenging
market conditions impacted by increased
competition for customer acquisition which
pushed up marketing spend in 2018. This isreflected in a £32.9 million impairment of
the carrying value of the Group’s investment.
In addition, our former Admiral CEO, Henry
Engelhardt, and his wife, Diane, entered into
an agreement to invest in Compare and welook forward to having Henry sharing his
expertise as part of the Compare Board.
Our joint venture PC business, Preminen,
continues to explore new opportunities
with operations in Mexico, and more
recently Turkey.

ADMIRAL CULTURE
Our distinctive culture which has been
maintained since launch is definitely worth
a further mention. It is a key part of ourcompetitive advantage which we work
hard to maintain. It can be distilled into thefollowing areas, and is underpinned by a deep
focus and commitment to the customer:• Highly talented team – David Stevens is
an outstanding leader who leads a strong,capable and experienced management
team which engages the whole business.
• Focus – selective diversification building
on our core skills.

Corporate Governance

Financial Statements

Additional Information• Claims management – consistent positive
feedback from customers on the service
they receive.
• Controlled test and learn – organic
growth with measured expansion steps.
• Shareholder returns – we believe in
returning excess capital to shareholders.
Overall we believe that people who
like what they do, do it better.
I have had the pleasure of visiting ouroperations in the UK, France, Italy, Spainand the US along with other Non Executive
Directors (“NED’s”). I have also attended
the annual Staff General Meeting (withapproximately 6,000 people), our annual
management off-site event and the Admiral
Business Club. I continue to be inspired by
the deep commitment of our people to ourculture and serving our customers. In allof these the Admiral distinctive culture
is in evidence; it really is different.
From the moment a new employee
starts at Admiral, they understandour commitment to putting thecustomer at the heart of what wedo – the customer, the customer,
the customer. We do try to do the‘right thing’ and to continue tomake it easier to do business with
us and be there at moments ofneed to provide excellent service.
We are proud to be recognised asa Great Place to Work. We wererecently awarded the Best large
Company to Work For in theUK, as well as the tenth Best
Workplace in Europe and third
in Italy amongst other similaraccolades across the Group.

• Pricing – data analysis lies at the heartof what we do.
• Prudent reserving – continue to hold amaterial margin in our claims reserves.

Admiral Group plc · Annual Report and Accounts 201803

Company Overview

Chairman’s Statement continued
DIVIDEND
Our dividend policy remains that we
distribute each year the available
surplus over and above what we retain
to meet regulatory requirements, thefuture development of our businessand appropriate buffers. The Directors
have recommended a final dividend of
66p per share (2017: 58p) for the year
to 31 December 2018 representing a
distribution of 87% of our second halfearnings and including an Ogden impactof 11p per share. The 66p per shareincludes a normal dividend of 65% of
post-tax profits (49.6p per share) and a
special dividend of 16.4p per share.
This will bring the total dividend forthe year to 126p per share, an overall
increase of 11% . This represents a payout ratio of 92%.
The Group has delivered a Total
Shareholder Return (TSR) of 314% overthe last 10 years (as illustrated in thechart on page 105).

CORPORATE GOVERNANCE
AND BOARD CHANGESThe Board recognises the need fora strong corporate governanceframework and supporting processes
across the Group and believes that good
governance, with tone set from the top,
is a key factor in delivering sustainablebusiness performance and creating
value for all the Group’s stakeholders.
The Board and I feel that the Board
has a good balance of experience,skills and knowledge to support andchallenge the management team andit is supported by effective governanceand control systems.
We will continue to review all aspects
of diversity to ensure that we are well
prepared to guide the Group throughour next phase of growth.
During the year the Board and each of
its Committees undertook reviews of
their effectiveness. The conclusions
from these reviews provided usefulfeedback to each body on its

04

Admiral Group plc · Annual Report and Accounts 2018

performance. Further details areprovided in the Corporate Governance
Report on pages 64 to 87.
Admiral’s incentive schemes remain
distinctive, as our people areshareholders in our business. These
are designed to ensure that decisions
are made by management to support
long-term value growth, that the rightbehaviours are rewarded and that ourpeople’s interests are aligned with thoseof shareholders. Our core belief is thatover the long-term, share appreciation
depends on delivering great outcomesfor our customers. Further details areprovided in the Remuneration Report on
pages 98 to 107.
Colin Holmes stepped down from theBoard at the end of 2018 and I would
like to thank him for his excellent
contribution over the last eight years.
He admirably (pun intended) steered
the Audit Committee and acted as
SID (Senior Independent Director) anda member of the Nominations andGovernance Committee.
During 2018 we welcomed Andy
Crossley (as reported last year), Mike
Brierley and Karen Green. Andy and Mike
became members of the Group Audit
Committee. Andy was also appointed
as a non-executive chairman of EUI
Limited, the UK insurance intermediary;and Mike became the non-executive
chairman of Admiral Financial Services
Ltd (AFSL), the company in which
Admiral’s loans business is written. Karen
became chair of the Audit Committee
effective 14 December 2018. They all
bring substantial financial services
experience. Owen Clarke took over therole as Senior Independent Director andJustine Roberts became a member of theNomination and Governance committee,
both effective end of 2018.
Our focus areas for the Board remain to:• Continue to build on the remarkably
special Admiral culture and in sodoing putting our people, customers
and communities at the heart ofwhat we do;• Continue the history of growth,
profitability and innovation;• Invest in the development and growthof our people – we have focused on
the quality and development of oursenior management team, added
to our talent base by some externalhires, and reviewed our succession
pipeline; and• Ensure excellent governance andthe highest standards.

OUR ROLE IN COMMUNITY
Admiral takes its role in society very
seriously and has an active approachto Corporate Responsibility (moreinformation in the Corporate Social
Responsibility Report on the AdmiralGroup website and on pages 58 to 61).
We are proud to be Wales’ only FTSE 100
headquartered company and employ
over 7,000 people in South Wales.
Our staff play an active part in thecommunities in which we operate.
We carefully consider our impact on
the community and environment,
including factors such as the green
credentials of our buildings, raisingfunds for multiple charities, andconsidering the impact of climatechange across the business.

THANK YOUOn behalf of the Board I would like tothank everyone at Admiral for theircontinued hard work and contribution
to the Group’s results in 2018. I would
also like to thank our shareholders fortheir support and confidence. Most of
all I would like to thank our customers
for placing their business with us.

Annette Court
Chairman
6 March 2019

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Customer, Customer, Customer…
SIMPLY PUT, WITHOUT OUR CUSTOMERS WE WOULDN’T HAVE A BUSINESS, SO BELOW ARE
A SELECTION OF HIGHLIGHTS FROM OUR CUSTOMERS FROM THE PAST YEAR.

Going above and beyond in Claims
Our Group CEO, David Stevens, received anemail from a customer recently highlighting
the fantastic service she received from
Nigel in Claims Service. Our customer wasgoing through an extremely difficult time athome where her father had become ill andhad entered end of life care. This was thencompounded by her vehicle being stolen.
Nigel recognised that this customer neededsome extra care and attention. He took it
upon himself to expedite his investigations
and see the claim through to the settlement
stage, something not required of him, but
in the circumstances, he recognised that
this customer needed her claim process
to be made as smooth as possible. He hadmanaged to arrange settlement in less than
25 hours. He also arranged for some flowers
to be sent to our customer sending all of
Admiral’s best wishes at the difficult timethey were going through. Fantastic work
Nigel, thank you!

The customer said: “Nigel should berecognised for the way he dealt witheverything. I never had any concerns that hewouldn’t do what he said, he certainly madeeverything easy at such a difficult time. I
cannot thank Nigel and Admiral Insurance
enough and will certainly be recommending
Admiral Insurance to family and friends.
His manager told me this level of service istypical of Nigel and nothing short of what
he does with any of his claims.”

Good customer service extends to our
new brands as well
We had some outstanding feedback from a
car finance customer this year. She praised
one of our agents, Gurdav, and wanted toexpress how patient and understanding hehas been with her. She explained that she
found it quite emotional having to apply for
finance as she was getting rid of a car which
she had an emotional attachment to as shelost her close friend and took the car overfrom her. She said that Gurdav listened toher patiently and even though the customer
started crying, he cheered her up by stating
what a good friend she is and that the new
car can be in her friend’s memory. The
customer will recommend Admiral to all
her friends and was also delighted as we
originally offered her a great rate on our
finance product.

Setting the standard in the industry
Over 1,600 cars were destroyed on New
Year’s Eve 2017, in a car park in Liverpool. Not
surprisingly, being one of the largest insurers
in the UK, we received a large number ofclaims from customers caught in the blaze.
Thankfully no one was seriously injured, but
the impact on customers was severe.
As a market leader in customer service, wewaived the excess and allowed No Claims
Bonus on every single one of these claims
and we have settled almost all the claims inrecord time.

Admiral Group plc · Annual Report and Accounts 201805

Our Culture“People who like what theydo, do it better”: this belief is
integral to our culture. We havecreated an environment where
Admiral employees look forward
to coming to work and providing
great service to customers. We
encourage our people to get
involved in innovation, proactively
improving our processes, services
and working environment. As
responsible employers we aim
to create an inclusive working
environment and support our
staff wherever possible.
This is underpinned by our
Four Pillars:

06

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

95

Financial Statements

Additional Information%of employees believe
this is a friendly place
to work

COMMUNICATIONEQUALITYFUN

In any organisation, clear communication
is vital, and to ensure this we promote
open-plan workplaces and constantcommunication and interaction acrossteams and departments: it’s little things
like this can really help break down thebarriers and encourage teamwork and acollaborative environment.

Being different is what makes us special;
we’re proud to represent people of all
genders, sexual orientation, ethnicities,
and abilities, and are always working
towards improved representation
throughout the Group. Overall, theGroup gender split is improving, andwe continue to promote diversity at all
management levels.

We work hard, but also encourage ourstaff to have fun, allowing a balanced work
environment that builds strong cohesion
among colleagues, and improves morale
all round. In fact, we feel that this is so
important, we’ve even got our own
Ministry of Fun!

Board composition since 201012

Employee
Gender9
6
3

Male
Female
2017

2018

2016

2014

2015

2013

2011

0
2012

We firmly believe that a job well done should
be appropriately rewarded, be it with adepartmental awards ceremony, the award
of additional shares, or even just a simple‘thank you’. Without the hard work anddedication of our staff, we wouldn’t be where
we are today. All of our staff receive shares in
Admiral - everyone owns part of the businessand every job is important and impacts
their returns. The share scheme provides
an incentive for strong performance, andpromotes collaboration towards building a
profitable and innovative business.

2010

REWARD AND RECOGNITION

Male – 49%

Female – 51%

253,241 698
online courses
completedclassroom sessionsdelivered by Academy

Admiral Group plc · Annual Report and Accounts 201807

Our Culture

Customer, Customer,
Customer… We value
customers above anythingelse. We work hard so that ourcustomers are able to get themost suitable products fortheir specific needs and canrely on us to be there for themwhen things go wrong.

08

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

98%of customers
would buy again1

CUSTOMER SERVICECOMMUNICATIONPEACE OF MIND

We set ourselves the highest standards
for customer service and always look
to improve. Regular, in-depth customer
feedback, a committed Customer Assurance
department, and highly-skilled Customer
Services representatives all go together
to deliver the best possible service. Withfrequent quality checks and a dedicatedtraining department, our staff are always
supported to give high quality care.

Accessible, clear, and formatted to meet therequirements of each individual: our approachto communication reflects our broader
commitments to our customers, ensuring
they know exactly what to expect should
they ever need to make a claim. What’s more,
we provide a wide range of platforms for ourcustomers to stay in touch with us, including
through Facebook chat, webpage chatbots,and a dedicated customer portal to keep it
green by going digital rather than relying oncarbon-intensive post.

People buy insurance with the hope of never
having to use it, but in an emergency, wewant reliable, efficient service and firm
emotional support. This is an integral partof the overall customer experience, and it’swhat we’re committed to delivering acrossthe Group.

96

96.3

74

%

of customers were
happy with their service2%

average call answer
rate3

1

Average Reevoo score for 2018, based on 42,834 responses

2

Based on 17,755 responses

3

For UK-based Customer Services

seconds

average waiting time for a
Customer Services call

Admiral Group plc · Annual Report and Accounts 201809

Our Culture

Our people play an activerole in deciding who we help
and how – after all, who
understands the needs ofthe community better thanthe people themselves?
As a global businessemploying over 10,000
people, we feel even moreso that it’s our responsibility
to give something back to
our local and global
community; what’s moreis that we feel proud to
do so.

10

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

COMMUNITY CHEST
It’s often said that charity begins at home, andwith our Community Chest, we aim to provide
the necessary funding that can breathe life
into all manner of community projects. As
applications are submitted by staff who are
personally involved in all manner of projects,
from drama groups to sports clubs, we can becertain that our funding is being spent where
it’s most needed.

Corporate Governance

Financial Statements

by providing CV workshops, careers talks,
and work experience to schools, local job
centres, and Prince’s Trust beneficiaries
from time to time.

GREEN ADMIRAL

Sometimes charity takes the form of timeand expertise. We’re proud to say that wehelp those in search of a career or
who want to make their own way in life

We’re committed to reducing ourenvironmental impact in any way we can, and
our Green Team meets regularly to discuss
this. Examples include an energy-conscious
approach to choosing new premises, retrofitting energy-saving devices in our existingbuildings, reducing non-recyclable cutlery
and cup use in our offices. For further
information on our efforts, please see
pages 58 to 61.

0.39£156,415

HELP TO WORK

tonnesC02e per employee

100%

reduction in waste sent
to landfill since 2017raised by our 2018 Million
Makers team

£400,000

Additional Information

COMMUNITY ENGAGEMENT
People really are at the heart of what wedo, and if we can get involved, we’re glad todo so. Teams are encouraged to undertake
community projects as part of their teambuilding activities and fun afternoons forexample, the Recruitment team recently
spent the day at a residential care home in
Bridgend with an entertaining array of songand dance for residents, as well as helping
out where possible.
Brightening the livesof children with life
limiting illnesses

Supporting cancer carefacilities and charities
in the Cardiff, Swansea,
and Newport areas£100,000£100,000£100,000£100,000

Improving the
lives of vulnerable
elderly people

Helping homelesspeople in Cardiff,
Newport and Swansea

to be spent by the new Ministryof Giving over the next 2 years

Admiral Group plc · Annual Report and Accounts 201811

Strategic Report

Group at a Glance
Admiral Group is one of the UK’s largest andmost recognised car insurance providers,with market leading financial results.
What we do
UK Insurance
International Car Insurance
Price Comparison

6

Loans
See more on page 14510,800staff employed globally

12Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Where we work
Admiral offers car, van, household and travel insurance in the UK
and the Group includes Confused.com, a leading price comparison
website. Outside the UK, Admiral owns four insurance and several
price comparison businesses.

1
2
4

3

7

1. UK

2. France

4. Spain

6. Canada

AdmiralBell
Diamondelephant.co.uk
Confused.com
Admiral Household
Gladiator
Admiral Law
BDE Law
Admiral Loans
Admiral Van
Admiral Travel

L’olivier – assurance auto
LeLynxHomebrella

Balumba
Qualitas Auto
Rastreator
Seguros.es

Admiral3. Italy
ConTe

5. USA
Elephant Auto
Apparent
compare.com

7. India
Admiral Solutions
Admiral Technologies
GlobalPreminen

Admiral Group plc · Annual Report and Accounts 201813

Strategic Report

What We Do

6.51m
Customers (2017: 5.73 million)

The Admiral Group has five insurance
and several price comparison operations.
It has over 6 million customers andemploys over 10,000 staff.
UK Insurance

CUSTOMERSTURNOVER

NET INSURANCEPREMIUM REVENUE

UK Motor Insurance

UK Household Insurance

Admiral is one of the largest
car insurers in the UK.

Admiral has a growing UK
household insurance business.

4.32 million

0.87 million(2017: 3.96 million)(2017: 0.66 million)£2.42 billion£146 million(2017: £2.25 billion)(2017: £107 million)£453 million£31 million(2017: £433 million)(2017: £23 million)

UK Motor
Insurance review

UK Household
Insurance review

Read more on page 33

14Admiral Group plc · Annual Report and Accounts 2018

Read more on page 38

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

3.28bn £1.26bn£

Turnover (2017: £2.96 billion)

Net Revenue (2017: £1.13 billion)

International
Car Insurance

Price Comparison

Other Group items

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

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

Admiral Loans and other costs(including share scheme changes,
finance costs and businessdevelopment costs; such as
investments in Preminen’s ventures).

1.22 million

22 million quotes£300 million(2017: 1.03 million)(2017: 22.9 million quotes)

Loan Balances (2017: £66 million)£539 million£151 million£15 million(2017: £450 million)

Revenue (2017: £144 million)

Total Interest Income (2017: £1.6 million)

Price Comparison
review

Other Group Items£142 million(2017: £123 million)

International Car
Insurance review
Read more on page 40

Read more on page 44

Read more on page 48

Admiral Group plc · Annual Report and Accounts 201815

Strategic Report

Business Model
How we do it
Purpose Statement
Admiral Group’s purpose is to provide:• Good value financial products toour customers• Excellent and convenient service
to all customers• A great place for our people towork• Good returns for our shareholders
over time

What sets us apart
GREAT PLACE TO WORK
We go out of our way to make this a GREAT place to work andbelieve that if people like what they do, they’ll do it better. We havecreated an environment where Admiral employees look forward tocoming to work and providing great service to customers.

EFFICIENT CAPITAL EMPLOYMENT
Sharing risk with co- and reinsurance partners is an important partof Admiral’s business and these relationships are underpinned bystrong underwriting results. Sharing risk allows Admiral to only
provide capital backing for a minority of its business; this results
in a superior return on capital for Admiral shareholders whilst also
providing protection for losses.

SHAREHOLDER RETURNS

What we do• Motor, household, travel insurance• Price comparison• Personal Loans and Car Finance

We are committed to returning excess capital to shareholders.
We believe that keeping management hungry for cash keeps themfocused on the most important aspects of the business. We don’t
starve our businesses, but neither do we allow them the luxury ofexcess capital.

TURNOVER BY DIVISION

FOCUS ON PROFITABILITY

UK Insurance

78%

International insurance

16%

Price Comparison

5%

Other Group Items

1%

Admiral continues to focus on bottom-line profitability both in
the short, medium and long term, and this perspective guides
the decisions we make across all of our business operations. The
Group’s strategy is to build profitable and sustainable business
operations for the long term.

CONTROLLED TEST & LEARN

Total Turnover£3.28bn

All our growth, at home and overseas, has been organic. We
have built each business from the ground up, identifying andunderstanding the opportunity, taking measured steps to test how
well we understand the challenge ahead and the effectiveness ofour solutions, and then to learn from that experience and from theexperience of those who have tried other strategies.

Satisfied and
16Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Every day revolves around attracting, keeping and satisfying customers.
We value customers above everything else and strive to design productsthat customers want and that represent value for money.

How wemaximise value

Motivated Employees
Great place to work for employees

Risk Mitigation
Attractive returns for shareholders

Voted

Voted

No.1

56%

126p

98%

£156,000>9/10

best large
company towork for in UK

Return on
equityFocusedManagement Team
Value for money products andexcellent customer service

Dividend

Sustainable Operations
Charitable giving and volunteeringin the local community

Effective Solutions

raised forMillion Makers(Princes Trust)customers
would buyagaincustomersatisfaction
score following
a policy change

Valued loyal customers
Admiral Group plc · Annual Report and Accounts 201817

Strategic Report

How We Do It – Our Strategy
We have a clear strategy to achieve our goal of building profitable
and sustainable business operations for the long-term.
2018“Our strategy is simple: to continue to progress in the UK car insurance
market while taking what we do well to new markets and products:
keep doing what we’re doing, and do it better year after year.”David Stevens, CBE – Group Chief Executive Officer

Investing in our Core
Sustained Competitive Advantage
OBJECTIVE

2019 FOCUS

Maintain our focus on efficient claims management
and pricing to underwrite profitable business, a cost
conscious culture and great customer service.

Maintain strong performance of our UK Insurance business.
Respond to market conditions through effective pricing
and growing at the right time.
Continue to be an efficient business with a focus on
expenses and costs.

Continued Growth
OBJECTIVE

2019 FOCUS

Grow profitably our UK private Motorand Household insurance operations.

Continue to take advantage of growth
opportunities in UK Motor and Household.
Focus on customer retention by putting
customers at the front of all that we do.

Continued Development
OBJECTIVE

2019 FOCUS

Maximise the value of our core business andlay the foundation for future growth.

Identify and develop new products for customers
that add value.
Take advantage of new technologies to improve
our customers' experience.

18

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

2008“Our strategy is simple: continue our profitable growth in the UK and take what
we know and do well and do it elsewhere.”
Henry Engelhardt, CBE – Admiral Co-Founder

Investing in our Future
Price Comparison
OBJECTIVE

2019 FOCUS

Develop websites that allow consumers tocompare a range of general insurance,
financial services and other products.

Continue to develop and grow a multi-productstrategy in Europe and beyond.
Continue to provide a platform that attracts
customers and improves the customer experience.

International Insurance
OBJECTIVE

2019 FOCUS

Develop profitable, growing, sustainable
insurance businesses that mirror the UK model.

Pursue our path towards long term value
creation in Europe and the US.
In the US, continue to drive towards a lower
expense ratio and higher retention customers.

UK New Products
OBJECTIVE

2019 FOCUS

Develop a competitive advantage
in products beyond insurance.

Develop Admiral Loans and offer UK customers better
products and a better online buying experience.

Admiral Group plc · Annual Report and Accounts 201819

Strategic Report

Chief Executive’s 17% 31%
Statement
UK Motormarket share

I think a CEO statement should try andtake the long view; try and help readers
understand things happening during a yearthat are often trivial in terms of that year’s
financials, but may be fundamental to thecompany’s long-term health and prosperity.
There’s been a lot going on in 2018 that
qualifies as short-term financially trivial,
but long-term potentially fundamental, so
I can only give you a flavour and will do soby telling the tale of two cities, two Admiral
cities: Madrid and Cardiff, and some of what
happened in each during 2018.

MADRID
Brexit Preparation
A substantial and effective collective effort
by the Group and the Spanish regulatory
authorities, saw us set up a structure that isrobust in the face of any Brexit eventuality(or at least, any eventuality reasonably
envisaged at the time of writing !) both forour “EU” price comparison operations inFrance and Spain and for our “EU” insurers
in France, Spain and Italy. This was achieved
with near zero disruption to, or loss of, anyof our now over a million policyholders
across France, Italy and Spain. The 2018
P&L cost of circa €3.5 million, is a relatively
trivial investment to protect the long-termvalue being created in our now profitable
EU ventures.

Customer First Price Comparison
Rastreator, our 75% owned, Madrid-based
market leader in price comparison in
Spain, took the bold decision to shake up amarket it largely dominates for the goodof their customers, and ultimately all of
their stakeholders. Panel participants had
increasingly sought to “game” the system byquoting approximate, and normally overly
optimistic, prices, to Rastreator’s customers
and then upping the premium during theacceptance process. Although this madethe prices look attractive, it was eroding
customer trust and not delivering on thefundamental price comparison promise of
making shopping easy and efficient.

Rastreator responded by literally
demoting “approximate” prices andpromoting accurate prices on the pricepage, in a transparent and customerfriendly way. The change, introduced
late in 2018, saw customer satisfaction
scores rise immediately and substantially.
The P&L impact in 2018 was marginallynegative, but the bold move holds out thelong-term possibility of a step change incustomer trust and ultimately in the speedof adoption of insurance price comparisonin Spain.

CARDIFF
It’s hard to choose what to highlight in
Cardiff, the location of our headquarters
and 4,000 of our almost 8,000 UK staff. The
launch of travel insurance, the growth of
Veygo, (our short-term insurance brand),the expansion of MultiCover, our car andhome combined policy, were all options,but instead I choose “Ford” and “The
Admiral Brand”.

Ford
Late in 2018 we signed our first material
affinity partnership to provide Admiralserviced and underwritten car insurance
under someone else’s brand name: Ford’s.
Why? Partly because 13.6% of UK
motorists drive a Ford and, while big
believers in the cost-efficiency of
distribution via price comparison sites,
we also value a degree of “distribution
diversity”. Partly because we believe wecan work with Ford Credit more broadly
and creatively - to ensure better insurance
and claim management outcomes for bothAdmiral and Ford customers.
The 2018 costs of securing the affinity
partnership were in the hundredsof thousands and there will be an IT
investment of around £1 million in
2019. Long-term return - a possibly
fundamentally important and valuablestrategic affinity partnership.

The “Admiral” Brand
During the course of 2018, Admiral Groupcrossed the threshold of four million cars
on cover in the UK, and more than fivemillion cars, vans and houses on cover. The
vast majority of these policies are, and willcontinue to be, under the Admiral brand.
Our brand is, in many ways unobtrusive.
Our ads are visible, but not omnipresent.
They’re unlikely to win industry creativity
awards. And yet, over 90% of customers
have heard of Admiral and preference(“which single insurer do you prefer?”) is up
30% for car insurance and over 100% forhome insurance, over the last 3 years.
Our continued investment in maintaining
and building our brand in 2018 was around£10 million. Had we cut that spend, mostof that £10 million would have fallen to thebottom line, given the lag between cutting
spend and a brand withering away. But“Admiral”, one of the UK’s most recognised
financial services brands, is an asset worth
investing in for the long-term.
So that’s an Admiral 2018 take on a Taleof Two Cities; a tale of investment for the
future in Cardiff and Madrid, and acrossthe Group. Whether, in investment terms,
2018 proves to be “the best of times”, an“age of wisdom”, a “spring of hope”, (toquote, very selectively, from the justifiably
more widely read original “Tale of Two
Cities”), will only become fully apparent
with the progress of time, but I’m fairly
confident that many of this year’s
investments will bear long-term fruitfor our customers and shareholders.
It’s certainly a far, far better thing tohave made the investments than not
to have made them.

David Stevens, CBE
Chief Executive Officer
6 March 201920

Admiral Group plc · Annual Report and Accounts 2018

Growth in
UK Household
customers

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

In the past I’ve outlined my priorities, which I indicated would
be my priorities for a number of years to come. Here’s how weare doing...

ENSURE ADMIRAL REMAINS ONE OF,
IF NOT THE, BEST CAR INSURERS IN THE UK
Progress in 20182019 focus

Number one car insurer in the UK

Maintain our lead in cost efficiency,
rigorous risk selection and effective
claims management by continuing
to identify improvements in our
approach and operations

Market leading combined ratio
Voted Best Motor Insurance andBest Insurance Provider in the
Personal Finance Awards 2018/19
by UK consumers
Leading telematics provider
New products include short term
insurance and partnership with Ford

Improve online self-service options
for customers
Maintain our culture of providing
excellent customer service

DEMONSTRATE ADMIRAL CAN BE A
GREAT CAR INSURER BEYOND THE UK
Progress in 20182019 focus

European insurance first everprofit and growth to over1 million customers

Continue the overall long term
strategy of building sustainable,
profitable businesses

Improvements in digital andself-service offering for customers

Build on synergies across theEuropean insurance companies

Elephant grew to over 200,000
vehicles in force

Elephant continues to focus on
higher retaining customers andimproved combined ratio

DEVELOP SOURCES OF GROWTH AND
PROFITS BEYOND CAR INSURANCE
Progress in 20182019 focus

Household insurance grewto over 800,000 customers

Grow the UK Household and Loansbusinesses with a focus on thelong-term objective of developing
sources of competitive advantage

Growing Loans business in UK
Launched Household insurance
in France

ENSURE ADMIRAL STAYS A GREAT PLACE TO WORK
Progress in 20182019 focus

Only company to be named in
Sunday Times Best Companies toWork For since inception in 2001 –1st in 2019

Continue to respond to staff
feedback and continuously improve

Voted 10th Best Workplace inEurope
3rd best large employer for womenin the UK
Over 10,000 staff received sharesin the businessOver 250,000 online courses andalmost 700 classroom training
sessions completed by UK staff

Continue our focus on profitable
growth in which all our staff also
benefit through the share scheme
Build on our strong track record ofencouraging diversity across theCompany
Continue to develop our people
by offering exciting new career
opportunities
Ensure our people enjoy coming
to work

Admiral Group plc · Annual Report and Accounts 2018

21

QA

David
Stevens&with David, Cristina, Milena and Geraint“Our people are shareholders in the business, and are highly
motivated to improve processes, better serve customers,
as well as maintain a culture of cost efficiency.”

Q

What happened with UK motor
market pricing in 2018 and what is
the outlook for 2019 - do you expect aturn in the cycle?

A

Cristina: The 2018 motor pricing
outlook was influenced by uncertainty
on the Civil Liability Bill as well as higher
than expected claims inflation, particularlyin the latter part of the year. The Civil
Liability Bill gained Royal Assent in
December 2018, providing increased
certainty for a change in the Ogden rateduring 2019.
After a decrease in market prices in thefirst half, we saw prices turning in thesecond half of the year as a result of claims
inflation. These price increases are likely
to continue into 2019 assuming current
market conditions. Admiral followed ourdisciplined underwriting approach and kept
rates flat in the first half of 2018, and thenincreased price ahead of the market in thesecond half of 2018, which led to a slower
growth rate in the second half.

Q

How will Admiral maintaina competitive edge in theincreasingly competitive UK Motor
market?

A

Cristina: The UK market continues tobe competitive, with more rational
players entering over the past few years.
This has led to a more stable market, whichis good for consumers. Almost 50% of themarket consists of direct, listed players

22

Admiral Group plc · Annual Report and Accounts 2018

which contributes to strong performanceand a more rational approach. However,there is still a large degree of inefficiency
in the market as a whole which allows foropportunity to disrupt and grow. Whilst ourcompetitors grow, Admiral does not reston our laurels – we are always challenging
ourselves to find ways to improve, innovateand better serve our customers.
The Admiral MultiCover proposition allows
customers to purchase multiple insurance
products for their household in one go –this allows for a more seamless customer
journey, and generally optimal price as they
add more products. Hence, customers get a
discount and want to stay with us for longer.
Admiral continues to strengthen its
underwriting advantage throughimprovements in pricing and analytics,
and pursuing market-leading claims
management practices. Our Claims teams
are encouraged to innovate through a test
and learn approach, making incremental
improvements regularly.
Our people are shareholders in the business,
and are highly motivated to improve
processes, better serve customers, as wellas maintain a culture of cost efficiency.
Although an intangible measure, I am
confident that this underlying culture hasa large impact on the way we operate andultimately contributes to the bottom line.

Q

The internal model is taking longer
than expected – can you provide
an update on why and when you expect
to finalise and move to your target
Solvency 2 ratio?

A

Geraint: One of the key objectives ofusing our own model is to calculate acapital requirement that better reflects
Admiral’s risk profile than the standard
model allows for. Thanks to the huge effortsof our team, we made good progressover the past year but we need to further
enhance our application before formallysubmitting it to the regulator. The continued
growth of the Group and additional
complexity is also leading us to reconsider
the model scope, potentially bringing morebusiness beyond purely UK motor within it.
Therefore we won’t make a formal
application in 2019 and will possibly not
submit it in 2020. We will update further indue course when we have greater certainty
around the timing.

Q

Elephant sharpened its focus
in 2017 – how is this approach
progressing, and when can we expect it
to reach profitability?

A

David: The Elephant team continues
to pursue the long-term goal ofa sustainable, profitable business. To
this extent, Alberto Schiavon, ElephantCEO, and his team have been focused onstrengthening the business over the past 2
years. The team has focused on attracting
and retaining customers that are typicallymore loyal and improving the combined

Company Overview

Strategic Report

Corporate Governance

Cristina
Nestaresratio. Early signs of this strategy are positive –persistency has improved by 24%, from 2017 to2018 and the loss ratio in Texas is better thanthe market benchmark. In addition, the businesshas improved its digital capabilities allowing forincreased self-service and an improved customer
experience. This, together with a continued
investment in growth to achieve the benefits ofscale, has resulted in an improved expense ratio.
So overall, I would say the business is making
good progress towards sustainable scale which
will be necessary to reach profitability.

Q
A

What is the potential of the European
operations?

Milena: The European operations achieved
an important milestone in 2018 – overallprofitability for the first time. ConTe wasprofitable for the fifth year, Spain close to
breakeven, and France still loss-making but
growing to achieve scale. ConTe, in particular,
had a strong result due to positive market
conditions and strong loss ratio performance.
In Spain and France, the businesses continue
to grow with improvements in loss ratio andpositive growth. Building on strong foundations
for loss and expense ratio advantage in thesemarkets, as well as having a very strong andexperienced management team, I believe they
are well on their way to produce meaningfulprofits for Admiral in the next 5 years.

We have placed particular emphasis on
strengthening the operations as a whole andtaking advantages of potential synergies aswell as transferring skills and knowledge.
Examples include establishing an IT team in
Spain that provides support for all European
operations, and the transferring of anti-fraud
expertise developed in Italy to the Frenchand Spanish operations which has resulted inmeaningful improvements. In addition, thenewly licensed insurance company in Spain
which underwrites all European operations as
a result of Brexit, should allow us to further
maintain strong governance and increase
cross-European collaboration.

Financial Statements

Additional Information

MilenaMondini deFocatiis

Geraint
Jones

Q

Compare.com saw an impairment in2018 – does this mean that Admiral has
been unable to crack the US market for pricecomparison?

current customer base – a large proportion of
personal loans are taken out to buy cars, and webelieve there is also the opportunity to build a
car finance business.

David: The US market environment has
taken an interesting turn over the past
18 months – combined ratios have improved,
resulting in increased growth aspirations for
insurers. Positively, this has resulted in moreinterest by insurers to join the Compare.com
panel. Negatively, the slowdown in insurer
price increases means consumer shopping
has waned somewhat, while insurers haveincreased competition, and thus costs, inacquisition channels used by compare.com. This
directly affects compare.com as a leading pricecomparison business in the US. This pressure on
marketing spend has resulted in a similar loss
to 2017.

Admiral Loans continued to grow strongly in
2018, with loans balances increasing to £300
million from £66 million at the end of 2017.
We maintain a prudent approach to growthand continue with a test and learn philosophy,
growing where we see opportunity andslowing growth at less optimal times; we havemoderated growth in the second half of 2018 inadvance of Brexit. Early signs for the loans bookare positive, but we continue to remain prudent
in our approach as we build up experience.

A

We believe there is potential for pricecomparison to disrupt the US market and being
an early mover is an advantage – however, itremains a challenging market with consumers
taking time to shift towards this channel.
As a result of the more challenging market
environment, we have revised our businessplan and also impaired the carrying value ofCompare.com in the parent company balance
sheet by £32.9 million.

Q

How is the loans business doing? Why
develop a Loans business, which seems
so different to motor insurance?

A

Geraint: The Loans market is large, with a£25 billion of new business per annum forpersonal lending alone and so I would be happy
if we were able to successfully capture evena small proportion of this market. How will wecompete? Well, we hope to transfer some of thecompetitive advantages we have built throughmotor insurance and adapt them to the lending
business. These include our skill at risk selection,
digital customer acquisition, excellent customer
service and expense efficiency. In addition, we
hope to take advantage of any overlap from ourQ

Is Admiral able to continue to succeedin the core business without being
distracted by diversification?

A

David: Admiral follows a strategy of focuseddiversification. We believe there is an
opportunity to use the competitive advantages
we have developed in UK Motor to build otherbusinesses both in the UK and internationallythat can add further value to Admiral and ourshareholders. We follow a prudent test and learn
approach, without investing a large amountof cash or resources upfront and work with arange of partners to further manage the risk –understanding the opportunity, taking measured
steps to understand the challenge and theeffectiveness of our solutions, and then learningfrom that experience and the experience of
those who have tried other strategies.
This approach, together with having a verystrong and competent leadership team in
our international operations as well as new
ventures such as Admiral Loans, means that theleadership team are able to focus on the rightthings at the right time. UK motor continues
to be the driver of our profits and hence still
remains the key part of our focus and strategy.

Admiral Group plc · Annual Report and Accounts 201823

Strategic Report

Chief Financial
Officer’s review“ConTe deserves a special mention, with a year full of celebration – its 10th birthday
party, 3rd best place to work in Italy, and importantly a fifth year of profitability.”
2018 V 2017
Our financial result has, once again (see 2016’s Annual Report), been significantly
impacted by a forthcoming change to the UK Personal Injury Discount Rate (theOgden rate). To try and explain what’s happening behind the very positive headline
numbers, I’d like to start my review by setting out some analysis of the underlying
changes between 2018 and 2017.
2018 0%
Ogden

Ogden
impact2018 -0.75%
Ogden

2017

Change

555.6

70.4

485.2

465.5

+19.7

International Car Insurance

(1.1)

–

(1.1)

(14.3)+13.2

Price Comparison

8.8

–

8.8

7.1

+1.7

£m

UK Insurance

Admiral Loans(11.8)–(11.8)

(4.4)

(7.4)

Other

(72.2)(4.4)(67.8)(48.5)(19.3)

Group pre-tax profit

479.3

66.0

413.3

405.4

+7.9

OGDEN
Full detail on the partial reversal of
Ogden is set out on page 27 of thisreport, but in brief, the passing of the
Civil Liability Bill into law in December
2018 means that our best estimate ofthe discount rate used in the settlementof large injury claims is no longer minus
0.75% (the new rate will be confirmed byearly August 2019 at the latest).
We have therefore revised thosebest estimate UK Motor reserves
to be on a 0% Ogden basis, which
would ultimately lead to a benefit ofbetween £120 million and £140 million(pre-tax). There’s fair chance the final
rate isn’t exactly 0% of course but wethink it’s a reasonable estimate basedon the information published by thegovernment to date. As shown above,
2018’s profit is £66 million higher asa result of the change and much of
the balance (plus or minus any impactof the actual rate when that comes
if it’s different to 0%) will flow into24

Admiral Group plc · Annual Report and Accounts 2018

results over the next couple of years(as 2018 premium is earned and profit
commission recognised). We’ve also set
out sensitivities to rates around 0% on
page 35.
Beyond Ogden, the main changes
between 2017 and 18 were:• Underlying (i.e. pre-Ogden benefit) UK
Motor profit was up 2% from 2017; dueto a larger book and positive prior year
claims development offset by higher
current year loss and expense ratios;• Despite continuing to grow turnoverand customer numbers (both up by
more than 30%), the UK Household
result was impacted (particularlyin the first half) by severe weather(freeze and subsidence, costingaround £11 million). The full year
result was a loss of £3 million (H1 loss
was £2 million, 2017 full year profit£4 million);• ConTe in Italy led the way to a highly
pleasing close-to-break-even overall
result for our International Insurance
businesses – a significant £13 million
or so improvement on the previous
year. All businesses improved theirresults and there was continued
strong growth;• Confused was the standout performer
in Price Comparison, producing a
profit more than 40% higher than2017 (£14 million) and around 10%
top line growth. The overall Price
Comparison segment result was£9 million, £2 million up on last year
(also read page 47 for information on
the write down in the carrying valueof compare.com);• Admiral Loans made a pre-tax loss of£12 million, in line with expectation(the loss mainly results fromacquisition costs which are expensed
immediately whilst revenue isrecognised over the life of the loans)
after a year of strong growth; and• ‘Other’ costs (including share scheme
charges, debt interest, central
overheads amongst others) werearound £19 million higher than 2017.
The main reasons were:– Share scheme costs +£14 million– a combination of a) a change in2017 in the period over which the
charge is spread which reduced
2017’s charge; b) a higher scheme
vesting resulting from thesignificantly higher 2018 profit
and strong shareholder returns inrecent years; and c) the impact ofgrowth in the number of awards
in recent periods (which is notexpected to increase further).

Company Overview

Strategic Report– Central overheads +£5 million –mainly a result of £3 million of nonrecurring Brexit-related costs.
The proposed full year dividend for 2018is 126.0 pence per share – 11% higher
than 2017’s payment. The increase ismainly because of the payout in respectof the Ogden profit benefit (around £31
million, 11 pence per share). The postdividend solvency ratio remains strongat 194%.

2018 RESULTS HIGHLIGHT
As noted above, 2018 saw continued
improvement in the combined result of
our International Insurance operations.
At the end of 2015 those businesses hadaround 670,000 customers and recorded
a full year loss of £22 million. By theend of 2018, customer numbers had
increased by over 80% to more than 1.2
million, with a very small loss of around£1 million recorded for the year. Great
progress across the board.
ConTe deserves a special mention, witha year full of celebration – its 10thbirthday party, 3rd best place to workin Italy, and importantly a fifth year of
profitability. The strongest driver of theresult is positive loss ratio performance,
both on the current and back years.
The ConTe team continues to work hardon all aspects of building a growing,
sustainable, profitable business –improving the customer experience,
reducing the expense ratio (it’s alreadyin line with the market), refining
antifraud capabilities, building brandawareness, and advancements in
self-service and automation. ConTe’s
600,000th customer came on cover inlate February 2019.
Great work everyone at ConTe!

Corporate Governance

ADMIRAL GROUP INTERNAL MODEL
We previously communicated that we
hoped to apply to the Group’s prudential
regulator (the PRA) during 2019 forapproval to use our own internal model
to calculate the Group’s solvency capitalrequirement. Whilst we continue towork intensively on all aspects of themodel and, thanks to the huge effortsof our team, made good progressover the past year, we need to further
enhance our application before formally
applying. The continued growth of
the Group and additional complexity
is also leading us to reconsider themodel scope, potentially bringing morebusiness beyond purely UK Motor
within it. This means we will not submit
the formal application in 2019 and will
possibly not submit in 2020. Hence,
the Group will remain on the standard
formula plus capital add on basis for theimmediate future.

Financial Statements

Additional Information

I’m hugely grateful for the work of
everyone involved - the cooperationof multiple regulators; the invaluable
support of numerous advisers. But themain thanks go to our teams – in Spain,
Italy, France, Gibraltar and the UK for all
the significant effort, commitment anddetermination shown over the past year
and a bit on what was a very ambitious(and at times seemingly impossible)plan. Amazing result and thank you all!

Geraint Jones
Chief Financial Officer
6 March 2019

Whilst disappointing to see a further
delay, it’s clearly important to makesure our application is complete andwe’d hope to be much clearer on the
expected timeline by the end of theyear.

BREXIT
I’d like to finish with Brexit (wouldn’t
we all). In late 2017 we started
restructuring our European businesses(three insurers, two price comparison
websites) so they could continue totrade regardless of the politics
and ultimate Brexit outcome.
I’m glad we took that course
and as of January 2019 allbusinesses are operating underEuropean licenses and we weresuccessfully able to negate
any impact on our customers
or staff.

Admiral Group plc · Annual Report and Accounts 201825

Strategic Report

Group Financial Review
2018 GROUP OVERVIEW
£m

2018

2017

2016

Turnover (£bn) *1

3.28

2.96

2.58

Net insurance premium revenue

671.8

619.1

548.8

Investment return (Insurance)

33.8

33.2

40.2

211.2

177.7

79.7

Underwriting profit*1
Investment return (Other)

2.9

8.5

13.0

Profit commission

93.2

67.0

54.3

Net interest income (Admiral Loans)

10.7

1.2

–

Net other revenue and expenses (Insurance)

253.0

207.6

185.4

Net other revenue and expenses (Non-Insurance)(83.5)(47.1)(42.6)

Operating profit

487.5

414.9

289.8

Group Statutory profit before tax (Ogden 0%)

476.2

403.5

278.4

Group’s Share of profit before tax*1 (Ogden 0%)

479.3

405.4

284.3

Group’s Share of profit before tax*1 (Ogden – 0.75%)

413.3

405.4

284.3

UK Insurance

555.6

465.5

337.8

International Insurance(1.1)(14.3)(19.4)

Price Comparison

8.8

7.1

2.7

Other*(84.0)(52.9)(36.8)

Group’s Share of profit before tax*1 (Ogden 0%)

479.3

405.4

284.3

Group loss ratio*1

66.4%

66.2%

72.0%

Group expense ratio*1

22.9%

21.5%

22.4%

Group combined ratio*1

89.3%

87.7%

94.4%

Group customer numbers (m)

6.51

5.73

5.15

Earnings per share (Ogden 0%)

137.1 p

Earnings per share (Ogden -0.75%)

118.2 p117.2 p78.7 pDividends

126.0 p114.0 p114.4 p2

Key metrics:

Return on Capital Employed*1

56%

55%

37%

Solvency Ratio

194%

205%

212%

*1 Alternative Performance Measures – refer to the end of this report for definition and explanation.
*2 “Other” includes Admiral Loans and other central costs.

26

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Key highlights of the Group’s result in 2018
are as follows:• Continued strong growth in turnover(£3.28 billion, up 11% on 2017) andcustomer numbers (6.51 million, up 14%
on 2017);• Group’s share of pre-tax profits of£479.3 million (2017: £405.4 million) andstatutory profit before tax of £476.2
million (2017: £403.5 million). Both saw
significant growth, primarily due to theimpact of the change in Ogden discountrate assumption that leads to an increasein both underwriting profit and profit
commission shown above;• Excluding the Ogden impact, the Group’s
share of profit before tax increased by 2%
to £413.3 million, with improved resultsfrom the UK Insurance, International
Insurance and Price Comparison
segments, offset by increased investment(due to growth) in Admiral Loans andhigher central costs;• UK Insurance turnover and customers
both increased by 9% and 13%
respectively to £2.6 billion and 5.2
million (2017: £2.4 billion and 4.6 million).
Excluding Ogden, there was a significant
increase in instalment income driven by
Admiral retaining the instalment income
since 2017, previously proportionately
shared with Munich Re as well as a generalincrease in instalment income revenue;• UK Household saw strong growth inturnover and customer numbers, though
its result was impacted by weather events
leading to a loss of £3.0 million (2017: £4.1
million profit);• Improvement in the International
Insurance result, with a reduced loss of£1.1 million (2017: £14.3 million loss).
European insurance businesses recorded anaggregate profit of £6.4 million (2017: £1.9
million loss); andCorporate Governance

Financial Statements

CHANGE IN UK PERSONAL INJURYDISCOUNT RATE ASSUMPTION(‘OGDEN’)
During December 2018, the Civil Liability
Bill, which brings into law changes to theway that the UK personal injury discountrate (‘Ogden’ discount rate) is set, received
Royal Assent and is enacted as the Civil
Liability Act.
The Ogden discount rate is used for
adjusting the value of lump sum personal
injury compensation, according to theamount the victims of serious personal
injury can expect to earn by investing it. The
principle of the new legislation is one of faircompensation, and the changes will resultin the rate being set with reference to ‘lowrisk’ rather than ‘very low risk’ investments,
better reflecting the actual investment riskthat claimants are prepared to take.
At the time of the announcement of the
proposed legislation in 2017, the Lord
Chancellor implied that the new system
would result in a rate in the region of 0%
to 1%.
The enactment of the legislation marks
the start of a process for setting a new
rate, with a maximum 230-day timeframe
meaning that we will receive a new rateduring or before August 2019. As such, thesignificant majority of relevant open claims
at the balance sheet date will be settled
under the new rate.

Additional Information

The estimated total impact, net ofreinsurance and before tax, of the change inassumption from the current rate of -0.75%
to the assumed 0% rate is approximately£120 million to £140 million on an ultimate
basis. The majority of the financial impact
in respect of premiums earned up to thebalance sheet date (£66 million pre-tax, £54
million post-tax) has been recognised in theform of increased 2018 profits.
The balance, along with the impact ofbusiness written but unearned at thebalance sheet date will be recognised in
the form of higher claims reserve releases
and profit commission over the next two to
three years.
The Group anticipates that when the UK
market pricing adjusts the level of futurepremiums to reflect the higher Ogden rate,
there will be no significant change to theGroup’s future profitability.
Following the change in Ogden rate
assumption, the financial statement reserves
continue to hold a prudent and significant
margin above actuarial best estimates in linewith the Group’s reserving policy.

EARNINGS PER SHARE
Earnings per share increased by 17% to 137.1
pence, reflecting the increase in the Group
profit as a result of the change in Ogden
assumption noted above. Excluding thischange, earnings per share would have been
118.2 pence per share (1% higher than 2017).

The Group’s best estimate assumption for
the new rate, applied at the 2018 year-end is
0%. The setting of this assumption reflects
a number of factors including current
long-term economic forecasts and analysis
released by the Government Actuary
Department setting out the approach it isexpected to take in recommending the newrate to the Lord Chancellor.

• Price comparison recorded aggregate
profit (excluding minority interests’share) of £8.8 million (2017: £7.1 million),
mainly driven by the increased profit
of Confused.com of £14.3 million (2017:£10.1 million).

Admiral Group plc · Annual Report and Accounts 201827

Strategic Report

Group Financial Review continued
DIVIDENDSThe Group’s dividend policy is to pay 65% of post-tax profits
as a normal dividend and to pay a further special dividend
comprising earnings not required to be held in the Group forsolvency or buffers.
The Board has proposed a final dividend of 66 pence per share,
a 14% increase on the 2017 final dividend of 58 pence per share.
In line with the dividend policy noted above, the 66 pence pershare final dividend can be split between a normal and special
element as follows:• 49.6 pence per share reflecting a normal dividend of 65%
of post-tax profits; and• A special dividend of 16.4 pence per share.
The 66 pence per share reflects the following when taking
into account the Ogden benefit:• 55 pence per share (£157 million) on an Ogden -0.75% basis,
representing a pay-out of 99% of post-tax profits; and• An additional dividend of 11 pence (£31 million) per sharerelating to the increase in post-tax profits from the change
in Ogden discount rate assumption. The pay-out on theincremental post-tax profit is 88% and is lower than on
the -0.75% basis, reflecting the capital implications of thechange in discount rate assumption, primarily relating toincreasing propensity for PPO claims.
The total dividend for the 2018 year is 126.0 pence per share,reflecting an 11% increase on 2017 and a 92% payout ratio.

RETURN ON EQUITY
The Group’s return on equity was broadly consistent with2017 at 56% in 2018 (2017: 55%).

Following this reorganisation, the Group has four underwriting
entities; Admiral Insurance (Gibraltar) Limited (AIGL), Admiral
Insurance Company Limited (AICL), Elephant Insurance
Company LLC in the USA (EIC) and AECS as noted above.
The Group’s regulatory capital is based on the Solvency IIStandard Formula, with a capital add-on to reflect recognised
limitations in the Standard Formula with respect to Admiral’sbusiness (predominantly in respect of profit commission
arrangements in co- and reinsurance agreements and risks
arising from claims including Periodic Payment Order(PPO) claims).
The Group continues to develop its partial internal model toform the basis of future capital requirements, although does
not expect to submit the application during 2019 and possibly
not 2020. In the interim period before submission, the Groupwill continue to use the current capital add-on basis tocalculate its regulatory capital requirement.
The estimated and unaudited regulatory Solvency II position
for the Group at the date of this report is as follows:

GROUP CAPITAL POSITION (UNAUDITED)
Group

£bn

Eligible Own Funds (pre 2018 final dividend)

1.26

2018 final dividend

0.19

CAPITAL STRUCTURE AND FINANCIAL POSITION

Eligible Own Funds (post 2018 final dividend)

1.07

The Group’s co-insurance and reinsurance arrangements for
the UK Car Insurance business are in place at least until theend of 2019. The Groups’ net retained share of that business is22%. Munich Re will underwrite 40% of the business (throughco-insurance and reinsurance arrangements) until at least theend of 2020.

Solvency II capital requirement*1

0.55

Surplus over regulatory capital requirement

0.52

Solvency ratio (post dividend)*2

194%

Similar long-term arrangements are in place in the Group’s
international insurance operations and the UK Household andVan businesses.
The Group continues to manage its capital to ensure that
all entities within the Group are able to continue as going
concerns and that regulated entities comfortably meet
regulatory capital requirements. Surplus capital withinsubsidiaries is paid up to the Group holding company inthe form of dividends.

28

The Group’s Brexit reorganisation means that the Group’s
European insurance businesses ConTe (in Italy), Admiral
Seguros (in Spain) and L’olivier Assurances (in France) isunderwritten from a regulated entity in Spain, Admiral Europe
Compañía Seguros (AECS) from 1 January 2019. All existing
liabilities and contracts relating to these businesses havebeen transferred through portfolio transfer processes, also
effective from 1 January 2019.

Admiral Group plc · Annual Report and Accounts 2018

*1	Solvency capital requirement includes updated capital add-on which is
subject to regulatory approval.
*2 Solvency ratio calculated on a volatility adjusted basis.

The Group’s capital includes £200 million ten year dated
subordinated bonds. The rate of interest is fixed at 5.5% andthe bonds mature in July 2024. The bonds qualify as tier two
capital under the Solvency II regulatory regime.

Company Overview

Strategic Report

Corporate Governance

Estimated sensitivities to the current Group solvency ratio arepresented in the table below. These sensitivities cover the twomost material risk types, insurance risk and market risk, and withinthese risks cover the most significant elements of the risk profile.
Aside from the catastrophe events, estimated sensitivities have notbeen calibrated to individual return periods.

SOLVENCY RATIO SENSITIVITIES (UNAUDITED)
2018

2017

UK Motor – incurred loss ratio +5%

-27%

-26%

UK Motor – 1 in 200 catastrophe event

-2%

-3%

UK Household – 1 in 200 catastrophe event

-2%

-2%

Interest rate – yield curve down 50 bps

-12%

-11%

Credit spreads widen 100 bps

-5%

-4%

Currency – 25% movement in euro
and US dollar

-3%

-3%

ASHE – long term inflation assumption
up 0.5%-10%-4%

Financial Statements

Additional Information

Cash and investments analysis
£m

2018

2017

2016

Fixed income and debt
securities

1,568.6

1,493.5

1,469.2

Money market funds andother fair value instruments

1,301.1

1,074.3

781.0

Cash deposits

100.0

130.0

170.0

Cash

376.8

326.8

326.6

Total

3,346.5

3,024.6

2,746.8

Money market funds, fixed income and debt securities comprise themajority of the total; 86% at 31 December 2018 (2017: 85%).
Investment and interest income in 2017 was £36.7 million, areduction of £5.0 million on 2017 (£41.7 million). 2017 benefitted
from a gain on the sale of gilt assets and excluding this gain, thetotal investment and interest income is consistent with 2017.

TAXATION

The underlying rate of return for the year (excluding accruals
related to reinsurance contract funds withheld) on the Group’s cash
and investments was 1.2% (2017: 1.3%).

The tax charge reported in the consolidated income statementis £85.7 million (2017: £71.9 million), equating to 18.0% of pre-tax
profit (2017: 17.8%).

The Group continues to generate significant amounts of cash andits capital-efficient business model enables the distribution of the
majority of post-tax profits as dividends.

INVESTMENTS AND CASH
Investment strategy
Admiral’s investment strategy was unchanged in 2018.
The main focus of the Group’s strategy is capital preservation, withadditional priorities including low volatility of returns and highlevels of liquidity. All objectives continue to be met. The Group’s
Investment Committee performs regular reviews of the strategy toensure it remains appropriate.

Admiral Group plc · Annual Report and Accounts 201829

Strategic Report

Group Financial Review continued
CASH FLOW
£m

2018

2017

2016

Operating cash flow, before
transfers to investments

488.5

617.6

525.1

Transfers to financial
investments(248.8)(229.4)(18.1)

Operating cash flow

239.7

388.2

507.0

Tax payments(55.6)(55.9)

£m

2018

2017

2016

Profit after tax

390.5

331.6

214.1

Change in net
insurance liabilities

176.6

53.2

206.8

(74.6)Net change in tradereceivables and liabilities

14.9

195.2

25.3

Change in loans andadvances to customers

Investing cash flows (capital
expenditure)(23.9)(22.7)(31.6)

Financing cash flows(346.8)(310.0)(364.7)Loans funding through special
purpose entity

220.2

–

–

Compare.com additional
investment(242.9)(65.2)–

Non-cash income
statement items

63.7

30.9

14.6

Taxation expense

85.7

71.9

64.3

Operating cash flow, before
transfers to investments

488.5

617.6

525.1

–

–

(2.9)

0.6

25.2

50.0

0.2

61.3

Total cash plus investments increased to £321.9 million or by
11% (2017: £277.8 million, 10%).

(26.6)

11.2

35.2

The Group’s results are presented in the following sections as:

Movement in accrued interest

49.7

37.0

43.4

Net increase in cash andfinancial investments• UK Insurance – including UK Motor (Car and Van),
Household, Travel

321.9

277.8

158.0

• International Car Insurance – including L’olivier (France),
Admiral Seguros (Spain), ConTe (Italy), Elephant (US)Foreign currency translation
impactNet cash movement
Movement in unrealised gains on
investments

19.3

The main items contributing to the operating cash inflow are
as follows:• Price Comparison – including Confused.com (UK), LeLynx(France), Rastreator (Spain), Compare.com (US)30

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

UK Insurance
Review

Financial Statements

Additional Information

5.24m
Customers (2017: 4.62million)“Shortly after the end of the year we won the Home Insurance Provider of the Yearat the Moneyfacts Consumer Awards, which was a great endorsement from ourcustomers and reflects the fantastic culture that’s been a cornerstone of our businesssince we launched 26 years ago.”
The insurance sector isn’t quiteconsistent with everyone’s view of an
exciting and fast paced life. Looking
back and reflecting over 2018 makes me
realise how many things have happened
in a 12-month window, and the myriadof changes and improvements we’ve
implemented over that time, I’d argue
quite the reverse!
One thing that was certainly fast paced
and exciting (for the children at least)
was the weather that came in with the“Beast from the East” in the opening
quarter of the year, which covered
most of the country with snow andbrought a flurry of household claims.
It was our biggest weather event sincethe Household business launched in2012, but the quality of service we wereable to offer our customers in difficult
circumstances was very pleasing.
Another pleasing aspect of theHousehold business is the progress we’ve
made with our MultiCover offering,which provides convenience and value formoney for our customers whilst offering
improvements and cost-efficiencies forus as a business. Whilst the market-wide
weather events in H1 and subsidence
claims in H2 have resulted in a loss for
our Household business this year, we
believe that we’ve made progress in theunderlying business.
I’ve mentioned MultiCover, which is a
key element in the future for the UK
Insurance segment, but car insurance(and MultiCar, which we launched morethan 10 years ago) remains at the centreof what we do and is of course the main
source of profit for the Group.

The market started the year positively,
with growing confidence of seeing afavourable change in the Ogden rate
leading to softening market prices in H1.
However, continued inflation in damage
claims and increased large bodily injury
frequency has caused an increase in theloss ratio during the year. Our disciplined
approach to underwriting meant that wetherefore maintained our rates in the firsthalf and increased prices more than ourpeers in H2, which meant that our growthrate slowed as the year progressed.
The Civil Liability Bill finally received Royal
Assent in late December, leading us tobelieve that 0% is the most appropriate
discount rate to use in valuing large injury
claims. Also included in the Bill are thereforms that will simplify and reducethe costs of whiplash claims. Whilst the
impacts of that part will unlikely comeinto force before mid-2020, we believethat the investments we’ve made in
our systems and our long-running trackrecord of efficient processing means that
we’ll be well-placed to deal with thesechanges and will pass on the savings to
our customers.

Shortly after the end of the year we won
Home Insurance Provider of the Yearat the Moneyfacts Consumer Awards,
which was a great endorsement fromour customers and reflects the fantastic
culture that’s been a cornerstone of ourbusiness since we launched 26 years ago.
Perhaps everyone’s view of an exciting
and fast paced life isn’t quite right?

Cristina Nestares
CEO, UK Insurance
6 March 2019

The investments we’ve made intechnology in recent years, not least
the successful implementation of
our Guidewire policy platform, arenow starting to reap benefits for us
and our customers. It’s allowed us toundertake more sophisticated analyticalprocesses to improve pricing accuracy
and fight against claims fraud, but mostimportantly it has enabled us to further
improve the great service we provide
to customers and claimants.

Admiral Group plc · Annual Report and Accounts 201831

Strategic Report

UK Insurance Review continued
UK INSURANCE FINANCIAL PERFORMANCE
£m

2018

2017

2016

Turnover*1

2,575.7

2,354.0

2,063.1

Total premiums written

2,269.8

2,098.0

1,862.6

Net insurance premium revenue

523.9

491.6

454.4

Underwriting profit

227.7

206.2

109.2

Profit commission and other income

327.9

259.3

228.6

UK Insurance profit before tax

555.6

465.5

337.8

SPLIT OF UK INSURANCE PROFIT BEFORE TAX
£m

2018

2017

2016

Motor

561.7

461.4

335.1

(3.0)

4.1

2.7

HouseholdTravelGroup’s share of UK insurance profit

(3.1)

–

–

555.6

465.5

337.8

2018

2017

2016

4.32m

3.96m

3.65m

KEY PERFORMANCE INDICATORS

Vehicles insured at year end
Households insured at year end

0.87m

0.66m

0.47m

Travel policies insured at year end

0.05m

–

–

Total UK Insurance customers

5.24m

4.62m

4.12m

*1

*1 Alternative Performance Measures – refer to the end of this report for definition and explanation.

Key highlights for the UK insurance business for 2018 include:• Continued growth in customers and turnover in both Motor and Household with Admiral maintaining market rates in H1 andincreasing rates more than the market in H2 for Motor and increasing rates for Household• A 22% increase in UK Motor profit to £561.7 million (Ogden: -0.75%: 7% increase to £491.3 million) primarily as a resultof increased reserve releases due to the change in the Ogden rate assumption, as well as growth in ancillary revenue andinstalment income• Loss ratio performance for 2018 impacted by a combination of worse large bodily injury experience and continued inflationin damage claims• An increase in the reported motor expense ratio to 18.4% from 16.2% mainly due to a combination of increased levy costs
and a change in net retained share at the start of 2017 underwriting year
• Household loss of £3.0 million (2017: £4.1 million profit), impacted by extreme weather and subsidence claims• Small loss from recently launched Travel insurance product (£3.1 million)

32

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

UK MOTOR INSURANCE FINANCIAL REVIEW
£m

2018

2017

2016

Turnover*1

2,423.1

2,246.9

1,987.0

Total premiums written*1

2,132.1

2,001.5

1,789.3

Net insurance premium revenue

452.5

433.2

404.3

Investment income

32.2

32.6

39.3

Net insurance claims(189.2)(214.2)(290.1)

Net insurance expenses(72.0)(59.7)(59.9)

Underwriting profit*2

223.5

191.9

93.6

Profit commission

95.0

64.7

52.7

Underwriting profit and profit commission

318.5

256.6

146.3

Net other revenue*3

243.2

204.8

188.8

UK Motor Insurance profit before tax

561.7

461.4

335.1

*1 Alternative Performance Measures – refer to the end of this report for definition and explanation.
*2 Underwriting profit excludes contribution from underwritten ancillaries (included in net other revenue).
*3	Net other revenue includes instalment income and contribution from underwritten ancillaries and is analysed later in the report. 2017 and 2016 have been represented on thesame basis.

KEY PERFORMANCE INDICATORS
2018

2017

2016

Reported Motor loss ratio

63.5%

64.1%

73.3%

Reported Motor expense ratio*1,*3

18.4%

16.2%

17.5%

Reported Motor combined ratio

81.9%

80.3%

90.8%

Written basis Motor expense ratio

17.5%

15.8%

16.5%

Reported loss ratio before releases

88.1%

85.3%

87.7%

£111.4m£92.1m£58.3m*1,*2

Claims reserve releases – original net share*1,*4
Claims reserve releases – commuted reinsurance£109.6m£73.8m£17.1mTotal claims reserve releases£221.0m£165.9m£75.4mOther Revenue per vehicle

£67

£64

£62

Cars insured at year end

4.09m

3.84m

3.65m

Vans insured at year end

0.23m

0.12m

–

*1,*5

*1 Alternative Performance Measures – refer to the end of this report for definition and explanation.
*2 Motor loss ratio adjusted to exclude impact of reserve releases on commuted reinsurance contracts. Reconciliation in note 13b.
*3 Motor expense ratio is calculated by including claims handling expenses that are reported within claims costs in the income statement. Reconciliation in note 13c.
*4 Original net share shows reserve releases on the proportion of the portfolio that Admiral wrote on a net basis at the start of the underwriting year in question.
*5	Commuted reinsurance shows releases, net of loss on commutation, on the proportion of the account that was originally ceded under quota share reinsurance contracts but has
since been commuted and hence reported through underwriting and not profit commission.

Admiral Group plc · Annual Report and Accounts 201833

Strategic Report

UK Insurance Review continued
KEY PERFORMANCE INDICATORS CONTINUED
UK Motor profit increased by 22% during 2018 to £561.7
million (2017: £461.4 million) and vehicles insured increased by
9% to £4.32 million (2017: £3.96 million), whilst the reported
combined ratio increased to 81.9% (2017: 80.3%). The results
were impacted by a number of factors:• Net insurance premium revenue was 4% higher at £452.5
million mainly resulting from the larger portfolio;• Investment income was in line at £32.2 million;• The current period loss ratio was slightly worse at 88.1%(2017: 85.3%) due to increased frequency in large bodily
injury and damage claim inflation in 2018, albeit positive
loss ratio development for prior years. Admiral continues
to reflect a cautious approach to setting reserves early intheir development;• Continued positive development of prior year claims costs
combined with the change in Ogden rate led to increased
releases on original net share of reserves (£111.4 million,
25% of premium compared to £92.1 million, 21% ofpremium in 2017);• Releases on reserves originally reinsured but sincecommuted higher at £109.6 million (v £73.8 million 2017),
impacted by the change in Ogden rate;• The growth in the vehicle base contributed to an increasein the underlying expense base. The change in the Group’s
net retained share from 25% to 22% in 2017 meant thatthe prior year earned expense ratio (16.2%) benefitted
from the reduction in administration cost in the period.
Excluding the impact of this change, the earned ratio would
be broadly flat with 2018 (18.4%); and• Other revenue (including ancillary products underwritten
by Admiral) and instalment income were higher (£243.2
million £204.8 million in 2017) resulting from growth andchanges to the arrangement with Munich Re in 2017 where
Admiral now retains all instalment income.

34

Admiral Group plc · Annual Report and Accounts 2018

Underwriting discipline was maintained in H1 by maintaining
flat rates while the market reduced rates. In H2, market prices
started to increase in reaction to higher than expected claims
inflation. Admiral increased prices ahead of the market in
H2 which impacted competitiveness and slowed growth.
Turnover was 8% higher at £2.42 billion (2017: £2.25 billion).
The numbers of cars insured exceeded four million and vansinsured moved past 200,000, leading to 9% growth in totalcustomers to 4.32 million (2017: 3.96 million).

CLAIMS AND RESERVES
Notable claims trends for Admiral and the market in 2018
include slightly higher overall frequency, a flattening in therate of improvement in small injury claims frequency andcontinuing elevated levels of inflation in damage claims costs.
Large bodily injury claims costs were also increased in 2018,
which was notably higher than the benign large bodily injury
claims experience in 2017.
The Group continues to reserve conservatively, setting claims
reserves in the financial statements well above actuarial best
estimates to create a margin held to allow for unforeseen
adverse development.
As noted above, in addition to the favourable impact arisingfrom the change in Ogden rate assumption, the Groupexperienced continued positive development of claims
costs on previous underwriting years and these factors led
to another significant release of reserves in the financial
statements in the period (£111.4 million on Admiral’s original
net share, up from £92.1 million). The margin held in reserves
remains prudent and significant though is slightly lower thanthe comparative period-end, reflecting the reduction in
Management’s assessment of uncertainty around the reserves.

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

CHANGE IN UK DISCOUNT RATE (‘OGDEN’)

UK CAR INSURANCE – CO-INSURANCE AND REINSURANCEAs noted above, following the Royal Assent of the Civil Liability
Bill, which brings into law changes to the way that the UK personal
injury discount rate (‘Ogden’ discount rate) is set, the Groups’ best
estimate of the Ogden discount rate that will be applicable in thesettlement of open claims has moved to 0% (from the existing-0.75% rate)

Admiral makes significant use of proportional risk sharing
agreements, where insurers outside the Group underwrite amajority of the risk generated, either through co-insurance or
quota share reinsurance contracts. These arrangements include
profit commission terms (see below) which allow Admiral to retain asignificant portion of the profit generated.

The table below shows the estimated sensitivity of profit before
tax and solvency ratio to different Ogden rates. The profit impact
presented is the estimated total impact of the change on theGroup’s pre-tax profit on an ultimate basis. It should be noted that
not all of the impact would necessarily be recognised immediately.

The Munich Re Group will underwrite 40% of the UK motor business
until at least 2020, with future extension options available to
Munich Re until 2022. 30% of this total is on a co-insurance basis,
with the remaining 10% under a quota share reinsurance agreementfrom 2017 onwards.

Impact on
Profit before
Tax (£m)*1

Impact on
Solvency
Ratio (%)*2

Increase in Ogden discount rateof 50 basis points (to 0.5%)

76.2

+13%

Decrease in Ogden discount rateof 50 basis points (to minus 0.5%)(94.2)-6%*1	The impacts on profit before tax are stated net of co-insurance and reinsurance
and include the impact on net insurance claims along with the associated profit
commission movements that result from the change in the Ogden rate.
*2	Estimated impact on solvency ratio is based on the change in Own Funds and SCR
resulting from change in the Ogden rate and is presented before the impact ofchanges in final dividend.

CO- AND REINSURANCE AND PROFIT COMMISSION
The proportional co- and reinsurance arrangements in place for theMotor business are the same as those reported in the 2017 Annual
Report and will continue into 2019.
At 31 December 2018, all private car quota share reinsurance forunderwriting years up to and including 2016 has been commuted,
meaning Admiral assumes a higher net risk for these years than
had the reinsurance been left in place. The 2016 contracts and theremainder of the 2015 contracts were commuted during 2018.
Admiral generally elects to commute reinsurance where it makes
economic sense to do so.

The Group also has other quota share reinsurance arrangements
confirmed to the end of 2019 covering 38% of the business written.
The Group reduced its net underwriting share from 25% previously
to 22% with effect from 2017.
The nature of the co-insurance proportion underwritten by Munich
Re (via Great Lakes) is such that 30% of all motor premium andclaims for the 2017 year accrue directly to Great Lakes and are
not reflected in the Group’s financial statements. Similarly, Great
Lakes reimburses the Group for its proportional share of expenses
incurred in acquiring and administering this business.
The quota share reinsurance arrangements result in all motor
premiums and claims that are ceded to reinsurers being included in
the Group’s financial statements, but these figures are adjusted to
exclude the reinsurer share, resulting in a net result for the Group.
The Group also purchases excess of loss reinsurance to provide
protection against large claims and reviews this cover annually.
For 2017 the Group increased its excess of loss cover as a result of
the anticipated change in Ogden discount rate and the potential
impact on large claims. For 2018, the Group has reduced this level ofcover to be back in line with more recent levels. 2019’s cover will besimilar to 2018.

In 2018 profit commission of £95.0 million was recognised, up from
£64.7 million the prior period. The increase in 2018 mainly arose due
to improvements in booked loss ratios on prior years, which havealso been impacted by the change in Ogden rate in 2018.
Note 5 to the financial statements analyses profit commission
income and reserve releases by underwriting year.

Admiral Group plc · Annual Report and Accounts 201835

Strategic Report

UK Insurance Review continued
PROFIT COMMISSION
Admiral is potentially able to earn material amounts of profit commission revenue from co- and reinsurance partners,
depending on the profitability of the insurance business underwritten by the partner. Revenue is recognised in the income
statement in line with the booked loss ratios on Admiral’s retained underwriting.
Note 5c to the financial statements analyses profit commission income by underwriting year.

COMMUTATIONS OF QUOTA SHARE REINSURANCE
Admiral tends to commute its UK Car Insurance quota share reinsurance contracts for an underwriting year 24 months frominception, assuming there is sufficient confidence in the profitability of the business covered by the reinsurance contract.
After the commutation is executed, movements in booked loss ratios result in reserve releases (or strengthening if the booked
loss ratio were to increase) rather than reduced or increased reinsurance claims recoveries or profit commission.
During the first half of 2018, all quota share contracts relating to the 2016 underwriting year were commuted, along with one
remaining contract relating to the 2015 underwriting year (the other quota share contracts relating to the 2015 year having
been commuted in the second half of 2017). There were no commutations during the second half of 2018. At 31 December
2018, quota share reinsurance contracts remained in place for the 2017 and 2018 underwriting years.
In 2018 Admiral recognised reserve releases from commuted reinsurance contracts of £109.6 million (2017: £73.8 million). Excluding
the accounting impact of commutations (refer to the glossary for further information), the releases relating to commuted
reinsurance contracts were £141.5 million (2017: £97.5 million). The increase from 2017 is primarily due to more significant
improvements in booked loss ratios on 2016 and prior underwriting years, in part due to the change in Ogden assumption.
Refer to note 5d(v) of the financial statements for analysis of reserve releases on commuted quota share reinsurance contracts.

4 millionth risk
In April, we also insured our four millionth
car in the UK. The first car we insured backin 1993 was an Isuzu Piazza Turbo Coupe 2
Door Saloon and our four millionth car wasa Peugeot 108. We marked this milestone
with banners in all our buildings thanking
staff for all their hard work, Atlas News
stories and emails to all staff from our UK
CEO, Cristina Nestares.

36

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

OTHER REVENUE AND INSTALMENT INCOME
UK Motor Insurance Other Revenue – analysis of contribution:
£m

2018

2017

2016

Contribution from additional products & fees

206.5

187.3

183.3

Contribution from additional products
underwritten by Admiral*1

13.6

15.0

17.4

Instalment income

81.4

56.1

33.5

Other revenue

301.5

258.4

234.2

Internal costs(58.3)(53.6)(45.4)Net other revenue

243.2

204.8

188.8

Other revenue per vehicle*2

£67

£64

£62

Other revenue per vehicle net of internal costs

£57

£54

£54

*1 Included in underwriting profit in income statement but re-allocated to Other Revenue for purpose of KPIs.
*2 Other revenue (before internal costs) divided by average active vehicles, rolling 12 month basis.

Admiral generates Other Revenue from a portfolio of insurance products that complement the core car insurance product, and also fees
generated over the life of the policy.
The most material contributors to net Other Revenue continue to be:• Profit earned from motor policy upgrade products underwritten by Admiral, including breakdown, car hire and personal injury covers;• Revenue from other insurance products, not underwritten by Admiral;• Fees such as administration and cancellation fees; and• Interest charged to customers paying for cover in instalments.
Overall contribution (Other Revenue net of costs plus instalment income) increased by 19% to £243.2 million (2017: £204.8 million). Whilst
there were a number of smaller offsetting changes within the total, the main reasons for the increase were higher instalment income
primarily due to changes in the arrangements with Munich Re in 2017 such that Admiral now retains all instalment income on the car
insurance business compared to 60% previously, plus the growth in the size of the business.
Other revenue was equivalent to £67 per vehicle (gross of costs; 2017: £64), the increase being substantially due to the increase ininstalment income noted above. Net Other Revenue (after deducting costs) per vehicle was £57 (2017: £54).

Admiral Group plc · Annual Report and Accounts 201837

Strategic Report

UK Insurance Review continued
UK HOUSEHOLD INSURANCE FINANCIAL PERFORMANCE
£m

2018

2017

2016

Turnover*1

146.0

107.1

76.1

Total premiums written

131.1

96.5

73.3

*1

Net insurance premium revenue

31.2

23.1

17.0

Underwriting loss*1*2

(6.3)

(0.8)

(1.8)

Profit commission and other income

3.3

4.9

4.5

UK Household insurance (loss)/profit

(3.0)

4.1

2.7

2017

2016

*1 Alternative Performance Measures – refer to the end of this report for definition and explanation.
*2 Underwriting loss excluding contribution from underwritten ancillaries.

KEY PERFORMANCE INDICATORS
2018

Reported household loss ratio

92.3%

73.5%

76.5%

Reported household expense ratio*1

28.1%

30.0%

34.1%

120.4%

103.5%

110.6%*1

Reported household combined ratio*1
Impact of extreme weather and subsidence*1

Households insured at year end*1

19.1%

–

–

865,800

659,800

468,700*1 Alternative Performance Measures – refer to the end of this report for definition and explanation.

UK Household insurance was launched in December 2012 under the Admiral brand.
The UK Household insurance business continued to grow strongly and increased the number of properties insured by 31%
to 865,800 (2017: 659,800). Turnover increased by 36 % to £146.0 million (2017: £107.1 million). The 2018 result was a loss of£3.0 million (2017: profit of £4.1 million) following the weather and subsidence events that have impacted the UK Householdmarket during the first and second halves of 2018 respectively. Adjusting for normal weather experience the result would havebeen a profit of £7.7 million. Market premiums increased as a result, and Admiral also increased premiums.
The volume of new business policies sold in the market continued to increase as more households changed insurer, and theshare of these sales made via the price comparison channel also continued to increase. Admiral enjoyed strong customer
retention and new business volumes and saw an increasing share of new business sales made either directly or via cross sell toexisting Admiral customers within the Group’s MultiCover product offering.
The reported loss ratio of 92.3% (2017: 73.5%) included around 11 percentage points of weather impact and eight percentage
points related to subsidence. Prior year releases contributed a benefit of 4 percentage points, meaning that the underlying
attritional loss ratio increased to 77.6% from 75.6% as a result of a combination of slightly lower average premiums and higher
costs relating to escape of water and fire claims. Admiral’s expense ratio also continued to improve (28.1%, down from 30.0%)
and similar to the motor business, significantly outperforms the market.

38

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

UK HOUSEHOLD INSURANCE – REINSURANCEThe Group’s Household business is supported by long-term proportional reinsurance arrangements covering 70% of the risk.
In addition, the Group has non-proportional reinsurance to cover the risk of catastrophes stemming from weather events.

UK INSURANCE REGULATORY ENVIRONMENTThe UK Insurance business operates predominantly under the regulation of the Financial Conduct Authority (FCA) and Prudential Regulatory
Authority (PRA), and through a Gibraltar-based insurance company, under the Financial Services Commission (FSC) in that territory.
The FCA and PRA regulate the Group’s UK registered subsidiaries including EUI Limited (an insurance intermediary) and Admiral Insurance
Company Limited (AICL; an insurer), whilst the FSC regulates Admiral Insurance (Gibraltar) Limited (AIGL; also an insurer).
The Group is required to maintain capital at a level prescribed by the lead regulator for Solvency II purposes, the PRA, and maintains asurplus above that required level at all times.

Innov8This year we ran our successful Innov8
programme for the third consecutive year.
Innov8 is an intense 48-hour challenge
involving small cross-functional teams
working on generating creative andinnovative solutions to challenges fromacross the business set by our senior
management team. Final presentations aredelivered to a judging panel made up of oursenior management group including CEO
David Stevens and UK CEO Cristina Nestares.
Anyone in the business can apply to takepart. An email is sent to all staff (and an Atlas
News article) inviting interested staff to tell

us what challenge they are interested in and,in no more than 100 words, what they thinkthey can bring to the Innov8 programme.
This year Innov8 teams focused on six
challenges including how we can improve
our management and organisation model,
and where and how automation can be used
to benefit the business, customers andstaff. The winning team, as chosen by the
judging panel, each win £50 vouchers as wellas having the honour of winning. Alongsidechoosing the winning team the judges also
awarded a ‘Star Performer’, the individual

who really stood out and impressed themduring the final presentations. Winners
are announced on Atlas and we also share avideo of the presentation on Admiral TV.
Innov8 organisers David and Sophie said,“Innov8 2018 was a fantastic success, thecompetition went smoothly, and we hadgreat buy-in from senior management. We
were incredibly impressed at how teams ofAdmiral employees who may never have met
came together and produced brilliant ideas
and polished pitches in just two days.”

Admiral Group plc · Annual Report and Accounts 201839

Strategic Report

International Car
Insurance Review
2018 is likely to remain a memorable
year in continental Europe for reaching
three important milestones: one million
customers, successful delivery of the
Brexit project and the first time reaching
profitability on a combined basis.

Milena Mondini de Focatiis
CEO, European Insurance

At the very end of the year European
insurance celebrated its millionth customer.
This came after the celebration of 500,000
customers at the beginning of the year in
ConTe, 150,000 customers before the halfyear in L’olivier and 250,000 customers in
December in Admiral Seguros. European
insurance closed the year with 18% growthand higher brand awareness in each country
despite a slower market in the first half ofthe year in Spain and Italy.
Shortly thereafter, we celebrated thesuccessful completion of the Brexit
project with the transfer of the European
portfolio to a newly created company
in Spain, Admiral Europe Compania deSeguros (AECS). AECS underwrites allpolicies in continental Europe from 1
January 2019 and we expect it to provide
additional governance and support tothe future development of our overseas
operations.

Our third celebration (what a fantastic
celebration period!) was closing the yearwith the first ever combined profit of€7 million. This is the result of improved
metrics in each business, economies
of scale and positive development oftechnical results. ConTe delivered record
profits and both L’olivier and Admiral
Seguros, again reduced their losses.
The main goal in continental Europe
remains to continue to grow efficiently
in markets where acquisition costs arematerially higher than the UK and the
direct channel still represents a very minor
share of the market.
Improving our customer experience has
been the “leitmotif” of the year – froma smoother sales journey with morecustomer friendly forms and accurate
pricing, to new self-service featuresand faster customer service enabled
by a higher degree of automation ofinternal processes. EUIGS, our IT service
arm in Spain, played a prominent role instrengthening our systems and technology
for a more efficient scalable business.
We believe we have good foundations tocontinue our journey to become a relevant
contributor to group profits in the future.

Spain
2018 was a year of somewhat slower
growth, but again strong technicalresults.

Sarah Harris
CEO, Admiral Seguros

Spanish market loss ratios finished 2017at their lowest level for almost a decade,and we saw several competitors decreaseprices at the beginning of 2018. Whilst thisheadwind affected volumes in the first halfof the year, we regained momentum in thesecond half, improving conversion throughprice comparison sites and reaching record
levels of policy retention. We finished theyear with more than 250,000 customers,
up 12% compared to 2017.
We continued to enhance our capabilities
in both risk selection and claims handling.

40

Admiral Group plc · Annual Report and Accounts 2018

Investments in people, technology anddata support our strategy of building
a long-term sustainable loss ratio
advantage.
Acquisition economics also improved
materially through the year. In particular,
we worked closely with our sister company,
Rastreator, to improve the customer
experience for those coming to us via
price comparison.
What´s next? Well, for 2019 both loss ratio
and acquisition remain areas of focus.
We will also be increasing investment intechnology to become even more agile inservicing the needs of our customers.

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Italy
ConTe closed 2018 with a profit for thefifth year in a row, whilst also achieving
significant growth of the customer baseof 17% year-on-year.

Costantino Moretti
CEO, ConTe

The market wasn’t particularly favourable,
even though prices started to slightly increasein the second half of the year, pushing morecustomers to shop online. Despite this context,
ConTe was able to grow by leveraging on its
competitiveness and on improvements in thedigital journey.

This was also a good year for the key ratiosof the P&L: loss ratios continued to improveconsistently across all underwriting years
and the expense ratio hit the market average
thanks to efficiencies gained throughinvestments in digital and automation.
Those strong foundations allow ConTe tocontinue to stay focused on our sustainablegrowth strategy and to maintain an
appropriate level of investment in technology
and brand.

ConTe has consolidated its position in the
Italian Market by leading the competition
on price comparison sites in terms of times
top position, strengthening brand awarenessthrough a continuous presence on TV andfootball sponsorship, and increasing customer
satisfaction scores.

Finally, our people and culture continue tomake the difference. ConTe has been awarded
for the third year in a row as one of the bestlarge companies to work for!

Another year of fast growth for L’olivier –assurance auto!

promoter score and continuously increasing
customer satisfaction leading to more loyal
customers. Our ambition remains to prove to
French customers that a direct insurer can
provide service excellence. In this context,
we have been developing new capabilities for
self-service with a brand new customer portalthat is increasingly used by customers leading
to better service and more efficiency.

FranceDespite a sluggish aggregator market, L’olivier
managed to keep growing at a strong pacewith more than 35% increase in turnover andclosing the year with 174,000 customers.

Pascal Gonzalvez
CEO, L’olivier - assurance auto

This was possible thanks to strong
improvements both in new business conversion
and in persistency. Close to 40% of the French
population now recognise our brand. This,
coupled with several operational optimisations,helped us to increase our market share.
Our plan to deliver better service is coming tofruition with a strong improvement of our net

For 2019, we’re planning more growth,a continuous focus on quality, newfunctionalities for self-servicing and the
beginning of our product diversification
strategy. Some exciting announcements
to come…

USA
In 2018 Elephant shifted our book towards
higher tiered customers, delivering stronger
growth, persistency, and operational efficiency.

Alberto Schiavon
CEO, Elephant Auto

Premiums grew 16%, and we ended the yearwith 212,600 vehicles in force (17% growthyear-on-year) due to higher retention and more
vehicles per policy. Attracting customers who
retain longer drove our expense ratio down
(6 points year-on-year) in the short run andprovides the critical foundation to sustainablegrowth in the long run.
Operationally, we are providing a better
journey and higher service levels to ourcustomers. Expanded and improved digital
capabilities allow them to self-service theirpolicies more effectively throughout their
lifetime. They can now complete many

essential tasks online, including making
payments, changing coverage, and reporting aclaim. The better digital journey has increased
our operational efficiency, as fewer customers
are forced to call in for sales, service orclaims help. It has also improved customer
satisfaction levels as policyholders can more
quickly and effortlessly access information andmake changes to their policy.
In 2019 we will continue to invest in our digitaltransformation. We are also planning some newcustomer acquisition initiatives to strengthen
our brand awareness and grow our base ofhigher retention customers. Ultimately these
initiatives are critical to building a growing,profitable, sustainable company centredaround our customers.

Admiral Group plc · Annual Report and Accounts 201841

Strategic Report

International Car
Insurance Review continued
INTERNATIONAL CAR INSURANCE FINANCIAL PERFORMANCE
£m

2018

2017

2016

Turnover*1

538.7

449.8

365.9

Total premiums written*1

484.3

401.4

331.3

Net insurance premium revenue

141.7

123.0

91.3

Investment income

1.3

0.6

0.4

Net insurance claims(104.0)(94.1)(75.5)Net insurance expenses(55.8)(58.0)(46.2)

Underwriting result*1(16.8)(28.5)(30.0)Net other income

15.7

14.2

10.6

International Car Insurance result(1.1)(14.3)(19.4)

Reported Loss ratio*2

76%

76%

76%

Expense ratio

40%

45%

49%

KEY PERFORMANCE INDICATORS*2

Combined ratio

116%

121%

125%

Combined ratio, net of Other revenue*4

105%

109%

113%

Vehicles insured at period end

1.22m

1.03m

0.86m

*3

*1 Alternative Performance Measures – refer to the end of this report for definition and explanation.
*2 Loss ratios and expense ratios have been adjusted to remove the impact of reinsurer caps so the underlying performance of the business is transparent.
*3	Combined ratio is calculated on Admiral’s net share of premiums and excludes Other Revenue. It excludes the impact of reinsurer caps. Including the impact ofreinsurer caps the reported combined ratio would be 2018: 113%; 2017: 124%; 2016: 133%.
*4	Combined ratio, net of Other Revenue is calculated on Admiral’s net share of premiums and includes Other Revenue. Including the impact of reinsurer caps thereported combined ratio, net of Other Revenue would be 2018: 102%; 2017: 112%; 2016: 122%.

GEOGRAPHICAL ANALYSIS*1
2018

Spain

Italy

France

US

Total

Vehicles insured at period end (m)

0.25

0.59

0.17

0.21

1.22

Turnover (£m)

67.6

176.8

80.5

213.8

538.7

2017

Spain

Italy

France

US

Total

Vehicles insured at period end (m)

0.22

0.50

0.13

0.18

1.03

Turnover (£m)

61.5

154.6

59.2

174.5

449.8

*1 Alternative Performance Measures – refer to the end of this report for definition and explanation.

42

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Admiral operates four insurance businesses outside the UK: in Spain (Admiral Seguros), Italy (ConTe), the US (Elephant Auto) and France(L’olivier – assurance auto).
The operations continued to grow strongly in 2018, with customer numbers increasing by 18% to 1.22 million (2017: 1.03 million) andcombined turnover rising by 20% to £538.7 million (2017: £449.8 million).
The key features of the International Car insurance results are:
• An aggregate loss of £1.1 million reflecting a large improvement from the 2017 loss of £14.3 million;• A record profit in the Group’s Italian business ConTe, which also grew its customer base to 0.6 million customers;• A significant improvement in Elephant Auto’s result (reduced loss from £12.5 million to £7.5 million year-on-year);• An improved combined ratio (net of other revenue) of 105% (2017: 109%) reflecting reduced acquisition costs, positive back year
development and improvements in pricing and operational efficiencies; and• Continued investment in people, technology and customer experience in all operations.
The combined expense ratio improved to 40% (2017: 45%) as all businesses grew and continued to pursue operational efficiencies. The
expense ratio continues to appear high in comparison to Admiral’s UK business because of high acquisition costs as the businesses growand also the continued need to build scale. ConTe expense ratio reached the Italian market level in 2018.
The European insurance operations in Spain, Italy and France surpassed the one million mark to insure 1.01 million vehicles at 31 December
2018 – 19% higher than a year earlier (31 December 2017: 0.85 million). Turnover was up 18% at £324.9 million (2017: £275.3 million).
The consolidated result of the businesses was a profit of £6.4 million (2017: loss of £1.9 million) consisting of continuing (and higher)
profitability in Italy and lower losses in France and Spain. The combined ratio net of other revenue (excluding the impact of reinsurer caps)
improved to 98% from 101% due to the improved claims experience and expense ratio.
Elephant insured 212,600 vehicles at the end of 2018, up by 17% year-on-year. Turnover was £213.8 million, up 23% on the prior year(£174.5 million). Elephant again reduced its loss for the period (to £7.5 million from £12.5 million in 2017) despite the positive growth.
Elephant continues to see improvements in customer persistency as a result of the focus on higher retaining customers. The focus on
expense ratio through improvements in operational efficiency, as well as loss ratio, translated into a continued improvement in the
combined ratio net of other revenue of 115% (119% in 2017).

INTERNATIONAL CAR INSURANCE CO-INSURANCE AND REINSURANCE
In 2018 Admiral retained 35% (Italy), 30% (France and Spain) and 33% (USA) of the underwriting risk respectively. The arrangements for2019 will remain the same.

INTERNATIONAL CAR INSURANCE REGULATORY ENVIRONMENT
Admiral’s European insurance operations are now primarily regulated by the Spanish regulator, the Dirección General de Seguros y Fondos
de Pensiones (DGSFP). This shift is a result of restructuring ahead of Brexit. More information on company changes due to Brexit can befound on page 49.
The Group’s US insurer, Elephant Insurance Company, is regulated by the Virginia State Corporation Commission’s Bureau of Insurance.
Both insurers are required to maintain capital at levels prescribed by the regulator and hold a surplus above these requirements at all times.

Admiral Group plc · Annual Report and Accounts 201843

Strategic Report

Price Comparison Review
GlobalDuring 2018, we continued to deliveron our ambition of playing relevant andleading roles in our services comparison
markets where barriers to entry are low,
but barriers to success are high.

Elena Betes
European Price Comparison Director

In our European markets, we have prepared
the businesses for Brexit by creating arobust organisational structure. We havealso invested in our brands, products
and data capabilities to strengthen anddiversify our revenue lines.
We believe that our world requires
disruption to improve customer
experience and we have proven this in
Spain, where by putting the customer first,
we succeeded in getting more reliable
and accurate prices from insurers in 2018.
This is already having a positive impact onconversion rates and gives us optimism
for the future. In Confused in the UK, we
continued to focus on our priorities andinvested in developing attractive newoffers for customers.

We are increasing our diversification andleveraging our brands, particularly relevantwith the launch of our energy vertical inFrance and mortgage comparison in Spain.
In emerging markets, we continue ourpath of organic expansion and we welcome
Tamoniki.com, as the newest member of thefamily in Turkey. Rastreator.mx in Mexico isseeing the first positive signs of growth.
We prefer to call ourselves ‘Customer
Portals’ rather than Price Comparison,as the future requires us to not only
compare prices, but also to give advice
on the individual fit between consumer
and service/product. We expect insights
based on data analysis and AI will enable us
to achieve this, but this is only one of themany opportunities that 2019 offers to our
growing family.

UK
Confused.com has seen and embarked
on many changes in its 16-year history,
but as the Group’s most mature pricecomparison business and the company
that created the industry, one thing has
remained the same - our focus on saving
customers time and money.

Louise O’Shea
CEO, Confused.com

In 2018, Confused.com continued to
evolve its driver centric strategy, with afocus on leading drivers from confusion
to clarity, and helping people navigate thenoise, clutter and confusion when it comesto the hundreds of insurers fighting fortheir attention.
The price comparison sector remains oneof the UK’s biggest advertisers and in
2018 we saw costs increase across mostof our marketing channels. This, together
with a downturn in insurance prices, andcustomers using multiple price comparison
websites, made the market as competitive

44

Admiral Group plc · Annual Report and Accounts 2018as ever. Our interactions with customers
also changed during 2018 as GDPR cameinto force.
Confused.com responded to all of thesechallenges, growing revenue by 10%
and profit by 42% year on year, whilst
continuing to invest in technology andpeople. 2018 profit margin also improved
to 15% (2017: 12%) as we focused on
more effective marketing in response
to market conditions and implemented
improvements for customers. In 2018, we
also achieved the milestone of £1 billion
revenue since we launched in 2002, a
fantastic achievement for everybody who
has been a part of the Confused.com story.
In 2019, we don’t expect the competitiveenvironment to ease, but Confused.com
will continue its focus on saving time andmoney for customers which, after all, is
what it is all about.

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Spain
2018 was a mixed year for Rastreator.
Challenging market conditions andinvestment in new products resulted in flat
revenue and a decrease in profit. This, aswell as several regulatory changes including
IDD, Brexit and GDPR did not stop us fromconcentrating on moving towards an
improved customer proposition through our
price accuracy strategy.

Fernando Summers
CEO, Rastreator

It has been challenging in our relationships
with insurers but the steps we are taking
are improving the experience and therefore
conversion.
For 2019 we are focusing in setting up our own
call centre to get deeper into the contracting

process of the customer and being able toclose sales by ourselves (mortgages, loans
and insurance policies). This will allow us togive a complete and better experience to
our customers.
In addition, this provides a new way tocommunicate and improves our marketing
approach towards a better understanding of
the benefits we can provide to customers.
This has allowed us to develop a strategictransformation of our marketing structure,messages and campaigns.
To make this happen, we have a strong,ambitious and committed team that truly
believe in this growing future for Rastreator!

FranceFrench market growth in 2018 was morevolatile following increased marketing spend
by incumbents. Whilst the car insurance
aggregator market started to show signs ofmaturity, we saw impressive growth in otherinsurance products helped by favourable
regulation for switching.

Itzal Arbide
CEO, LeLynx

In 2018, LeLynx achieved double-digit revenue
growth of 10% on the back of a well-founded
marketing campaign and focus on diversificationof the product range. LeLynx launched a wellreceived comparison tool for energy suppliers,
in a new market experiencing rapid growth andsimple switching rules for consumers.

The business continues to go from strength
to strength with a growing team to support
important projects that we anticipate will
strengthen revenue and profit growth in 2019and beyond. The plan is to pursue growth anddevelop new products that will help consumers
make the right choices when it comes toinsurance, finance, energy and potentiallyother products very soon.
I am delighted and optimistic about the futureof LeLynx and look forward to 2019 in my newrole as CEO. Lots to do. And a great team to do
this with.

USA
2018 was not the year we expected. Most
carriers achieved rate adequacy in late 2017and came into 2018 in growth mode.

Andrew Rose
CEO, compare.com

That was good for us in terms of carrier
additions to our panel (including Esurance,
Travelers, USAA) as well as rates returned tocustomers (our highest national average ever).
It also meant, however, an upward movementin our acquisition costs as those same carriers
sought growth. That resulted in lower revenue
and quote volumes in 2018 and pressure on
marketing spend.
This pressure meant an ever-vigilant focus oncost management as well as the explorationof new acquisition channels. Several nicepartnerships have developed with a strong
pipeline established for 2019.

Another highlight of 2018 was the raising ofapproximately $35 million to fuel and growcompare.com. Admiral entered an agreementwith Henry Engelhardt and his wife, Diane,
whereby Diane invested $25 million. In
addition, Admiral Group provided compare.com
up to $10 million by way of a convertible loan
instrument, $5 million of which had been drawn
down at the year end.
Our 2019 priorities remain similar to 2018:
grow our absolute volumes while continuing
to pursue overall profitability. Consumers cansave billions and we are determined to help
them realise how easy it can be!

Admiral Group plc · Annual Report and Accounts 201845

Strategic Report

Price Comparison Review continued
PRICE COMPARISON FINANCIAL REVIEW
£m

2018

2017

2016

Car insurance price comparison

110.1

108.8

97.7

Other categories

40.9

34.8

31.5

Total revenue

151.0

143.6

129.2

Expenses

Revenue(144.4)(138.2)(132.1)

Profit/(loss) before tax

6.6

5.4

(2.9)

Confused.com profit

14.3

10.1

16.1

International price comparison result

(7.7)

(4.7)

(19.0)

6.6

5.4

(2.9)

Confused.com profit

14.3

10.1

16.1

International price comparison result

(5.5)

(3.0)

(13.4)

8.8

7.1

2.7

Group’s share of profit/(loss) before tax *1*1 Alternative Performance Measure – refer to the end of this report for definition and explanation.

Admiral operates four price comparison
businesses; in the UK (Confused.com), in
Spain (Rastreator), France (LeLynx) andthe US (compare.com). Admiral Groupowns 75% of Rastreator and 59% ofcompare.com (2017: 75% of Rastreator;
71% of compare.com).
Combined revenue grew by 5% to £151
million (2017: £143.6 million) and thebusinesses made a combined profit(excluding minority interests’ shares) of£8.8 million (2017: £7.1 million).
The key features of the Price
Comparison result are:
• A loss of £6.9 million (2017: £7.1
million) at compare.com in the US,(Admiral Group share). Statutory
loss before tax remained constantat £10.0 million. The results reflect
a reduction in sales volumes due toincreased market competition andpressure on acquisition costs;

46

Admiral Group plc · Annual Report and Accounts 2018

• In the UK, Confused.com saw market
share increases in Motor and Home
Insurance price comparison andefficient media spending led to anincreased profit of £14.3 million(2017: £10.1 million);• The European price comparison
businesses reported a reduced
profit of £1.4 million (2017: £4.1
million) reflecting investment in amore diversified product range aswell as a more competitive market
environment, including a new entrant
spending on marketing in France; and• The UK price comparison market
remains very competitive withincreasing advertising spend acrossall marketing channels, however
small market share increases led
Confused.com to a 10% increasein turnover to £95.1 million (2017:£86.8 million).

The combined revenue from theEuropean operations increased by 4%
to £46.3 million (2017: £44.4 million*2),
reflecting continued growth in trafficand quotes provided to customers
in LeLynx and increased competitive
pressures in Spain.
During 2018 compare.com received
investments totalling $30 million, $25
million in an agreement with former
Admiral Group CEO Henry Engelhardt
and his wife, Diane, and separately, $10
million by way of a convertible loan
from Admiral Group, of which $5 million
was drawn down in the year. Henry
has subsequently joined the Board ofcompare.com.
*2	2017 Turnover for Confused.com updated to£86.8 million from originally reported £87.1
million due to new products which no longer fallunder Confused.com and have been transferredto the Group.

Company Overview

Strategic Report

In 2018, a non-cash impairment charge of£32.9 million was recognised by the parent
company in respect of its investment incompare.com. This followed the regularreview of the carrying values of subsidiarycompanies and review of the long-term
strategy of compare.com, and reflects
challenging conditions for nascent pricecomparison market in the US. Given thechallenging market conditions there
remains considerable uncertainty over thetiming and level of the future profitabilityof the business. The impairment charge isrecognised in the income statement of theparent company and has no impact on theGroup’s consolidated profit for the period or
the Group’s 2018 regulatory capital position.
Compare.com’s plans for 2019 and beyond
include continuing to scale marketing
activity and grow volumes. The Group
anticipates that the Group’s share ofcompare.com’s losses for 2019 will be in
the range of $7 million to $14 million.
Preminen, the Group’s price comparison
venture with Mapfre, continues to
explore price comparison in new markets
overseas. Rastreator.mx in Mexico has
focused on panel development and growth,
while Tamoniki, Preminen’s Turkish pricecomparison website, was launched in 2018.

Corporate Governance

Financial Statements

Additional Information

PRICE COMPARISONREGULATORY ENVIRONMENT
Confused.com is regulated by the Financial
Conduct Authority (FCA) as an insuranceintermediary and is subject to all relevantintermediation rules, including those on
solvency capital.
During 2018 Brexit preparations were
finalised and Rastreator and Lelynx are
now locally licensed, negating the needto passport insurance intermediarypermissions from the UK. Further
information on the impact of Brexit on
our European operations can be found on
page 49.
Compare.com is a regulated insurance
agency domiciled in Virginia, US, andlicensed in all other US states.

Staff General Meeting
The annual Staff General Meeting (SGM) started
in 1998. All UK-based staff are invited to attend.
They are lively and entertaining meetings where
the senior managers give presentations about
the performance of the company and inform
staff of business plans for the coming year. The
presentations are informative, but the focus has
always been to entertain and inspire staff for theyear ahead. This is our only event where senior
managers speak to all UK staff face to face on
the same day and we think this is a very powerfuland effective way to promote a renewed senseof pride in Admiral every year.

Admiral Group plc · Annual Report and Accounts 201847

Strategic Report

Other Group Items
OTHER GROUP ITEMS FINANCIAL REVIEW
£m

2018

2017

2016

Share scheme charges(49.0)(35.2)(31.5)

Admiral Loans loss before tax(11.8)(4.4)-

Other interest and investment return

2.9

8.4

13.4

Business development costs

(4.3)

(5.2)

(5.2)

Other central overheads(10.8)

(6.2)

(4.1)

Finance charges(11.3)(11.4)(11.4)

0.3

1.1

2.0

(84.0)(52.9)(36.8)

UK commercial van broking
Other Group items

Share scheme charges relate to theGroup’s two employee share schemes(refer to note 9 to the financial
statements). Charges increased by£13.8 million in 2018, to £49 million.
The increase in the charge is mainly due
to a non-repeating change made in 2017
over which the charge is spread (without
this change, the 2017 charge would
have been approximately £6 million
higher). Other factors for the increase
include a change in the vesting outcome
assumptions for variable awards(including 2016 which vests in 2019,and reflects the significantly higher
profit in 2018) and an increase in thenumber of awards, reflecting theincreasing Group headcount over athree year vesting period.

Other interest and investment incomeof £2.9 million was lower than in 2017(£8.4 million). The 2017 result includeda £5.4 million realised gain from the saleof investments held by the Group, which
was not repeated in 2018. Both 2017 and2018 include the impact of unrealised
losses relating to forward foreignexchange contracts (2018: £2.3 million,
2017: £2.3 million). The higher number
in 2016 of £13.4 million benefitted from
£6.5 million of unrealised gains fromforward contracts.
Business development costs include
costs associated with potential new
ventures, including the investment
in Preminen's ventures related to theprice comparison businesses in Mexico(launched in 2017) and newly launchedbusiness in Turkey.
Other central overheads of £10.8
million continue to reflect the cost of anumber of significant Group projects,
including the one-off cost of Brexit
reorganisation (approximately £3million) and a number of other nonrecurring costs relating to ongoingGroup projects.
Finance charges of £11.3 million (2017:£11.4 million) mainly represent intereston the £200 million subordinated notes
issued in July 2014 (refer to note 6 to thefinancial statements).

ADMIRAL LOANS
£m

2018

2017

Total interest income

15.0

1.6

Interest expense

(4.3)

(0.4)

Net interest income

10.7

1.2

Other fee income

0.4-

Total income

11.1

1.2

*1

Expenses(22.9)(5.6)

Admiral Loans result(11.8)(4.4)*1 Includes £0.7 million Intra-group interest expense.

48

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Background
Admiral Loans launched in 2017, andcurrently distributes unsecured personalloans and car finance products throughprice comparison websites and also direct
to consumers via the Admiral website.
The Group employs a prudent test and learn
approach regarding growth in customers
and loan advances, consistent with othernew business launches. Initial results areencouraging, and the business has grownsignificantly since launch, with loan balances
increasing to £300 million in 2018 (2017: £66
million). The Group continues to expect thebusiness to make losses in its early phaseas a result of the upfront accounting for
acquisition costs as opposed to interest
income earned on loans which is spread overthe life of the loans. Admiral is encouraged
with the performance of the business andthe credit quality of the loans portfolio.
Admiral Loans has secured external funding
during 2018 (of up to £300 million) throughthe securitisation of certain loans via
transfer to a special purpose entity (“SPE”)
which remains under the control of theGroup. The securitisation and subsequentissue of notes does not result in a significant
transfer of risk from the Group.

ResultThe Admiral Loans business grewsignificantly during 2018, and recorded
a pre-tax loss of £11.8 million (increase
from pre-tax loss of £4.4 million in 2017).
The higher loss predominantly relates tothe cost of acquiring new customers whichis expensed immediately with interest
income recognised over the life of the loan,
typically three to four years.
As a result of growth, net interest income
increased and expenses also increased
driven by factors including the acquisition
cost of growth and changes to provisioning.
Admiral Loans also adopted the new IFRS9
accounting standard as at 1 January 2018
which has accelerated the recognitionof expected losses on loans advanced
to customers.

Corporate Governance

Financial Statements

Additional Information

UK EXIT FROM THE EUROPEAN
UNION (‘BREXIT’)

Brexit continues to bring risks to the Group,
which include:

Admiral has adopted a prudent approachin relation to Brexit, designed to mitigate
the risks to our European businesses of apotential “hard Brexit”, which could have
prevented those operations from continuing
to trade due to reliance on passporting rights.

• The potential for market volatility, andthe potential for the uncertainty or the
emerging terms of exit to trigger orexacerbate less favourable economic
conditions in the UK and other countries
in which Admiral operates (though it
is worth noting that car insurance has
tended to be resilient to economic
downturns; and Admiral Loans has
adopted a cautious approach to volumes
and credit quality in advance of Brexit.
As part of the Own Risk and Solvency
Assessment (“ORSA”) process, theGroup has performed a stress testing
exercise for its Brexit assessment of
the impact of a recession through 2019
on the UK insurance business, including
the increase in claims costs following
a spike in inflation. This includes
negative movement in interest rates,
currency, investment yields, inflation,
unemployment and GDP, alongside a“hard” Brexit (i.e. no deal outcome). Given
the results of the stress testing the Groupis comfortable that it is able to manage
the potential outcomes of such scenarios
should they occur.

The businesses that potentially would havebeen impacted, being the European insurers
and European price comparison businesses,
have been restructured so as to fully
mitigate a “no deal” outcome. This has beenachieved for the European insurers throughAdmiral receiving approval for an application
to establish insurance and intermediarycompanies in Spain, such that from 1 January
2019, all of the Group’s European insurance
business is underwritten by a regulated
entity in Spain, Admiral Europe Compania
Seguros (AECS). All existing liabilities andcontracts relating to these businesses havebeen transferred through portfolio transfer
processes, also effective from 1 January 2019.
In addition, the Group’s European pricecomparison businesses Rastreator and
LeLynx have successfully been merged into
price comparison companies established in
Spain (Comparaseguros Corredia de Seguros)
and France (LeLynx SAS) respectively.
The Group expects AIGL, the Group’s
Gibraltar insurance entity, to be able
to continue to carry on trading in an
uninterrupted manner after 29 March 2019.
This is reliant on the passing of relevant
legislation by UK government which isanticipated prior to 29 March.

Also as part of the ORSA process, a
specific economic stress test scenario
which captures the potential outcomesfrom a ‘no deal’ Brexit has been applied
to the Admiral Loans business in order toassess the potential impact. The stressresults in an increase in the loss provisionthat would be required as a result of thedeterioration in economic environment.
As for the UK insurance business, theGroup is comfortable that it is able tomanage the potential outcomes based on
the results of the stress test and relevant
management actions.
• Potential changes to the rules relating to
the free movement of people between
the UK and the remaining EU member
states. The Group has followed external
advice on planning for the small number ofEU citizens working within the UK and UK
citizens working in the EU, for the Group.
• Potential for impact on the import of car

Admiral Group plc · Annual Report and Accounts 201849

Strategic Report

Other Group Items continued
parts with potential impact on claims
costs. A working group is in place tomanage and review this risk, withcommercial negotiations ongoing to
mitigate risks arising from a “no deal”
Brexit.
• Modest potential operationaldifficulties relating to the provision of‘green cards’ to customers wishing todrive in Europe. A full communications
plan has been developed for customers
wishing to drive their vehicles in Europe
after 29 March 2019.

At present, the Group does not foreseea material adverse impact on day-today operations (including customers
or staff). The Group recognises thepotential economic disruption that
may arise from a ‘hard’ Brexit. Whilst
the Group is comfortable that it isable to manage potential outcomes
following the review of the stresstesting noted above, it recognises theuncertainties that exist in relation to
Brexit and the potential for adverse
impacts to the Group’s capital position
and future dividend payments.
Sensitivities to the Group’s regulatory
solvency ratio are presented on
page 29, including a number of specificmarket risk sensitivities. The cost of
the restructuring activity has notbeen material to the Group.

Managers’ Awards
Our Managers’ Awards were first
awarded in 1993. There are now 20
awards in total, which are named
after executives and senior managers
reflecting the skills and qualities thatparticular manager values, such as theLouisa Scadden “Don’t Just Sit There”
award or the Stuart Clarke “Details
Make a Difference” award. Eachmanager chooses the recipient of hisor her award and consequently, the50

Admiral Group plc · Annual Report and Accounts 2018

awards carry a great deal of prestige.
Each recipient receives a plaque tokeep and his or her name is added to acompany plaque for each award, which
are then displayed in reception in all
our sites so everyone can see them.
There are no rules with the awards, so
if someone only works part time, they
have just as much a chance as a full-time
employee to win one.

Company Overview

Strategic Report

Corporate Governance

Strategic Report

Financial Statements

Additional Information

1

Year in Pictures
2

5

3

4

6

7

8

1.	Staff at Rastreator, our Spanish price comparison website, at the2018 Great Place to Work awards ceremony – winning!
2.	Our fantastic Inspire choir turning it up to 11 at our annual Staff
General Meeting.
3.	The Wales Over 50’s Squash Team proudly flying the flag, helped on
their way with sponsorship from Confused.com
4.	The deserving winners of this year’s annual management awards at
the awards ceremony in Cornerstone, Cardiff.
5.	Our Swansea supporting Matt’s Café - a Swansea business that takes
food waste destined for landfill to feed people who need it, on a
pay-as-you-feel basis.
6.	Staff from People Services and Communications at the Wales Air
Ambulance airbase in Llanelli, finding out how we can help thempromote their fundraising.

7.	Arianne getting into the spirit of Pride, an event proudly sponsoredby the Group and whose message of inclusivity and diversity wewholeheartedly endorse.
8. Employees at Elephant enjoying the glorious sunshine over the summer.

Admiral Group plc · Annual Report and Accounts 201851

Strategic Report

Principal Risks
and Uncertainties
The Board, with support from the Group Risk Committee and
the Group Risk Department, undertakes a regular and robust
assessment of the principal risks. These risks have beensummarised as those which would threaten its business model,
future performance, liquidity and solvency.
These principal risks have not materially changed over the previous 12 months, although it is noted that as the Group
continues to diversify away from UK Motor, the key risks to the new businesses are expected to become more material andbegin to feature more prominently within the Group’s principal risks and uncertainties.
In relation to Brexit risks, Admiral executed a part VII transfer of European policies to its new entity based in Spain, AECS.
This action mitigated the risk of not being able to write business in its European businesses post 29 March 2019. Other risks,referred to in the viability section of the report (see page 84), that have been considered include operational risks suchas green cards and vehicle parts inflation. Admiral also considered the potential financial risks arising from an economic
downturn on its business. Please refer to page 49 for further detail. During 2018 Admiral ran a number of economic scenarioswith particular focus on its new lending business, AFSL.
The table below sets out the principal risks which Admiral has identified through its Enterprise Risk Management Framework(‘ERMF’). The impact of those risks and actions taken to mitigate them are explained below.

Insurance Risk
Reserving Risk in the UK and international insurance
Admiral is exposed to reserving risk through its underwriting of motor and household insurance policies. Claims reserves in thefinancial statements may prove inadequate to cover the ultimate cost of earned claims which are by nature uncertain.
This is a particular risk for motor insurance liabilities, where the amount payable for bodily injury claims (particularly large claims)
can change significantly during the lifetime of the claim as a result of external risks such as changes in Ogden rates and impacts
of increased levels of Periodical Payment Orders.
ImpactMitigating Factors

Adverse run-off leading tohigher claims costs in thefinancial statements.

Admiral has a conservative reserving policy and continues to hold a material margin in its
financial statement claims reserves above actuarially determined best estimates to cover
adverse developments

PPO claims are capitalintensive owing to increased
uncertainty of the cost ofsignificant claims over alonger term.

Best estimate reserves are estimated both internally and externally by independent actuaries.
For very large claims Admiral purchases excess of loss reinsurance, which mitigates a portion of
the loss.
Regular reviews of both settled and potential PPO cases are undertaken by the Claims
and Actuarial teams, with independent Actuarial opinions provided as part of the external
reserving analysis.
Admiral’s investment portfolio is the result of a structured, disciplined and transparent
investment process which considers settled and potential future PPOs.

52

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Premium Risk & Catastrophe Risk
The Group is exposed to the risk that claims cost on future business is higher than allowed for in the premiums charged to customers.
The Group is exposed to the risk of increased claims and reduced business volumes following both a UK and European recession.
Catastrophe Risk: Admiral is exposed to the risk of high losses due to the occurrence of man-made catastrophes or natural weather events,
potentially increased in frequency and severity due to climate change.
ImpactMitigating Factors

Higher claims costs and loss
ratios, resulting in reduced
profits or underwriting losses.

There are a number of aspects which contribute to Admiral’s strong UK underwriting results, including:•Experienced and focused senior management and teams in key business areas including pricing andclaims management;

A large flood or windstorm
causes extensive property
damage (both motor andhousehold) to a significant
proportion of the portfolio,
leading to a large total claims
cost in relation to the event.

•Highly data-driven and analytical approach to regular monitoring of claims and underwriting performance;•

Capability to identify and resolve underperformance promptly through changes to key performance
drivers, particularly pricing;•Continuous appraisal of and investment in staff, systems and processes; and•Admiral monitors the impact arising from climate change, that is captured as an Emerging Risk.

Admiral purchases excess of loss reinsurance, designed to mitigate the impact of very large individual or
catastrophe event claims.

Reduced availability of co-insurance and reinsurance arrangements
Admiral uses proportional co- insurance and reinsurance across its insurance businesses to reduce its own capital needs (and increase returnon the capital it does hold) and to mitigate the cost and risk of establishing new operations.
There is a risk that support will not be available in the future if the results and/or future prospects of either the UK business or (morerealistically) one or more of the newer operations are not satisfactory to the co- and/or reinsurers.
ImpactMitigating Factors

A potential need to raise
additional capital to support anincreased underwriting share.
This could be in the form ofequity or debt.

Admiral mitigates the risk to its reinsurance arrangements by ensuring that it has a diverse range offinancially secure partners.

Return on capital might reducecompared to current levels.

As well as UK Motor, long term arrangements are also in place for UK Household andInternational businesses.

Admiral continues to enjoy a long-term relationship with some of the world’s largest reinsurers.
Admiral also has relationships with a number of other reinsurers.

Potential diminution of Other Revenue
Admiral earns other revenue from a portfolio of products and other sources.
The level of this revenue could diminish due to regulatory or legal changes, customer behaviour, strategic reasons or market forces.
ImpactMitigating Factors

Lower profits from insurance
operations and lower return on
capital.

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

Admiral Group plc · Annual Report and Accounts 201853

Strategic Report

Principal Risks
and Uncertainties continued
Group Risk
Erosion of competitive advantage in UK Car Insurance
Admiral typically maintains a significant combined ratio advantage over the UK market. This advantage and/or the level ofunderwriting profit (and associated profit commission) could be eroded.
This risk could be exacerbated by irrational competitor pricing and/or new technologies used within the insurance market. It
may arise from new or existing competitors.
ImpactMitigating Factors

A worse UK Car Insurance
result and lower return on
capital employed.

Admiral’s focus remains on the wide range of factors that contribute to Admiral’s combined
ratio outperformance of the UK market. Some are set out earlier in the Strategic Report, but
in addition:

A sustained and uncorrected
erosion of competitive
advantage could affectthe ability of Admiral toextend its reinsurance
arrangements, which mightin turn require Admiral tohold more capital.

•

Track record of innovation and ability to react quickly to market conditions anddevelopments; and•Keen focus on maintaining a low-cost infrastructure and efficient acquisition costs.

Failure of geographic and/or product expansion
Admiral continues to develop the UK Household, non-insurance operations such as loans and expand its overseas operations.
One or more of the operations could fail to become a sustainable, profitable long- term business.
Product expansion into new areas could lead to unprofitable business and increased regulatory risk.
Growth in business plans exceed the scale of infrastructure of the operation.
ImpactMitigating Factors

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

Admiral’s approach to expansion and product development remains conservative, applying
the ‘test and learn’ philosophy that has proven successful for previous operations.
International insurance businesses have generally executed cautious launch strategies andare all backed by proportional reinsurance support which provides substantial mitigation
against start-up losses in the early years.

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

New price comparison businesses have aligned their marketing investment with theextent of improvement in key performance indicators such as average cost per quote andconversion ratio. The Group also accepts partial disposals of equity to share start-up losses
with partners.
The Directors are mindful of management stretch and regularly assess the suitability of theinfrastructure and management structure in place for Admiral’s new UK and international
operations.

54

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Reliance on UK Price Comparison distribution channel
Admiral is dependent on the four main UK price comparison websites as an important source of new business and growth.
Growth in this distribution channel could slow, cease or reverse, or Admiral could lose one or more of the websites as a source of customers.
ImpactMitigating Factors

A potentially material reductionin UK Car Insurance new
business volumes.

Admiral’s ownership of Confused.com (one of the leading UK price comparison websites which operates
independently of the UK Car Insurance business) helps to mitigate the risk of over- reliance on this
distribution channel.

However, a more competitivemarket might benefit the car
insurance business throughlower acquisition costs.

Admiral also contributes materially to the revenues of other price comparison businesses and therefore
it is not considered probable that a material source of new business would be lost.
Admiral continues to invest in opportunities to diversify its distribution channels, in particular throughthe partnership with Ford.

Counterparty Risk
Admiral is primarily exposed to credit risk in the form of a) default of reinsurer; b) failure of banking or investment counterparty.
One or more counterparties suffer significant losses leading to a credit default.
Market volatility and adverse developments to macroeconomic factors can lead to increased risk of defaults on the loans business.
ImpactMitigating Factors

Additional capital may need to
be raised as a result of a major
credit event, dependent on its
nature and severity.

Admiral only conducts business with reinsurers of appropriate financial strength. In addition, mostreinsurance contracts are operated on a funds-withheld basis, which substantially reduces credit risk,
as Admiral holds the cash received as collateral.

Admiral would also need toensure that it continues to havesufficient liquid assets to meetits claims and other liabilities as
they fell due.

Concentrations of credit risk are managed by investing in liquidity funds which invest in a wide rangeof short duration, high quality securities. Cash balances and deposits are placed only with highly rated
credit institutions. Some long term investments are held in Government bonds to further mitigate theexposure to credit risk.
Admiral considers counterparty exposure frequently and in significant detail, and has in placeappropriate triggers and limits, to mitigate exposure to individual investment counterparties.

Admiral Group plc · Annual Report and Accounts 201855

Strategic Report

Principal Risks
and Uncertainties continued
Market Risk

Market risk arises as a result of fluctuations in the value of market prices of investment assets, liabilities, or the income from
our investment portfolio.
ImpactMitigating Factors

Market volatility (notably
very significant reductions inrisk free interest rates) canadversely impact the Group’s
solvency due to an increased
regulatory valuation ofclaims liabilities, in particular
in relation to longer dated
potential PPO claims.

The Group’s investment strategy focuses on preservation of the amount invested, low volatility of
returns and strong liquidity. The majority of the portfolio is invested in high quality fixed income
and other debt securities, and money market funds in order to achieve these objectives.
The Group’s mitigation for interest rate risk resulting from long duration PPO liabilities
includes a comprehensive level of reinsurance cover and continuing focus on strategies toensure that the risks relating to both assets and liabilities are appropriately matched.
The Group has relatively low exposure to net assets and liabilities in currencies other thanpound sterling.

Market volatility andadverse developments tomacroeconomic factors,
including Brexit, can lead toincreased risk of defaults on
the Loans business.

Operational Risk
Legal and Regulatory risk
Failure to comply with legal or regulatory requirements and/or changes.
Unexpected regulatory changes are introduced.
ImpactMitigating Factors

Exposure to regulatoryintervention, censure and/or
enforcement action throughfines and other sanctions.

Mitigated by regular review of the Group’s compliance with current and proposed
requirements (including the General Data Protection Regulation) and interaction withregulators by Executive Management and the Board.

Market wide impacts to the
UK insurance sector frompotential regulatory changes
and initiatives.

56

There is continued investment in resources to prepare for a Partial Internal Modelapplication. The project provides regular progress updates with the Board and Regulators.
Enhanced project governance is a key control in managing regulatory change.

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Operational Risk
Operational risk arises within all areas of the business. The principal categories of operational risk for Admiral are:•People•IT Systems•

Business Continuity•

Outsourcing•

Processes•

Information Security•

Customer Outcomes•

Project Risk

ImpactMitigating Factors

The risk of reductions inearnings and/or value, throughfinancial or reputational loss,
from inadequate or failed
internal processes and systems,
or from people related or
external events.

We aim to attract, retain and motivate quality staff to deliver quality customer service and achievebusiness objectives.

In particular:
Potential customer detriment
and/or potential regulatorycensure/enforcement and/or
reputational damage as a resultof Admiral’s action.
Risk to Admiral occurs throughthe losses that could occur if
the internal control framework
to manage these businessprocesses fails.
Availability of systems & data.
Integrity of data.
Confidentiality of data.

Succession planning is based on targeted recruitment, identifying potential leaders through internal
development, talent management and retention processes.
Internal controls are in place and monitored to mitigate the risk and the control framework is regularly
reviewed.
The internal audit function has an agreed cycle of testing of the adequacy and effectiveness of controls.
Regular review of the effectiveness of the Groups IT capability by Executive Management and the Board.
Enhanced project governance and oversight of new systems implementations with external specialist
review and assurance where required.
Admiral continues to invest in its Security Programme in order to mitigate Information Security risks,
including evolving Cyber risk.
Within IT there is a major incident team which is tasked with maintaining system availability, withbusiness continuity and disaster recovery plans in place.
Data is backed up to allow for its recovery in the event of corruption.
Admiral monitors its outsourced and offshore activities, through ongoing supplier relationship andperformance management, with regular due diligence reviews.
Admiral operates the three lines of defence model for overseeing its products, processes and service.
At each stage of the customer journey customer outcomes are monitored, managed and reported inorder to mitigate customer detriment.
Admiral purchases a range of insurance covers to mitigate the impact of a number of operational risks.

Emerging Risks
In addition to the principal risks and uncertainties, Admiral Group monitors emerging risks which could materialise into, or significantly
impact existing principal risks and uncertainties. Admiral’s emerging risk framework is a key tool for horizon scanning with developments
reported to the relevant Boards and Committees on a regular basis.
Emerging risks are defined as trends or events that are considered to have a potentially significant impact to the Group, with a high degree of
uncertainty around the likelihood of occurrence, severity or timescales. Emerging risks are classified into the following segments (a) legal andregulatory, capturing relevant legislations and regulations, (b) socio-political and economic, (c) environmental and (d) technology related.
Admiral continues to scan the risk horizon and monitor any developments to emerging risks, undertaking reviews and assessments of thepotential impacts as information becomes available.

Admiral Group plc · Annual Report and Accounts 201857

Strategic Report

Being aResponsible Business“An important part of our business is to havea positive impact on our customers, ourcommunity, our people, and our environment.”
We are continually looking for ways tomake Admiral a responsible business andengage with stakeholders to improve
our impact. In 2018 we establishedworking groups to encourage diversity,
launched policies to further benefit
employees, and made commitments to
reduce waste and energy consumption.

Beyond this we continue to consider
other broader changes such as thecontinued expansion of AI, climatechange on the environment, and themove towards electric vehicles which
will impact a number of industries suchas manufacturing, insurance and beyond.

David Stevens, CBE
Chief Executive Officer

Our
PeopleOur
Customers
Our
Communities

Our approach
We are always looking
for ways to develop andimprove as a business,
and when it comes tobeing a responsible
business, things are
no different.

58

Our
Earth

From procurement and supply chain management, to diversity, fair pay,
and inclusion, we have outlined the major initiatives of our corporate social
responsibility reporting, identifying the areas that have the most impact on our
stakeholders. This allows us to report effectively on the topics that matter most.
Here, and in our Corporate Social Responsibility (CSR) report (available on our
corporate website), we have taken care to provide useful disclosures with a goodlevel of transparency and accountability to our main stakeholders: our customers,
our people, our community, and our environment. It is these four stakeholders whodrive the core focus of our Corporate Social Responsibility.

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Our People
Our People are our most valuable asset, and we are proud tohave such dedicated and hardworking staff in the Group.
Among our different initiatives are an Employee Assistance Programme
providing assistance and counselling, a Ministry of Fun promoting fun
activities and awards, and a Ministry of Health promoting healthy living
and wellness, including free gym access, in-house yoga classes, anddiscounted flu vaccinations. We also try to encourage healthy eating by
providing free fresh fruit in each of our offices to all our staff.
Our amicable and open work culture is crucial to making our employees
feel at home and part of the business, and we encourage flexibility andopenness across all levels and departments. In this year’s Great Place towork survey 95% our workers said they felt this was a friendly place to work.

Financial Statements

Additional Information

Our Customers
Our customers are at the heart of everything that we do, which
is why we invest so much time and energy in improving theiroverall experience.
Communication with customers is important, and we offer a range ofcommunication channels so that wherever they are, whenever they need to
get in touch, they can do so easily.
We also listen to our customers, and are always looking for areas to improve,
surveys by using feedback from customer satisfaction surveys, SMS feedback
and through social media. We also have a customer assurance team tomonitor feedback, manage complaints and proactively improve thecustomer journey.
Our UK CEO, Cristina Nestares, also collates monthly feedback for customerfacing staff who receive the highest feedback ratings for providing a superior
customer experience. She selects a Customer Champion, awarding themwith a prize and explaining how their approach to customer service is so
special. This ‘Customer Commentary’ is communicated across the business tocongratulate the Customer Champion as well as enlighten and inspire other
employees to make a difference to the way they service customers.
We recognise, however, that you can’t please all of the people all of thetime, so when things are less than satisfactory, we are responsive. Following
negative feedback on social media or review platforms, we’ll adapt our
training to resolve any underlying issues. In the worst-casescenario, we’ll sometimes offer goodwill gestures to try
and put things right. What’s more, many ideas andsolutions come straight from our frontline staff who
have the knowledge and experience to help ourcustomers.
Over

20th

5 million

Greatest Place
to Work in theWorldcustomers
globally

Our Community
We actively involve ourselves in supporting our local
community through a variety of projects and initiatives,
ranging from financial and material donations, tovolunteering time and expertise.

Our Environment
The state of the Environment is a great concern of ours
and we are always looking for ways to reduce ourenvironmental impact.

In the 13 years it has been running, we donated more than £1 million in
funding through our Community Chest initiative, assisting over 3,500
different groups, clubs, and organisations.

As insurers, we are exposed to the financial impact of climate change andthe resultant extreme weather. One such way for us is when selecting new
premises; we consider proximity to public transport hubs, bicycle storage
and changing facilities for staff, and the building’s overall, independently
verifiable, green credentials to reduce overall emissions.

A good example of this community outreach is our Recruitment
department, who work with local schools, job centres, and universities tooffer regular CV-writing classes, interview workshops, and talks. Many of
our employees are involved in charity work both through and independentof the business, but we support wherever and however we can.

We have our own in-house “Green Team” dedicated to environmental
initiatives and developing innovative approaches to reducing ourenvironmental footprint.

Since 2008 we have worked with the Prince’s Trust, competing in theirannual*1 Million Makers competition: to date we have contributed over£1.2 million to this excellent cause. This year alone, our graduate team raised
more than £156,000 through a variety of different fundraising schemes,
the vast majority of which were supported by staff members.
£156,000 raised internally for Million Makers (Prince’s Trust)charity in 2018 for disadvantaged youngsters in Wales.

£15,000
of funding
matched in2018*1. 2017/18 was the only year since 2008 in which we did
not enter a team.

We feel that by taking action now we can all play a role in mitigating manyof the most severe predictions for climate change while laying foundations
for a sustainable and optimistic future.

100%

reduction inplastic cup use in
UK offices

Admiral Group plc · Annual Report and Accounts 201859

Strategic Report

Commitments, Achievements,
Targets 2018/19
Greenhouse gas emissions, waste creation, and energy
consumption all go hand in hand.
As individuals and organisations, we must aim to reverse our negative effects on the planet, the land,
the sea, the air. Overall, we aim to play a responsible role as a business and encourage all our staff to do
the same. More specifically we approach each area in the following ways:
GREENHOUSE GASESWASTEEMPLOYEE HEALTH AND FITNESS

Improved reporting across the Group
has allowed us to compile a morecomprehensive list of our greenhousegas (GHG) figures than in previous
years which can be found in our full
CSR Report. Emissions per capita areworked out by the total emissions formost of the Group with the exception of
Elephant and L’olivier emissions, divided
by the year’s average staff headcount.
All GHG emissions figures are in tonnesof carbon dioxide equivalents (CO2e)
and include all six GHGs covered by the
Kyoto Protocol. Unfortunately, 2018
saw an increase in emissions, though
as the Group grows and our reporting
improves, increases will be recorded.
Future green policies should see theseminimised, with more information onthese approaches following in 2019. Allof the electricity tariffs we control in
the UK use energy from green sources
and we will look to procure green tariffs
again for all UK sites we control when wecome to renew our contracts.

In 2018, we sent 0 tonnes of waste
to landfill, recycling 206 tonnes (acombination of 122 tonnes of paper,and 84 tonnes of other recyclables)with a further 244 tonnes incinerated
ethically. We are aiming to reduce nonrecycled waste further by increasing
staff awareness through Green Week,
poster campaigns, and other electronic
awareness-raising initiatives. In 2018 webegan to phase out single-use plastic
cutlery in our UK canteens, replacing
them with recyclable models. We took
the same approach to single-use plastic
cups at the water machines, replacing
them with paper cups.

We encourage our staff to be fit andhealthy, offering methods to reducestress, improve focus, and generally aid
their mental health and wellbeing. Our
partnership with Cardiff Metropolitan
University sees regular discounted
massage sessions on-site, andmeditation workshops are offered for
free, with donations offered to the
Samye Foundation.

3,926 CO₂e

GHG gas emissions (2017: 3,642 CO₂e)60

Admiral Group plc · Annual Report and Accounts 2018

ENERGYDue to the size and spread of the Group,
we approach energy consumption
reporting by splitting our UK sites
from our overseas sites. Since 2015 allelectricity that we have purchased in
the UK is from 100% green sources, andin 2019 we will look to continue this witha new supplier. Additionally, our Cardiff
and Newport offices are rated BREEAM
Excellent for exceeding sustainability
benchmarks above regulatory
requirements. For our international
offices, we work closely with ourlandlords to reduce the environmental
impacts of our business, but accurate
figures are very difficult to ascertain.
Since 2015 we have participated in Earth
Hour, extinguishing all non-essential
lighting for 1 hour across all of our sites.
This joint international effort illustrates
to our staff and to our community how
simple, small, individual initiatives canyield enormous results when scaled-up.

Most of our UK and European sites haveregular yoga classes and groups on-site,whilst running clubs are also popular.
Discounted access, and sometime free
day pass allocations to local gyms arealso offered across all our UK sites.
We also participate in the Bike 2 Work
scheme, whereby our staff receive
heavily subsidised bicycles (from 38%
to 48% depending on tax banding) to
get them on their bikes rather thancommuting by car.
And, of course, Rastreator even havetheir own football team!

Company Overview

Strategic Report

Corporate Governance

Financial Statements

GENDER PAY GAP

being a diverse and fair organisation, as ourwork with Stonewall Cymru and Race Council
Cymru testifies.

We are committed to reducing the gender
pay gap and overall gender imbalance in theGroup by targeting structural inequalities
and not just by setting arbitrary targets;
this way, we are laying the foundations forsustainable, long-term diversity, rather thanmerely box-ticking.
This year we signed the Women in Finance
Charter, underlining our support to
HM Treasury’s objective of increasing
the representation of women in senior
managerial roles in financial services.
Further, we are also signatories of the
Insurance Inclusion Pledge, setting out ourcommitment to improving the workplace
experience of our employees.

EQUALITY
There is no place for discrimination orharassment in the workplace, and as well as
having a sexual harassment policy in place,
we seek to reduce institutional imbalanceswhere they are likely to occur. We use a
specially-designed online tool to identify
any subliminal gender bias in our job listings,
which we then remedy. Building on this, weare developing a report that will allow us tomonitor several key candidate variables, so
we can better identify any biases.

WHISTLEBLOWING POLICY
We encourage our staff to do the right thingby providing a safe platform and process
to do so. It is always acceptable to raise
concerns even if it is later found to be a
mistake; we prefer our staff to be vigilant.

Additional Information

TRAINING AND DEVELOPMENT

We inform employees of two different
ways to report any suspected wrongdoing– internally (through designated HR
channels) and externally (through the
Financial Conduct Authority (FCA), thePrudential Regulation Authority (PRA), or
the independent charity, Public Concern atWork) – with the reassurance that they will
be taken seriously. This policy is a core partof initial training delivered during induction
and is repeated regularly throughout theyear. Currently there is a 98.5% completion
rate for the internal e-course.

DIVERSITY
Diversity and inclusivity are integral toany modern business. To ensure that weare being as inclusive as we can, we haveseveral working groups and forums acrossthe business focusing on identifying andrectifying any forms of stigma or bias, toencourage our staff to feel confident andcomfortable in who they are, and to ensurethat they are treated fairly whatever theirbackground. Age, race, gender, sexual
orientation, and disability are some of theareas we tackle. We are firmly committed toWe’ve always been keen to encourage
development and promotion from within
and, given that so many of our senior
managers have been with the company forover 10 years, we really think this pays off.
Our in-house training department, theAdmiral Academy, has been steadily growing
to meet the demands of our expanding
workforce, with thousands of hours ofclassroom-based classes delivered eachyear. On top of this, they produce a numberof industry-specific e-learning course
to ensure knowledge and understanding
throughout the workforce. Our Introduction
to GDPR, Anti-Bribery and Corruption,and Whistleblowing courses have seen
94%, 96%, and 99% completion rates,
respectively.
A willingness to learn and develop
independently is a great attribute forany employee, and something we value
so much that we implemented our Buy aBook Scheme. Employees submit requests
for books that they feel will help themcultivate and grow their careers and webuy them. This year alone we purchased
3,416 books for our staff.

82%

of staff feel they are offered training
or development to further themselvesprofessionally.

10,000th Employee
In April, we welcomed our 10,000th employee. Mostofa was our 10,000th worldwide recruit.
He joined the Claims department in Cardiff, having worked in the restaurant business for the
past 18 years. Our Recruitment team surprised Mostofa in his department to present him
with a special 10,000th employee award and doughnuts to share with his new team.

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

David Stevens, CBE
Chief Executive Officer
06 March 2018

Admiral Group plc · Annual Report and Accounts 201861

Corporate GovernanceIntroduction fromthe Chairman“During the year, the Board reflected on theimportance of the Group’s culture and held a specific
Board session in January 2018 on the trends andobservations coming out of the participation by
employees across the Group in the Best Place toWork Survey.”
DEAR SHAREHOLDER,
I am pleased to present the Group’s
Corporate Governance Report for 2018
which sets out the Admiral frameworkof governance and the approach theBoard has taken during 2018 to promote
the standards of good corporate
governance that are rightly expected byour stakeholders.
The revised UK Corporate Governance
Code issued in July 2018, which applies
to the Group with effect from 1 January
2019, contains significant amendments
to the previous version issued in 2016.
As a result, the Board has set spenttime reviewing how the updated
provisions will be implemented andwhat amendments will be required
to enhance our current reporting andprocesses. We are already well placed
to comply with the changes containedin the new Code, however, we will reportagainst the principles and provisions in
the new Code in more detail in our 2019
Annual Report and Accounts.
During the year, the Board reflectedon the importance of the Group’s
culture and held a specific Board
session in January 2018 on the trends
and observations coming out of the62

Admiral Group plc · Annual Report and Accounts 2018

participation by employees acrossthe Group in the Best Place to Work
Survey. Admiral has a strong and uniqueculture – a key differentiator fromour competitors. This will continue
to be a focus of the Board and,
consequently, we will allocate Board
time to the assessment and monitoringof the Group’s culture to ensure thatit remains aligned with the Group’s
purpose and values.
Customer outcomes were also
considered by the Board in April 2018.
The session focused on the Admiral
brand and the development of customer
experience and oversight, as well as how
the Group’s customer journey comparedagainst competitors.
Succession planning remains an areaof focus as the Board seeks to ensurethat the composition and balance of
the Board is reviewed and refreshed
where necessary; that continuity is
maintained, and that directors with theappropriate skills and experience join
the Board to bring fresh perspective
and challenge to the Group’s strategy
in the markets in which it operates.
In this context, there were a numberof changes to the composition of theBoard in 2018. I was pleased to welcome
Andy Crossley, who joined the Board as a
Non-Executive Director and member ofthe Audit Committee in February 2018,
Mike Brierley, who joined the Board as a
Non-Executive Director and member ofthe Audit Committee in October 2018,
and Karen Green, who joined the Board
as a Non-Executive Director and Chairof the Audit Committee in December
2018. Karen succeeds Colin Holmes,
who stepped down as a Non-Executive
Director, Senior Independent Director
and Chairman of the Audit Committee
in December 2018 after 8 years on
the Board. I would like to take thisopportunity to thank Colin for his loyal
service, wise counsel and excellent
contribution to the Admiral Groupduring the time he has been on theAdmiral Board.
An externally facilitated evaluationis due to take place later in 2019 and,
therefore, the process of evaluating
the Board’s performance this year
consisted of each Board member
completing a questionnaire detailing
specific areas of focus for the Board
including succession planning and
Board composition, the priorities
for change, the impact of previous

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

evaluations, and board expertise to meet
future challenges, particularly in the digitaland technology sectors. The results of thecompleted questionnaires then formed thebasis for discussion when the results of theevaluation and areas for development werediscussed and considered by the Board at
the meeting in January 2019. A summaryof the outcomes of the Board’s discussion
and consideration of the results of theevaluation are set out in more detail at
page 68 of this report.
This Corporate Governance Report isstructured in order to demonstrate toshareholders and other stakeholders how
the Board has sought during the year tocomply with each section of the Code Leadership; Effectiveness; Accountability;
and Relations with Shareholders.
Remuneration is dealt with in the separate
Remuneration Report and details of theGroup’s Corporate Social Responsibility(CSR) reporting can be found at pages
58 to 61.

Annette Court
Chairman
6 March 2019

Admiral Group plc · Annual Report and Accounts 201863

Corporate Governance

Board of Directors
David Stevens, CBE
Chief Executive Officer

Geraint Jones
Chief Financial Officer

Mike Brierley
Non-Executive Director

Karen Green
Non-Executive Director

Senior Independent
Director of Jardine Lloyd
Thompson Group plc.

Trustee of the Waterloo
Foundation––

Non-Executive Director of
Phoenix Group Holdings plc.

CURRENTAPPOINTMENTSCOMMITTEEMEMBERSHIP

Annette Court
ChairmanCouncil Member,
Lloyd’s of London.
Deputy Chairman andActing Chair, Aspen
Managing Agency Ltd.

APPOINTEDBACKGROUND
AND EXPERIENCE

Vice President, InsuranceInstitute of London

64

CEO of Europe General
Insurance for Zurich
Financial Services anda member of the Group
Executive Committee
from 2007-2010. Former
CEO of Direct Line Group(formerly RBS Insurance)and member of the
RBS Group Executive
Management Committee.
Previously a member
on the Board of the
Association of British
Insurers (ABI).

David is a founder Directorof Admiral and was
recruited in 1991 to set
up the Admiral business.

Originally appointed
to the Board in 2012,
subsequently appointed
to Chairman role in 2017

Originally appointed
to the Board in 1999,
subsequently appointed
to CEO role in 2016

Prior to joining AdmiralDavid worked at McKinsey& Company, in the
Financial Interest Group,and Cadbury Schweppes in
the UK and the USA.
David has an MBA fromINSEAD and he wasawarded a CBE in 2010 forservices to business andthe community in Wales.

Admiral Group plc · Annual Report and Accounts 2018

Geraint’s responsibilities
include finance,
investments and investor
relations. He joined
Admiral in 2002 and held anumber of senior financepositions including Headof Finance, before being
promoted to Deputy
Chief Financial Officer
in January 2012 and Chief
Financial Officer inAugust 2014.
A Fellow of the Instituteof Chartered Accountantsin England and Wales,
Geraint spent the earlypart of his career as anexternal auditor at Ernst& Young and KPMG.

Appointed in 2014

Mike has 35 years’
experience in Chief
Financial Officer (CFO)
roles within the financial
services industry. Most
recently Mike was CFO of
Metro Bank PLC between
2009 and 2018, helping
lead the business fromstart-up to a profitable
FTSE250 Bank. He spentseven years at Capital One
Europe as CFO Europe, CFO
UK and Chief Risk Officer
Europe. He has also worked
as CFO for Royal Trust
Bank, Financial Controller
at Industrial Bank of Japan,
CFO of Gentra Limited andDirector, Business Risk
at Barclaycard. Mike is a
Fellow of the Institute ofChartered Accountants in
England and Wales.

Karen Green is theformer CEO of Aspen
UK, comprising theprincipal UK insurance andreinsurance companiesof Aspen Insurance
Holdings. Other senior
Aspen positions included
Group Head of Strategy,
Corporate Development,
Office of the GroupCEO and a member of
the Group Executive
Committee for 12 years.
Prior to that, she held
various corporate finance,
M&A and private equity
roles at GE Capital Europe
and Stonepoint Capital
having started her careerin investment banking
at Baring Brothers andSchroders.

Appointed in
October 2018

Appointed in
December 2018

Company Overview

Strategic Report

Justine Roberts, CBE
Non-Executive Director

CEO & Founder, Mumsnet.
com & Gransnet.com
Advisory board member ofBritain Thinks and Portland
Communications

Justine founded Mumsnet in2000 and is responsible forcreation, strategic direction
and overall management. In
May 2011, Justine founded
Gransnet, a sister site to
Mumsnet, for the over-50s.
Before that Justine wasa freelance football andcricket journalist for theTimes and Daily Telegraph,after working for DeutscheBank, managing the South
African equity operationin US.

Corporate Governance

Financial Statements

Additional Information

Owen Clarke

Jean Park

Manning Rountree

Andy Crossley

Non-Executive Director

Non-Executive Director

Non-Executive Director

Non-Executive Director

Chairman of Equistone
Partners Europe, ‘Equistone’(formerly Barclays Private
Equity, ‘BPE’)

Non-Executive Director of
Murray Income Trust plc.

Chief Executive Officer andDirector of White Mountains
Insurance Group, Ltd.

Non-Executive Director andChair of Audit Committee at
Vitality Health and Vitality
Life

Owen was Chief Investment
Officer of Equistone from2011 to 2017. He previously
led several managementbuy-outs for BPE in theinsurance and consumer
finance sectors, including
BPE’s participation in theManagement Buy Out of
Admiral and was a director of
Admiral from 1999 to 2004.
He also led BPE’s own buy
out from Barclays to form
Equistone in 2011.

Jean was Group Chief Risk
Officer at the Phoenix
Group from 2009 until June
2013, during which time sheheld responsibility for theGroup’s relationship withthe regulator and founded
the Board Risk Committee.
Previously, she was Risk
Management Director of the
Insurance and Investments
division of Lloyds TSB
and, before that, Head ofCompliance and Audit at
Scottish Widows.

Non-Executive Director of
the National House Building
Council

Director of Build America
Mutual Assurance Company

Manning joined White
Mountains in 2004 and is theformer President of White
Mountains Advisors andWhite Mountains Capital.
Prior to joining White
Mountains, Manning spent
two years with Putnam
Investments and three years
with McKinsey & Company.

Jean is a Member of theInstitute of Chartered
Accountants of Scotland.

Appointed in 2016

Appointed in 2015

Appointed in 2014

Appointed in 2015

Audit Committee member

Remuneration Committee member

Committee ChairGroup Risk Committee member

Nomination and Governance Committee member

Senior Independent Director

Andy has 32 years’
experience within thefinancial services sector,
most recently as Chief
Financial Officer at Domestic& General Group from 2014
to 2017. He spent 14 years
at Prudential plc from 2000
as Director, Group Finance;
Group Chief Risk Officer;
and CFO and Deputy Chief
Executive of Prudential UK.
He previously held senior
manager roles at Legal &General Group plc, where
he was Group Financial
Controller, and Lloyds Bankplc. Andy is a Fellow of
the Institute of Chartered
Accountants.

Appointed in 2018

Admiral Group plc · Annual Report and Accounts 201865

Corporate Governance

Governance Report
COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE
During the year under review, the Group complied with all the provisions of the UK Corporate Governance Code 2016 (theCode) other than the exception noted below that we reported in the 2017 Annual Report and Accounts and is applicable for theperiod between 1 January 2018 and 27 February 2018.
• Provision C.3.1 – (regarding having at least three independent non-executive directors serving on the Audit Committee)
Penny James, who served as an independent non-executive member of the Audit Committee, stepped down as a Nonexecutive director on 8 September 2017, following a change in her Executive role. From this date up to the appointment ofAndy Crossley as an independent non-executive member of the Board and Audit Committee on 27 February 2018, following
regulatory approval, the Audit Committee only had two independent non-executive members and did not meet the Coderequirements to have at least three independent non-executive members. The Group fully complied with this requirement
apart from this period from 8 September 2017 to 27 February 2018 and held four meetings during the period, three of which
Andy Crossley attended in 2018.

LEADERSHIPThe Role of the Board
The Board is the principal decisionmaking forum for the Group providing
entrepreneurial leadership, both directly
and through its Committees, anddelegating authority to the Executive
team. The Board is responsible fororganising and directing the affairs of
the Group in a manner that is most likely
to promote its success for the benefitof its members as a whole. The Board isaccountable to stakeholders for setting
and achieving the Group’s strategic
objectives; for the creation and deliveryof strong sustainable financial andoperational performance; for ensuringthat in carrying out its duties the Group’s
legal and regulatory obligations are being
met; and for ensuring that it operates
within appropriately established risk
parameters.
The Group’s UK regulated entities are
responsible to the Financial Conduct
Authority (FCA) and the Prudential
Regulatory Authority (PRA) for
ensuring compliance with the Group’s
UK regulatory obligations and that
dealings with the FCA and PRA are
handled in a constructive, co-operative
and transparent manner. Similar
provisions apply in respect of the Group’s
international businesses with regard to
the relevant regulatory authorities inthose overseas jurisdictions in which theGroup also operates.

66

Admiral Group plc · Annual Report and Accounts 2018

The Board has adopted a formal scheduleof matters reserved for the Board’s
consideration. This is monitored by theCompany Secretary and reviewed by
the Board on an annual basis. Specificmatters reserved to the Board include theapproval of:• The Group’s long-term objectives andcorporate strategy;• Operating and capital budgets,financial results, and any significant
changes to accounting practices orpolicies;• The Group’s capital structure;• Results and financial reporting;• The system of internal control andrisk management;• The Group’s overall risk appetite;• Changes to the structure, size andcomposition of the Board, including
new appointments;• Succession plans for the Board andsenior management;• Dividend policy and proposals for
dividend payments;• Major acquisitions, disposals, and othertransactions outside delegated limits;• The annual review of its own
performance and that of its Board
Committees;• Annual review of the Group’s Board
policies; and• The review of the Group’s overall
corporate governance arrangements.

BOARD ACTIVITY DURING 2018
The Board met on seven occasions in 2018with all these meetings being held overtwo days and one of the meetings being aseparate strategy meeting held offsite.
In addition to standing items considered
at each Board meeting, such as updates
on the Group’s preparations for Brexit,
the main items considered by the Board
during the year included: ongoing
reviews of the Group’s UK car insurance
business, presentations from the Group’s
overseas insurance and price comparison
businesses, presentations from theGroup’s loans and household business,
updates on succession planning and thereview of governance arrangements.
The Board also received updates on data
and analytics, information security,
diversity and understanding the viewsof customers.
On the agenda for 2019
– Further consideration of customer
insight and customer journey;– Implementation of therecommendations of the external
governance review at Group andsubsidiary level and requirements of
the new Corporate Governance Code;– Focus on the next generation oftalent across the Group to ensure
there is a diverse pipeline of talentavailable for succession planning forsenior roles;

Company Overview

Strategic Report

Corporate Governance– Ensure that the Group’s technology and digital capabilities areappropriate as the Group looks to explore opportunities beyond
car insurance;– Focus on enhancing the Group’s Cyber and Information Security
procedures; and– Continue to devote Board time to consideration of the viewsof the Group’s key stakeholders in implementing the Group’s
strategy and ensure there is regular engagement throughappropriate channels.
At each scheduled meeting the Board receives updates from the
Chief Executive and Chief Financial Officer as to the financial
and operational performance of the Group and any specificdevelopments in the areas of the business for which they are directly
responsible and of which the Board should be aware. In addition,
there is an update provided at each Board on the matters discussed
and considered at each of the Group’s principal subsidiary Board
meetings. An annual schedule of agenda items is reviewed andupdated at each meeting to ensure that items are considered at theappropriate point in the financial and regulatory cycle. Meetings are
structured so as to allow for consideration and debate of all matters.
The head of the Group’s European insurance businesses and the CEOof UK Insurance (respectively Milena Mondini de Focatiis and Cristina
Nestares) together with the Chief Risk Officer (James Armstrong)
are invited to attend every Board meeting and regular Board dinners.
This has proved an effective means of ensuring that senior managers
below Board level have exposure to and gain experience of theoperation of the Board.
In addition to the regular consideration of financial and operating
performance and risk management and compliance, the Board
received presentations on a variety of topics including updates fromthe management teams of each of the Group’s businesses and regularreviews of Solvency II related activities such as progress of the Internal
Model Application Process (IMAP).

Financial Statements

Additional Information

In addition to her visits to the Group’s UK operations, the Chairman
has sought to visit each of the Group’s overseas operations this year
and Non-Executive Directors are invited to join either her or the Chief
Executive on one or more of their overseas visits each year. The NonExecutive Directors and the Chairman met during the year without
the Executive Directors being present. Non-Executive Directors also
attended briefing sessions in Cardiff on different aspects of theGroup’s UK business. In order to increase their understanding of thedepth and breadth of management across the Group below Board
level, the Non-Executive Directors and the Chairman also attended
a dinner with members of the Group’s senior management teamwithout the Executive Directors being present. When management
teams present to the Board on their operations they are also invited
to join the Board for dinner which gives the opportunity for informalinteraction between Directors and management.

MEETINGS AND ATTENDANCE
Directors are expected to attend all meetings of the Board and theCommittees on which they serve and to devote sufficient time to
the Group to perform their duties. Where Directors are unable toattend meetings they receive papers for that meeting giving themthe opportunity to raise any issues with the Chairman in advanceof the meeting. The number of scheduled Board meetings andCommittee meetings, of which they are a member, attended byeach Director during 2018 is provided in the table below. In addition
to the seven scheduled Board meetings held during the year, there
was an additional Board meeting held in June 2018 that was called atshort notice and was attended by all Board members. Similarly, thenine Audit Committee meetings, set out in the table below, includes
two additional Audit Committee meetings that were called at short
notice and held in February and August 2018.

Admiral Group plc · Annual Report and Accounts 201867

Corporate Governance

Governance Report continued
MEETINGS AND ATTENDANCE CONTINUED

Total meetings heldBoard
meetings

Audit
Committee
meetings*6

Group Risk
Committee
meetings

Nomination and
GovernanceCommittee
meetings

Remuneration
Committee
meetings

8

9

5

5

8

5

4/4 *

8

Annette Court (Chair)

85David Stevens (Chief Executive Officer)*2

8

1/2

Geraint Jones (Chief Financial Officer)

8

Owen Clarke

8

9

5

Colin Holmes

8

9

5

*1

Jean Park8

5Manning Rountree*3

8

4/5 *

Justine Roberts888Andrew Crossley*4

6/6 *

6/6 *

Michael Brierley*5

1/1 *

2/2 *

*1.	Annette Court stepped down as a member of the Remuneration Committee when Owen Clarke became Chairman of the Remuneration Committee with effectfrom 14 May 2018.
*2	David Stevens was unable to attend the Group Risk Committee meeting on 16 January 2018 due to his attendance as Group CEO at an internal meeting that could
not be rescheduled, David Stevens stepped down as a member of the Group Risk Committee with effect from 29 March 2018 but continues to attend periodicallyand did so for one of the three remaining meetings in 2018.
*3	Manning Rountree was unable to attend the Group Risk Committee meeting on 15 November 2018 due to a pre-existing business commitment that unfortunately
could not be rescheduled to accommodate this Group Risk Committee meeting.
*4	Andy Crossley joined the Group Board and the Audit Committee on 27 February 2018.
*5	Michael Brierley joined the Audit Committee and the Group Board on 5 October 2018.
*6	Karen Green was appointed on 14 December 2018 and did not formally attend any meetings prior to this.

Agendas and papers are circulated to the Board electronicallyin a timely and secure manner in preparation for Board andCommittee meetings. The Board agenda is structured by the
Chairman in consultation with the Company Secretary andChief Executive. Routine Board papers are supplemented
by information specifically requested by the directors fromtime to time. All Board and Committee meetings during theyear were held in an open atmosphere conducive to robust
and constructive challenge and debate. All Directors have,therefore, been able to bring independent judgement to bearon issues such as strategy, risk management, performance,and resources. Additional meetings are called when required
and there is contact between meetings, where necessary, tomaintain continuity of the Group’s business plan.

THE COMPANY SECRETARY
All the Directors have access to the advice and services of theCompany Secretary. He has responsibility for ensuring that
Board procedures are followed and for advising the Board,
through the Chairman, on governance matters. The Company
Secretary provides updates to the Board on regulatory andcorporate governance issues, new legislation, and Directors’

68

Admiral Group plc · Annual Report and Accounts 2018

duties and obligations. The appointment and removal of theCompany Secretary is one of the matters reserved for the Board.

BOARD EFFECTIVENESS
This year the Board evaluation consisted of the Chairman,
supported by the Company Secretary, compiling acomprehensive questionnaire that was circulated by theCompany Secretary for completion by all directors andBoard attendees. The focus of the evaluation was on:
the performance of the Board and its effectiveness inmanaging Board time to ensure there was sufficient timeto provide strategic and operational oversight of the Groupin the context of the various markets in which it operates;
succession planning and consideration of the priorities forchange as identified by Board members and attendees.
The questionnaire considered:• Board composition and utilisation of the experience andexpertise of board members;• The Board’s understanding of the views and requirementsof customers, employees, shareholders, and regulators;

Company Overview

Strategic Report

Corporate Governance• Board dynamics and the interaction between the Chairman,
Non-Executive Directors and management;• Time management of Board meetings;• The effectiveness of the Board in considering the Group’s risk
management framework and internal controls;• The Board’s strategic and operational oversight;• Succession planning including the oversight of the Group’s
processes for managing, developing and retaining talent;• Management of Group subsidiaries;• Focus of Board meetings; and• Priorities for change that would improve Board performance.
The results of the review were discussed by the Board in January
2019. It was agreed that good progress had been made in
implementing the recommendations identified in the evaluation
carried out in 2017, particularly around succession planning andtalent development and improvement in the content and quality ofBoard papers.
Key recommendations identified in the review to enhance theBoard’s effectiveness included:• Having more regular sessions for the Board to consider andreview customer insight and customer experience;• Ensuring that there was appropriate time on the Board agenda
to understand the views and requirements of key stakeholders,
including: major investors, employees and customers;• Focusing on the technological issues facing the company;

Financial Statements

Additional Informationconsidered and discussed with the Chairman the comments andfeedback that had been received from the Directors as part of
the Chairman’s evaluation questionnaire and was able to confirm
that the performance of the Chairman is effective and that she
demonstrates appropriate commitment to her role.

THE ROLES OF THE CHAIRMAN, SENIOR INDEPENDENTDIRECTOR AND CHIEF EXECUTIVEThe Chairman is primarily responsible for leading the Board, setting
its agenda and monitoring its effectiveness. She is supported by
the Senior Independent Director, who acts as a sounding board
and serves as an intermediary for the other Directors. Neither are
involved in the day-to-day management of the Group.
Save for the matters reserved for the Board, the Chief Executive
Officer (with the support of the Executive Directors and the Senior
Executives) is responsible for proposing the strategy to be adopted
by the Group, running the business in accordance with the strategy
agreed by the Board and implementing Board decisions.
The Board has approved a statement that sets out the clear divisionof responsibilities between the Chairman and Chief Executive
Officer. This and matters reserved for decision by the Board arereviewed annually.

The Chairman• Runs the Board and sets its agenda, with an emphasis on
strategic issues.
• Ensures the Board has effective decision-making processes andapplies sufficient challenge to proposals.

• Continuing to ensure that Board papers are succinct and of theappropriate length so that Board time is focused on effectively
challenging and debating the key issues for discussion andapproval; and• Ensures the Board has an appropriate balance of skills,
knowledge, experience and diversity.

• Continued oversight of the implementation of therecommendations in the governance review and changes
required under the new Code.

• Communicates with major shareholders and ensures the Board
understands their views.

Overall the review found that the Board continued to work
effectively and that each Director demonstrates full commitment
to his/her duties and contributes in an open and transparent way,enabling a detailed level of debate and discussion around material
matters affecting the Group.

• Leads the annual Board evaluation.

The performance of the Chief Financial Officer is appraisedannually by the Chief Executive Officer, to whom he reports. The
Chairman, taking into account the views of the other Directors,
reviews the performance of the Chief Executive. The performanceof the Chairman is reviewed by the Board led by the Senior
Independent Director (“SID”). Following the latest review, the SID• Leads the induction and development plans for new and existing
Board members.

• Ensures the Board receives accurate, timely and clear information.

Senior Independent Director• Supports the Chairman in the delivery of their objectives.
• Acts as a sounding board for the Chairman and serves as anintermediary for the other Directors.
• Available to shareholders if they have concerns that cannot be
resolved through the normal channels.
• Works with the Chairman and other Directors/shareholders toresolve significant issues where necessary.
• Leads the annual performance evaluation of the Chairman.

Admiral Group plc · Annual Report and Accounts 201869

Corporate Governance

Governance Report continued
The Chief Executive Officer• Runs the Group’s business and delivers its commercial objectives.
• Proposes and develops the Group’s strategy, in close consultation with the Chairman and the Board.
• Implements the decisions of the Board and its Committees.
• Ensures operational policies and practices drive appropriate behaviour, in line with the Group’s culture.
• Leads the communication programme with shareholders and other key stakeholders, including staff.
• Ensures management provides the Board with appropriate information and necessary resources.

BOARD BALANCE AND INDEPENDENCE
In the context of recent and forthcoming Board changes, careful consideration continues to be given to the composition andbalance of the Board. As a result, the Group continues to monitor the need to refresh Board and Committee membership in anorderly manner so as to maintain the continuity of Board process and the strength of personal interaction which underlies theeffectiveness of the Board as a team. Following recent appointments, the Board remains satisfied that it has the appropriatebalance of skills, experience, independence and knowledge of the Group to enable it and its Committees to discharge theirduties and responsibilities effectively, as required by the Code. In addition, the Directors are aware of their legal duties to act
in a way they consider, in good faith, will be most likely to promote the success of the Company for its shareholders, as well as
considering the interests of other stakeholders.
The table below details the length of service of the Chairman and each of the Non-Executive Directors and illustrates thebalance of experience and fresh perspectives.

Director

Date of appointment

Current length of service asa Non-Executive Director at
31 December 2018

Annette Court

21 March 2012

6 years 9 months

Jean Park

17 January 2014

4 years 11 months

16 June 2015

3 year 6 months

Owen Clarke

19 August 2015

3 year 4 months

Justine Roberts

17 June 2016

2 year 6 months

Andy Crossley

27 February 2018

10 months

Mike Brierley

5 October 2018

3 months

Karen Green

14 December 2018-

Manning Rountree

The Board currently comprises ten Directors, the Chairman (who was independent on appointment), two Executive Directors,
and seven independent Non-Executive Directors. As can be seen from the Directors’ biographies on pages 64 to 65, theDirectors have a broad range of skills and experience and can bring independent judgement to bear on issues of strategy,
performance, risk management, resources and standards of conduct which are integral to the success of the Group.

70

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate GovernanceAppointments to the Board are the responsibility of the Board
as a whole, acting on the advice and recommendations of theNomination and Governance Committee. The Nomination and
Governance Committee seeks to balance the retirement andrecruitment of Non-Executive Directors ahead of their replacement
so as to avoid dislocation of Board process by losing experienceand skills. Appointments are made on merit and against objective
criteria, having due regard to the benefits of diversity, including
gender, with a view to ensuring the Board has the appropriate
mix of personality, skills, and experience. During the year underreview, following a formal, rigorous and transparent process led
by the Nomination and Governance Committee and supported byexternal search consultants, the Board was pleased to appoint as
independent Non-Executive Directors: Andy Crossley with effectfrom 27 February 2018; Mike Brierley with effect from 5 October
2018 and Karen Green with effect from 14 December 2018 bothhaving attended relevant meetings as guests during the year.
All of them will be subject to election by shareholders at theforthcoming AGM in accordance with the Group’s Articles.
Manning Rountree is the Chief Executive Officer for White
Mountains Insurance Group Limited (White Mountains) and acts asBoard Observer for White Mountains on the Board of the Group’s
US price comparison subsidiary, in which White Mountains has
a minority shareholding. Given the relatively small size of White
Mountains’ shareholding in an overseas Group subsidiary company,
the Board has determined that Manning Rountree remains
independent in character and judgement and that his attendanceat Inspop USA LLC Board meetings does not affect his ability topresent an objective, rigorous and constructive challenge to theassumptions and viewpoints presented by Management and theBoard. A process for managing any potential conflicts has been
agreed by the Board such that Manning Rountree will recuse
himself from any Group Board discussions where a potential conflictof interest with his role with White Mountains has been identified.
The Board, having given thorough consideration to the matter,
considers the seven Non-Executive Directors to be independentand is not aware of any relationships or circumstances, other than
the above, which are likely to affect, or could appear to affect,
the judgement of any of them. It is the view of the Board that theindependent Non-Executive Directors have sufficient time available
to perform their duties and are of sufficient calibre and number that
their views carry significant weight in the Board’s decision making.
Independent Non-Executive Directors are currently appointed for
fixed periods of three years, subject to election by shareholders. The
initial three-year period may be extended for two further threeyear periods subject to re-election by shareholders. Their letters of
appointment may be inspected at the Company’s registered officeor can be obtained on request from the Company Secretary.

Financial Statements

Additional Information

Colin Holmes was the Senior Independent Non-Executive Director(SID) for the year under review. Owen Clarke was appointed as SID,
subject to regulatory approval, when Colin Holmes stepped down
as a Non-Executive Director of the Board with effect from 31
December 2018. The Board is satisfied that Owen has the requisiteknowledge and experience gained through his Board position, his
Chairmanship of the Remuneration Committee, his membershipof the Audit and Nomination and Governance Committees. In
addition, Owen has financial services experience, gained throughhis appointment as Chief Investment Officer of Equistone Partners
Europe. Owen is available to shareholders if they have concernsthat contact through the normal channels of Chairman, Chief
Executive, or Chief Financial Officer have failed to resolve or forwhich such contact is inappropriate. As Chair of the Remuneration
Committee, Owen is also available to discuss remuneration matterswith shareholders. He is also responsible for leading the Board’s
discussion on the Chairman’s performance and the appointment of
a new Chairman, as and when appropriate.
At the Group’s AGM on 26 April 2018, new Articles of Association
were approved by shareholders which provide that all directors
will retire and offer themselves for re-election at each AGM, inaccordance with the UK Corporate Governance Code and theCompany’s current practice. Therefore, all Directors will be
submitting themselves for re-election by shareholders at theforthcoming AGM. The Board is satisfied that all are properly
qualified for their reappointment by virtue of their skills andexperience and their contribution to the Board and its Committees.
The Directors are given access to independent professional advice
at the Group’s expense, should they deem it necessary to carry out
their responsibilities.

PROFESSIONAL DEVELOPMENT
On appointment, Directors take part in a comprehensive
induction programme whereby they receive financial andoperational information about the Group; details concerning their
responsibilities and duties; as well as an introduction to the Group’s
governance, regulatory and control environment.
This induction is supplemented by visits to the Group’s head
office in Cardiff and certain overseas offices, and meetings withmembers of the senior management team and their departments.
Development and training of Directors is an ongoing process.
Throughout their period in office the Directors are regularly
updated on the Group’s business; legal matters concerning theirrole and duties; the competitive environments in which the Group
operates; and any other significant changes affecting the Groupand the industry of which it is a part.
The Board receives presentations from senior managers within
the Group on a regular basis and Non-Executive Directors areencouraged to make informal visits to different parts of the Groupto meet with local management.

Admiral Group plc · Annual Report and Accounts 201871

Corporate Governance

Governance Report continued
ENGAGEMENT WITH SHAREHOLDERSThe Company attaches considerable importance tocommunications with shareholders and engages with them
regularly. Open and frequent dialogue with investors enables
them to understand fully the Group’s strategy, objectives
and governance. The Investor Relations team has day-today primary responsibility for managing communications
with institutional shareholders through a combination ofbriefings to analysts and institutional shareholders, both at
the half-year and full-year results. A number of analysts andinvestors visited the Group’s Cardiff office during the year tomeet with the Executive Directors and senior management
in order to get a better understanding of how the Group
operates and how it intends to achieve its strategic andoperational objectives. Senior executives from the Group’s
overseas businesses also visit the UK in order to present
to, and meet with, analysts and investors. Site visits andindividual discussions with the Executive Directors are also
arranged throughout the year with individual shareholders.
In September 2018, the Group held an EU Investor Day at its
offices in Rome which was attended by almost 40 analysts andinvestors. The purpose of the event was to provide addition
information on the Group’s strategic objectives of theEuropean insurance businesses. The event was a success withpositive feedback received from investors that attended.
In addition, the Chairman had individual meetings during theyear with major shareholders and reported to the Board on
issues raised with her.
This is supplemented by feedback to the Board on meetings
between Management and investors. In addition, the Investor
Relations team presented an update to the Board in June2018 which considered the Group’s share price performancein the context of the market in which the Group operates,
including regulatory changes, and provided further analysis
on particular areas where communication to investors
could perhaps be enhanced. The Investor Relations teamalso regularly produces an Investor Relations Report thatis circulated to the Board for their consideration which
provides an update on Investor Relations activity in theprevious quarter. The Report contains an analysis of shareprice performance; a summary of analyst reports received
during the month and of meetings that have been heldwith investors and analysts; together with details of any
significant changes to the shareholders’ register.
The Senior Independent Director has specific responsibility to
be available to investors who have any issues or concerns, andin cases where contact with the Chairman, Chief Executive
Officer and Chief Financial Officer has either failed to resolve
their concerns, or where such contact is inappropriate. No
such concerns have been raised in the year under review.

72

Admiral Group plc · Annual Report and Accounts 2018

All shareholders are invited to attend the Company’s
Annual General Meeting (AGM). The Chairs of the Audit,
Remuneration, Nomination and Governance and Group Risk
Committees attend the AGM along with the other Directors
and are available to answer shareholders’ questions on theactivities of the Committees they chair. Shareholders arealso invited to ask questions during the meeting and have an
opportunity to meet with Directors after the formal businessof the meeting has been concluded. Details of proxy voting by
shareholders, including votes withheld, are made available on
request and are placed on the Company’s website following
the meeting.
The Group maintains a corporate website (www.admiralgroup.
co.uk) containing a wide range of information of interest to
institutional and private investors. The major shareholders of
the Company are listed on page 110.

ENGAGEMENT WITH OTHER STAKEHOLDERS
The regular channels of communication with both the FCA
and PRA that existed throughout the year were supplemented
by the FCA and PRA being invited to attend Board meetingsin 2018. The FCA attended the Board in January 2018 and the
PRA the Board in August 2018. Both sessions were valuable
in giving the Board an opportunity to hear directly the viewsof both regulators and to understand, and challenge themon, the rationale for their decisions to the extent that they
impact the Group.
Understanding the views of customers also remained a key
area of focus for the Board. A specific session at the Board in
April 2018 considered feedback from customers on the Admiral
brand, the customer journey experience and how this could be
developed to enhance the experience for the customer.
Mindful of the changes required under the new Code forincreased engagement with the workforce, the Group hasrelaunched its existing Staff Forum which will be called the
Employee Consultation Group (ECG). The ECG will consist ofelected representatives from across the Group. The Chair isan employee and a staff representative and will attend twoGroup Board meetings per year. Non-Executive Directors will
also be invited to attend each ECG meeting. The purpose of the
ECG will be as a forum for staff consultation, gathering staff
opinion and fostering a safe environment in which to generate
and explore ideas. It is intended that the ECG will be an informal
channel that will enable staff to share ideas and concerns withsenior management and the Board on a regular basis.

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

CONFLICTS OF INTEREST

BOARD COMMITTEES

In compliance with the requirements of the Companies Act 2006
regarding Directors’ duties in relation to conflicts of interest, theGroup’s Articles of Association allow the Board to authorise potential
conflicts of interest that may arise and to impose such limits as
it thinks fit. The Company has put in place a Conflicts of Interest
Policy to deal with conflicts of interest and this was reviewed andapproved by the Board in June 2018. The Policy sets out the process
and procedure by which the Board manages potential conflicts ofinterest that may arise at Board level and within Board Committees,
and within the Group’s Subsidiary Boards. Following this review, theBoard concluded that the process continued to operate effectively.
In addition, each Board member is asked to complete, annually, aconflicts of interest questionnaire that sets out any situation inwhich they, or their connected persons have, or could have, a direct
or indirect interest that could conflict with the interests of theCompany. Any current directorships that they, or their connected
persons hold, any advisory roles or trusteeships held, together withany companies in which they hold more than 1% of the issued sharecapital are also disclosed.

The Board has delegated authority to a number of permanentCommittees to deal with matters in accordance with written
Terms of Reference. The principal Committees of the Board - Audit,
Remuneration, Group Risk and Nomination and Governance. Subject
to the exception listed above, on page 66, all comply fully with therequirements of the Code.
All Committees are chaired by an independent Non-Executive
Director, except the Nomination and Governance Committee which
is chaired by the Chairman of the Board and comprise a majority
of independent Non-Executive Directors. Appointments to theCommittees are made on the recommendation of the Nomination
and Governance Committee and 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 Committees are constituted
with written Terms of Reference that are reviewed annually toensure that they remain appropriate and reflect any changes in goodpractice and governance. These Terms of Reference are available
on request from the Company Secretary and can also be found on
the Company’s website: www.admiralgroup.co.uk. Directors are fully
informed of all Committee matters by the Committee Chairmen
reporting on the proceedings of their Committee at the subsequent
Board meeting. Copies of Committee minutes are also distributed
to the Board. Committees are authorised to obtain outside legal
or other independent professional advice if they consider it
necessary. The Chairman of each Committee attends the Annual
General Meeting to respond to any shareholder questions thatmight be raised on the Committee’s activities. An evaluation of theperformance of each Committee against the duties set out in eachterms of reference is carried out annually.

Admiral Group plc · Annual Report and Accounts 201873

Corporate Governance

The Audit CommitteeStatement from Karen Green, Chair of the Audit Committee“I am pleased to set out in this report an update on the main activities of the
Audit Committee in 2018.”
DEAR SHAREHOLDER,
This is my first report as Chair of the
Audit Committee having taken overfrom Colin Holmes, who stepped downin December 2018 after serving foreight years on the Board, including
seven years as Audit Chair. I would
like to thank Colin for his support andcommitment to ensuring an efficienthandover process and transition of the
Chair position to me. To facilitate this,I attended the meetings of the Boardand the Audit Committee as a guest
from June 2018 and also undertook aprogramme of visits and meetings at
the Company prior to being appointed
to the Board and assuming the Chair of
the Committee in December 2018.
I am pleased to set out in this reportan update on the main activities of the
Audit Committee in 2018, which wereconducted under the Chairmanship ofmy predecessor until mid-December,and hence for the majority of theperiod under review.
During the year the key areas of focusof the Committee have been to provide
support to the Board in its oversightof financial reporting and the control
environment across the Group. The
setting of insurance claims reserves toensure consistency with the Group’s
agreed reserving methodology isa key accounting judgement in theGroup’s financial statements, andthe Committee continues to placeconsiderable focus on this subject.
The analysis of outstanding claims by
Management was reviewed alongsidethat of the Groups independentactuaries and external auditor. The
continued uncertainty around theOgden discount rate was kept underreview by the Committee, along with

74

Admiral Group plc · Annual Report and Accounts 2018

the potential impact of legislativechanges to the way in which the rate
is set in the future; the Committee
received regular updates on the
progression of the Civil Liability Billand the likely timing of any subsequentchange to the Ogden discount rate.
The Committee undertook an
evaluation of the performance ofthe external auditor and concluded
that Deloitte was working effectively
as external auditor. The Committee
spent time considering the audit fee
proposed for 2018 and discussed with
Deloitte on the rationale for the year on
year increase in the fee. The Committee
also discussed the position in relation
to its external audit services contract
and considered the timing of tendering
for the external audit.
The Committee also spenttime considering the results ofManagement’s impairment testingof the Group’s investment in its
US subsidiaries, in particular theappropriateness of the underlying
assumptions and forecasts used, andthe stresses applied to the forecasts.
The Committee had regular updates,
including a separate session, on theimpact of the introduction of the new
IFRS 17: Insurance Contracts accounting
standard to ensure that the Groupwas well prepared and understoodthe implications for the Group of its
introduction in January 2019. The
introduction of IFRS 17 has since
been deferred to January 2022. The
Committee also spent time considering
the impact of IFRS 16 leases and thechanges to the new UK Corporate
Governance Code as they applied to theactivities of the Committee.

The Committee also considered andreviewed the Group’s whistleblowing
policy and the instances ofwhistleblowing that had been raised
across the Group during the year.
In addition, the Committee continued
to monitor the appropriatenessof the Group’s system of risk
management and internal control,
including the implementation of theGroup’s Minimum Control Standards’
Framework. This was introduced in 2017to provide for a consistent approachto the control frameworks deployed
across the Group as its non-UK motor
operations have continued to develop.
The Committee maintained a close
focus on the UK Motor business andalso reviewed overseas subsidiaries andthe Group’s Loans business.
I hope you find the above summary, andthe more detailed report, both usefuland informative.

Karen Green
Chair of the Audit Committee
6 March 2019

Company Overview

Strategic Report

MEMBERSHIP
Membership of the Committee at the endof the year was: Karen Green (Chair), Owen
Clarke, Andy Crossley and Mike Brierley, whojoined the Committee with effect from 5th
October 2018 having attended meetingsof the Committee and the Board as a guest
from August 2018. Two of the committee’s
members are Fellows of the Institute ofChartered Accountants in England andWales. Given the insurance and financial
services experience of the members of theCommittee, the Board considers that they
have a broad range of skills, experience andknowledge of the insurance sector, which
represents the principal market in which
the Group operates, and also the areasof consumer lending in which the Group
has a small but emerging business, suchthat they are able to effectively analyse,
challenge and debate the issues that fallwithin the Committee’s remit. The Board issatisfied that the Committee as a whole hascompetence relevant to the sector in which
the Group operates and further considers
that a number of members have recent
and relevant financial experience. The
Company Secretary acts as Secretary to theCommittee. The Committee meetsat least four times per year and has anagenda linked to events in the Company’s
financial calendar and other important
issues that arise throughout the year, whichfall for consideration by the Committee
under its remit.
The Committee is kept up to date withchanges to Accounting Standards andrelevant developments in financial
reporting, company law, and thevarious regulatory frameworks throughpresentations from the Group’s external
auditor, Chief Financial Officer and Company
Secretary. In addition, members attend
relevant seminars and conferences provided
by external bodies. The Terms of Referenceof the Audit Committee include all thematters required under the Code and arereviewed annually by the Committee.

Corporate Governance

Financial Statements

Other individuals such as the Chairman of
the Board, Chief Executive Officer, Chief
Financial Officer, Chief Risk Officer, Heads
of Compliance and Internal Audit, andrepresentatives of different parts of theGroup may be invited to attend all or partof any meeting as and when appropriate.
The Chair of the Audit Committee meets
privately with the Head of Internal Audit
on a regular basis. The external auditor was
invited to attend all of the Committee’s
meetings held in 2018, excepting those
agenda items when its own performance/
appointment was to be reviewed andprovision of non-audit services discussed.
In addition, a private meeting was held
between members of the Committee andthe auditor. The Chair also had several
private meetings with the auditor during
the year.
The Audit Committee’s primary
responsibilities are to:• Monitor the integrity of the Group’s
financial statements and any formal
announcement relating to the Group’s
financial performance, reviewing any
significant financial reporting judgements
which they contain;• Keep under review the effectiveness of
the Company’s internal financial controls,internal control and risk management
systems;• Review the Group’s procedures forhandling allegations from whistleblowers
and for detecting fraud;

Additional Information• Review the external auditor’s
independence and objectivity and theeffectiveness of the audit process; and• Review the policy on the engagement of
the external auditor to provide nonaudit services, considering the relevant
regulatory guidance regarding theprovision of non-audit services by theexternal auditor.

SUMMARY OF KEY ACTIVITIESDURING 2018
The agenda for the meetings taking
place during the year are agreed by theCommittee Chair and detail the mattersto be discussed and considered at eachmeeting. The agenda are updated regularly
to allow for new items to be included.
During the year the Committee reviewed
the following:• The Annual Report and interim results,
including key accounting judgements
and disclosures;• The Group Solvency and Financial
Condition Report;• Reports from the Internal Audit
departments within the Group on
the effectiveness of the Group’s risk
management and internal control
procedures, approval of the 2019 Audit
Plans, details of key audit findings, andactions taken by Management to manage
and reduce the impact of the risks
identified;• Monitor and assess the role andeffectiveness of the Group’s Internal
Audit functions in the context of theGroup’s overall internal control and risk
management systems;• Reports from the external auditor on
the principal findings from their reviewof the Group’s systems and controls, andon their key accounting and audit issues
and conclusions on the half and full year
reporting;• Consider and make recommendations to
the Board, to be put to shareholders fortheir approval at the AGM, in relation to
the appointment, reappointment andremoval of the Group’s external auditor;• A report from the Chair of the Group Risk
Committee on the principal risks facedby the Group and the work undertaken by
the Group Risk Committee to ensure risk
is appropriately managed;

Admiral Group plc · Annual Report and Accounts 201875

Corporate Governance

The Audit Committee continued• Continued updates on the impactof the Ogden rate change and thepotential legislative changes to themethod of setting the rate in the
future;• Presentations from independentactuaries to assist the Committee inconcluding on the adequacy of theGroup’s reserves;• Initial impact assessment of IFRS 17,
the updated standard on insurance
contract accounting;• Reports from Deloitte, the external
auditor, on their proposed audit
scope, plan and findings;• Proposed external audit fee and thedrivers of the year on year increase;• Confirmation of the external auditor’s
independence;• Performance and effectiveness of theInternal Audit department;• Significant findings from reports fromInternal Audit including Management
responses to the conclusions set out
in the reports;• The effectiveness of the Group’s
Whistleblowing Policy which sets
out the arrangements for raising andhandling allegations from whistle
blowers and receiving regular reports
on instances of whistleblowing thathave been raised;• Reports on the controls in placein respect of the Group’s overseas
subsidiaries and in relation to cybersecurity;• The Committee also had presentations
and discussions on a range of otherimportant issues including: the impactof implementing IFRS 9 and IFRS 15,
the expected impact of accountingchanges due to IFRS 16, an update on
the embedding of the Group MinimumControl Standards Framework andSolvency II Technical Provisions andother Solvency II reporting;76

Admiral Group plc · Annual Report and Accounts 2018

• The timing and process for tendering
for the external audit;• Its own Terms of Reference;• Its own effectiveness; and• Meetings held with the External
Auditors without Management being
present.

SIGNIFICANT ISSUES CONSIDERED
BY THE COMMITTEE IN RELATION
TO THE FINANCIAL STATEMENTS
After discussion with both Management
and the external auditor, the Audit
Committee determined that the key
risks of misstatement of the Group’s
financial statements related to insurance
liabilities and profit commissions.
These issues were discussed withManagement during the year and withthe external auditor at the time theCommittee reviewed and agreed theexternal auditor’s Group audit plan;
when the external auditor reviewed
the interim financial statements inAugust 2018 and also at the conclusionof the external audit of these full year
financial statements.

VALUATION OF INSURANCE
CLAIMS RESERVES
Given the important judgements
involved in estimating outstanding
claims, the Committee continued
to spend significant time reviewing
and challenging the approach andmethodology adopted by Management
in setting reserves for insurance
liabilities in the financial statements toensure that it remained consistent with
the Group’s stated reserving approachto set claims reserves at a prudent level.
The Committee held separate meetings
with the Group’s external actuaries,
Lane Clarke and Peacock (LCP) at which
there was challenge and debate on
the best estimates developed by theexternal actuaries. At these meetings

Management provided further
information on the reserving levels
proposed and were challenged by theCommittee as to their adequacy andlevel of inherent prudence.
Given the continued uncertainty aroundchanges to the Ogden discount rate, theCommittee kept developments in thisarea under review to ensure that it waswell prepared to manage any impact on
its reserves. The Committee received
regular updates on the progression of
the Civil Liability Bill intended to reform
whiplash claims and the calculation of
the Ogden discount rate through thevarious Parliamentary stages and theassociated timing considerations forany future changes to the Ogden rate.
The Civil Liability Bill was passed on 21
November 2018 and received Royal
Assent on 20 December 2018. The
latest date for the new Ogden discountrate to be announced is 6 August 2019.
The Committee has considered and issatisfied that, despite the considerable
uncertainty that remains in relation to
the new rate, a 0% Ogden rate reflects anappropriate best estimate assumption
for the 2018 financial statements.
Whilst acknowledging that the settingof reserves for claims which will settle in
the future, is a complex and judgmental
area and having had the opportunity
at the separate meetings referred
to above to consider and question
the recommended best estimates,
the Committee is satisfied that an
appropriate process has been followed
and that there has been sufficient
scrutiny, challenge and debate to giveconfidence that the reserving levels set
provide an appropriate margin above
best estimates, noting the continued
high level of prudence that remains
within the reserves.

Company Overview

Strategic Report

The Committee also received an updatefrom the auditor regarding the procedures
it had used to test Management’s
methodology in setting the reserves andconsidered the auditor’s assertion that it
had challenged the reserving approachtaken by Management and was satisfied
with Management’s assumptions andthat the Group’s approach to setting
reserves was in compliance with current
accounting standards.

IMPAIRMENT TESTING ON
THE GROUP’S INVESTMENT IN
SUBSIDIARIESThe Committee reviewed and challenged
the results of Management’s impairment
testing of the Group’s investment in
subsidiaries, performed where indicators of
impairment were present. An impairmentof £32.9 million has been recognised inrelation to the Group’s investment in its US
price comparison business, Compare.com.
The impairment reflected the reductionof the previous carrying amount of £66
million of the Group’s investment to its
recoverable amount, being its value in use.
The Committee reviewed and challenged
the cash-flows supporting the value in
use calculations, including the underlying
financial forecasts supporting the cashflows and the stresses applied to Compare.
com’s long term plan, which were revised
following a review in the second half of2018. Key assumptions within the financial
forecasts and cash-flows were challenged,
including the discount rate and currency
rates applied to the cash-flows.
The Committee also heard from its auditor
on the results of its audit tests performedon the impairment analysis.

Corporate Governance

Financial Statements

Additional Information

The Committee was comfortable thatManagement performed a thorough androbust process in line with the relevant
accounting standard and agreed with theproposed reduction in carrying value ofthe investment.

The Committee is also satisfied that thesignificant assumptions used for determining
the value of assets and liabilities have been
appropriately scrutinised, challenged andare sufficiently robust.

PROFIT COMMISSION

The Committee reviewed and approved its
policy on non-audit services in February
2018 and was satisfied that it was alignedwith current regulatory guidance. Under thepolicy, the Group’s statutory auditor would
only be engaged to carry out non-audit workin exceptional circumstances or where there
was a regulatory or tax authority request
and where agreed by the Committee.

The Committee considered the impact on
profit commission income of future changes
in claims reserves as the recognition ofthis income is dependent on the loss ratio
booked in the financial statements andcash receivable is dependent on actuarial
projections of ultimate loss ratios. The
Committee remained satisfied that profit
commission was correctly accounted for by
the Group and was in accordance with thecontractual arrangements that were in place.
The Audit Committee considered theauditor’s overall findings on this area whichindicated that it considered the profit
commission recognised was appropriate in
the context of the financial statements as
a whole.

MISSTATEMENTS
No material unadjusted audit differenceswere reported by the external auditor. The
Committee confirms that it is satisfied thatthe auditor has fulfilled its responsibilities
with diligence and professional scepticism.
After reviewing the presentations and reports
from Management and consulting where
necessary with the auditor, the Committee
is satisfied that the financial statements
appropriately address the critical judgements
and key estimates (both in respect to theamounts reported and the disclosures).

NON-AUDIT FEES

Unless required by law, regulatory or
tax authority non-audit services will: a)be subject to prior approval from theCommittee and b) in aggregate, shallnot cost more than 70% of the average
statutory audit fee for the past threefinancial years. In considering whether
to approve such non-audit services, theCommittee shall ensure that:• There is no direct effect, or in the viewof an objective, reasonable and informed
third party, would have an inconsequential
effect, on the audit services on theGroup’s financial statements;• The estimation of the effect on thefinancial statements is comprehensively
documented and explained in a report to
the Committee;• The non-audit services provided comply
with the principle of independence; and• The audit firm must not place significant
reliance on the output of the non-audit
services for the audit work.

Admiral Group plc · Annual Report and Accounts 201877

Corporate Governance

The Audit Committee continued
The Committee will continue to monitor
regulatory developments in this area
to ensure that its policy on non-audit
fees adheres to current guidance andbest practice.

EFFECTIVENESS OF THE EXTERNAL
AUDIT PROCESSThe Committee undertakes an annual
review to assess the independence
and objectivity of the external auditor
and the effectiveness of the audit
process, taking into consideration
relevant professional and regulatory
requirements, the progress achieved
against the agreed audit plan, and thecompetence with which the auditor
handled the key accounting and audit
judgments. Following this review theCommittee concluded that the auditor,
Deloitte LLP, remained independent andprovided a service that was robust andfit for purpose.

AUDIT FEE
During 2018, the Committee reviewed
and approved the audit fee proposal
for the 2018 year-end Group audit.
The agreed fee for the audit and otherassurance-related services for 2018 is£869,000. This compares to a fee agreed
for 2017 of £490,000.
The Committee approved the fee
increase having discussed the rationale
for the costs proposed given the growth
in and changes to the Group, and also
any potential inefficiencies within theaudit process.

78

Admiral Group plc · Annual Report and Accounts 2018

AUDIT TENDER
The Group last completed an audit
tender in 2016 when, following thecompletion of a transparent andindependent audit tender process,Deloitte LLP were recommended toshareholders as the Group’s auditor at
the AGM in April 2016 and a resolution
passed to that effect.
During the year, the Committee
reviewed the arrangements withthe current external auditor andconsidered whether it was appropriate
to initiate a tender process in orderthat the current arrangements could
be reviewed against those offered byother audit firms in the market. The
Committee concluded that it would
initiate a tender process in 2020 for an
appointment (or reappointment) to bemade with effect from 2021, coinciding
with the rotation of the current audit
partner. However, the Committee willkeep under review the results of thevarious reviews and consultations on
the audit services market and may
reconsider the tender timetableand process if appropriate. As theCommittee has primary responsibility
for conducting the tender process
and making recommendations to theBoard, regarding the appointment,
reappointment and removal of theexternal auditor, the Committee willlead the proposed tender process. The
Committee intends to engage with theGroup’s major shareholders to get theirviews on the firms that will be invited
to participate in the tender and thetimetable that has been agreed for thetender process.

The Committee confirms it is incompliance with the provisions of the
Statutory Audit Services for Large
Companies Market Investigation Order2014 with regard to the requirement forformal tendering every ten years andpartner rotation every five years.

INTERNAL AUDIT
Except for two additional Audit
Committee meetings that were calledat short notice and held in Februaryand August 2018, the Group Headof Internal Audit attended all Audit
Committee meetings and provided a
range of presentations and papers to
the Committee, through which theCommittee monitors the effectivenessof the Group’s internal controls. The
Committee reviewed and approved theGroup Internal Audit Terms of Reference
which set out the role; objectives;
reporting lines and accountability;
authority; independence; andobjectivity of the Internal Audit
function. The role and competence ofeach Internal Audit function across theGroup was also assessed and consideredby the Committee. The Group Headof Internal Audit continues to have
responsibility to ensure the qualityof the Internal Audit activities in theGroup’s overseas locations.
Following the external quality
assessment of Internal Audit carriedout last year, the recommendations
to enhance further the efficiency andeffectiveness of the internal audit
function that came out of that review
were considered and implemented.

Company Overview

Strategic Report

Members of the Committee also receive
all issued audit reports, enabling themto challenge the reports’ content andrelated recommendations. The Committee
approves the Internal Audit programmes
at the start of each calendar year whilst
the effectiveness and workload of theInternal Audit functions and the adequacyof available resources are monitored
throughout the year. The former Chair of
the Committee also regularly met with theGroup Head of Internal Audit during
the year.
In accordance with agreed parameters, theoverseas operations in Spain, Italy and the
US have their own locally-based internal
auditors, who report to their respective
country heads. All reports are evaluatedby the Group Head of Internal Audit toensure the quality and effectiveness of
the reported findings. In addition, the
UK Internal Audit department carries
out high level governance reviews of all
foreign operations, assessing the internal
control frameworks and system of risk
management. The overseas internal
auditors attend Committee meetings
periodically and the Committee received
an update from the internal auditor of theGroup’s insurance business in Italy on theactivities of the audit function and theaudit reports and recommendations that
had been issued. The CEO from the Group’sloans business also attended a Committee
meeting to provide an update on theinteraction with Group Internal Audit andthe key findings and recommendations fromaudits completed on the loans business.

Corporate Governance

Financial Statements

Additional Information

COMMITTEE EFFECTIVENESS REVIEW
As part of the Committee’s detailed annual
review of its performance and processes,
each Committee member completed acomprehensive questionnaire designed
to provide objective assessment of theCommittee’s performance, including its
effectiveness in monitoring internal andexternal audit. The Committee discussed
the results of the review at the meeting in
December and it was concluded that, overall,the Committee and the audit process wereeffective; that the Committee had fullaccess to all the information it required;that the Committee had appropriate Termsof Reference; and that it was adequately
discharging its responsibilities.

Admiral Group plc · Annual Report and Accounts 201879

Corporate Governance

The Group Risk CommitteeStatement from Jean Park, Chair of the Group Risk Committee“The Committee oversaw the successful implementation of the Group conduct
risk framework with positive results.”
DEAR SHAREHOLDER,
During the year the Committee
reviewed the Board’s risk strategy
and risk appetite across the Group.
This included updates on the UK andinternational businesses as a key
part of the Group’s Enterprise Risk
Management Framework (‘ERMF’). A
further refresh to the suite of Key Risk
Indicators with associated triggers andlimits was completed. These updates
have improved the effectiveness of theCommittee by placing greater focus on
the main risks affecting the business.
The Group implemented the enhanced
project governance framework,
enabling the Committee to focus on
the projects which are material to theGroup. The Committee oversaw the key
developments to major projects, withregular updates provided throughout
the year. Several reviews were actioned
as requested by the Committee. In
particular, the Group IT strategy andIT security programmes have been
regularly reviewed and challenged
throughout 2018, as well as the work
to ensure the Group was compliant
for the GDPR go-live date in May. The
Committee also devoted time to thework on Brexit which resulted in the
successful establishment of two newlegal entities, ensuring the European
business continues to be written within
the Group.
A significant amount of time hascontinued to be dedicated todeveloping the Group’s Partial Internal
Model for quantifying the Group’s risk
exposure. Having approved a change
to the model scope in late 2017, muchof 2018 focussed on reviewing andchallenging the new components of the80

Admiral Group plc · Annual Report and Accounts 2018

Partial Internal Model. The Committee
continues to engage with the relevant
regulators as a key demonstration of
the Group’s ongoing use of the modeland in preparation for the formal IMAP
application.
The Group continues to maintain aregulatory capital add-on to coverrisks not captured within the standard
formula. The Group also continues
to make use of Undertaking SpecificParameters (USP’s) and the Volatility
Adjustment (VA) across its entities,
where appropriate. The Committee has
also reviewed the Group’s proposed
dividend level, capital plan and capital
buffer in line with the capital policy.
The review considered a numberof scenarios including the ongoing
uncertainty associated with the
Ogden rate.
The Committee challenged andreviewed the setting of and outputs
from the regular stress and scenario
testing and reverse stress testing. The
output was incorporated into the Own
Risk and Solvency Assessment (‘ORSA’)report for 2018, which the Committee
also reviewed and recommended to theBoard for approval.
The Committee continues to focus on
key operational risks that affect theGroup. The governance of the risk event
process has been enhanced, providing
greater assurance to the Committee
regarding the management of major risk
events. The Committee has continued
to spend time reviewing any major risk
events reported during the year as per
the Group Risk Management Policy.
The development and growth of
the Loans business continues to bemonitored by the Committee, witha focus on the strategic options tofund the growing business in 2018
and beyond.
The Committee oversaw the successful
implementation of the Group conduct
risk framework with positive results.
The ongoing focus on monitoring andreporting customer outcome risks
has included enhanced reporting todemonstrate compliance against
the Group minimum standards. Thisbuilds on the levels of complianceresources and monitoring that all Groupfirms must apply to their respective
regulatory obligations.
I look forward to continuing the goodwork this year.

Jean Park
Chair of theGroup Risk
Committee
6 March2019

Company Overview

Strategic Report

Corporate Governance

Reviewed the Group’s proposed
dividend level, capital plan and capital
buffer in line with the capital policy

Reviewed the updated USP application
submitted to the Gibraltar regulator

Considered the adequacy of risk
mitigation measures and contingency
plans including a review of the Group’s
reinsurance provisions

Received regular risk monitoring
reports on performance of Key Risk
Indicators within the overall risk
management framework

Received regular updates in relation to
key programmes of work including IT
Strategy, IT Security, GDPR and Brexit
as part of the Group’s enhanced project
governance framework

Additional Information

Recieved an additional, out of
cuycle, short ORSA report as part ofa review into the risks associatedwith Loans business

Summary of Key Activities in 2018
Reviewed the Group’s updated
risk strategy, risk appetite andassociated triggers and limits in thecontext of the Group’s agreed
strategic objectives

Financial Statements

D
U
R
I
N
G
T
H
E
Y
E
A
R
T
H
E

Received regular monitoring reports
on customer outcome risk andcomplaint handling and reviewed
updates to the Group MinimumStandards and Policy Framework

Reviewed the Group’s regulatory
capital add-on application as part ofSolvency II capital requirements

Through stress and scenario testing
and reverse stress testing, considered
in-depth analysis of a number of theGroup’s most significant risk areas,
including the potential risks arisingfrom Brexit

C
O
M
M
I
T
T
E
E
…

Recommend to the Board approvalof the 2018 ORSA Report prior to
submission to the regulator andapproved the ORSA policy

Received updates on the impactof a number of notifiable risk events
throughout 2018

Received regular updates in relation to
ongoing and potential legal andregulatory changes, including the Civil
Liability Bill and the potential change
to the Ogden discount rate

Admiral Group plc · Annual Report and Accounts 201881

Corporate Governance

The Group Risk Committee continued
COMPOSITION OF THE
GROUP RISK COMMITTEE• Reviewing compliance with Group
policies;

Membership at the end of the year
was: Annette Court, Jean Park (Chair)and Manning Rountree. The Company
Secretary acts as Secretary to theCommittee.

• Considering and recommending to
the Board for approval the Group’s
risk appetite, including any changes
to the appetite for each material typeof risk faced by the Group;

The Committee met 5 times during
the year.

DUTIES AND RESPONSIBILITIES OF
THE GROUP RISK COMMITTEE
The duties and responsibilities of theCommittee are set out in Terms ofReference that were reviewed during
the year and approved by the Board in
September 2018.
The responsibilities of the Committee
can be summarised as:• Oversee the development,
implementation and maintenanceof the Group’s overall Risk
Management Framework and ensurethat it is in line with emerging
regulatory, corporate governance andbest practice guidelines;• Monitoring the Group’s prudential risk
exposure, which includes ensuringthat the Group’s capital resources
and liquidity profile are appropriate
to its needs whilst meeting minimum
regulatory requirements, including
overseeing and challenging thedesign and execution of the Group’s
stress and scenario testing;• Monitoring the Group’s current andfuture conduct risk exposure;• Ensuring the adequacy andeffectiveness of the Group’s dataprotection systems and controls;• Monitoring the adequacy andeffectiveness of the Group’s
Compliance functions;• Reviewing the Group’s compliancewith Solvency II;

82

Admiral Group plc · Annual Report and Accounts 2018

• Approving the annual plans for theGroup Risk and Compliance functions
which include reviewing regulatory
developments and regular meetings
with the PRA and FCA;
• Review the ORSA report each year withrecommendations being provided to
the Group Board for approval;• Review and approve the Solvency
II Actuarial Function Reports on
Reinsurance and Underwriting
each year; and• Review and approve theRemuneration report from the CRO
to the Remuneration Committee.
The Committee Chairperson reports
formally to the Board on its proceedings
after each meeting on all matters within
its duties and responsibilities, as set
out in previously circulated minutes tothe Board. The Committee Chairperson
also reports on the activities of theCommittee in a formal written reportthat is submitted to and discussed by
the Board annually.
The work of the Committee is supported
by more detailed work undertaken
by executive Risk Management
Committees in each of the Group’s
operational entities. At each meeting,
the Risk Management Committees
consider significant movements in theoperation’s risk profile, any risks thathave arisen and any emerging risks.
Risk Management Committees also
assess and monitor any regulatory
issues, ensuring that their resolution
and the action taken are appropriately
recorded. The Risk Management

Committees receive regular information
on Conduct Risk, such as complainthandling reports and other related
management information. The Group
Risk Management function reviews andcollates information from across thegroup for consideration by the GRC.

INTERNAL CONTROL AND RISKMANAGEMENT STATEMENT
The Board is ultimately responsible for
the Group’s system of risk management
and internal control and, through the
Audit Committee, has reviewed theeffectiveness of this system.
The system of risk management
and internal control over insurance,
operational, market, credit and grouprisks is designed to manage rather thaneliminate the risk of failure to achievebusiness objectives and breaches ofrisk appetites and can only provide
reasonable and not absolute assurance
against material misstatement or loss.
The Board is of the view that there isan ongoing process for identifying,evaluating and managing the Group’s
risks and internal controls; that it has
been in place for the year ended 31
December 2018; and that, up to thedate of approval of the Annual Reportand Accounts, it is regularly reviewed by
the Board and accords with the internal
control guidance for Directors provided
in the UK Corporate Governance Code.
The Board confirms that it has
performed a robust assessment of theGroup’s principal risks. These risks, alongwith explanations of how they are being
managed and mitigated, are included in
the strategic report on page 52.
The Board is responsible for determining
the nature and extent of the principal
risks it is willing to take in achieving
its strategic objectives. The Board
meets at least seven times a year toCompany Overview

Strategic Report

Corporate Governancediscuss the direction of the company
and provide oversight of the Group’s
risk management and internal control
systems. The role and responsibilitiesof the Board are documented within
their Terms of Reference and these arereviewed annually.

The ‘second line of defence’ describes
the Committees and functions that are
in place to provide an oversight of theeffective operation of the internal control
framework. The Group Risk Department
and the Compliance functions are part ofthe second line of defence.

A key element of the control system isthat the Board meets regularly with aformal schedule of matters reserved
to it for decision and has put in place
an organisational structure with clearly
defined lines of responsibility including
those matters reserved for its
subsidiary boards.

The Group Risk Department defines andprescribes the insurance, operational,
market, credit and group risk
assessment processes for the business.
It performs second line reviews,
including of the capital modellingand business planning processes, andundertakes regular reviews of all risks inconjunction with Management, with theresults of these reviews recorded in risk
registers collated centrally on the Grouprisk management system. Furthermore,Group Risk records any actual losses ornear misses that occur as a consequenceof the crystallisation of risk and analyses
the sufficiency of the action taken to
avoid reoccurrence.

As described above, in order to ensure
these responsibilities are properly
discharged, the Board has delegatedto the Audit Committee to keep underreview the adequacy and effectivenessof the Company’s internal financial
controls, internal control and risk
management systems.
The Board has delegated thedevelopment, implementation andmaintenance of the Group’s overallrisk management framework to theGroup Risk Committee (“GRC”). The GRC
reports on its activities to the Boardand the Audit Committee, supporting
the overall assurance provided by the
Audit Committee that the Group’s
internal control, risk management
and compliance systems continue tooperate effectively.
The Group has a ‘three lines of defence’approach to Internal Control, including
those controls that relate to the financial
reporting process. The Board recognisesthat the day-to- day responsibility for
implementing policies lies with the senior
management, the ‘first line of defence’,
whose operational decisions must take
into account risk and how this can becontrolled effectively.

The Chief Risk Officer has responsibility
for ensuring that managers are awareof their risk management obligations,providing them with support and advice,
and ensuring that risk management
strategies are properly communicated.
Reports are produced showing themost significant risks identified and thecontrols in place. Internal Audit uses therisk registers to plan and inform theirprogramme of audits around the mostsignificant risks to the Group to ensurethat the prescribed controls are in place
and are operating effectively.
The Group Compliance function provide
oversight and review of the first line ofdefence’s compliance with designatedcontrol activities, providing regular
reports to the Group Risk Committee.
The ‘third line of defence’ describes
the independent assurance provided
by the Audit Committee and the Group

Financial Statements

Additional Information

Internal Audit function that reports
to that Committee. Internal Audit
undertakes a programme of risk-based
audits covering all aspects of both thefirst and second lines of defence. The
findings from these audits are reported
to all three lines, i.e. Management, theexecutive and oversight Committees,
and the Audit Committee.
The subsidiary boards, Group Risk
Committee, UK Risk Management
Committee and other UK and overseas
Risk Committees receive reports settingout key performance and risk indicatorsand consider possible control issues
brought to their attention by early
warning mechanisms that areembedded within the operational units.
They, together with the Audit
Committee, also receive regular reports
from the Internal Audit function, which
include recommendations for
improvement of the control andoperational environment. The Chair of
the Group Risk Committee provides acomprehensive written report to theBoard of the activities carried out by theCommittee on an annual basis. In
addition, the Board receives reports
from the Chair of the Audit Committee
as to its activities, together with copiesof the minutes from the subsidiaryboard meetings and the GRC and
Audit Committee.
The Audit Committee’s ability toprovide the appropriate assurance tothe Board depends on the provision of
periodic and independent confirmation,
primarily by Internal Audit, that thecontrols established by Management
are operating effectively and where
necessary provides a high-level
challenge to the steps being takenby the GRC to implement the risk
management strategy.

Admiral Group plc · Annual Report and Accounts 201883

Corporate Governance

The Group Risk Committee continued
VIABILITY
In accordance with provision C.2.2 of the2016 UK Corporate Governance Code, theDirectors have assessed the prospect of
the Company over a longer period than
the 12 months required by the ‘Going
Concern’ provision. The Board reviews five
year financial projections twice each year
and approves a one year financial budget
for the forthcoming twelve months. They
conducted this review for a period of
three years to July 2021. An ‘Own Risk andSolvency Assessment’ (ORSA) process
is undertaken annually, which sets out adetailed consideration of the main risksfacing the Group over a three-year time
horizon and also considers current andprojected levels of solvency and liquidity
over the period. The ORSA is the main
source of evidence used by the Board
to assess viability, given the additional
uncertainty inherent in projecting
beyond a three year period, and as suchthe assessment of viability has been
performed over a three year period.
The principal risks and uncertainties
faced by the Group are set out on pages
52 to 57 and note 7h to the financial
statements sets out the Group’s
objectives, policies and procedures for
managing financial assets and liabilities.

84

Admiral Group plc · Annual Report and Accounts 2018

Quantitative and qualitative assessmentsof risks are performed as part of the ORSA
process. The quantitative assessment (inline with the Group’s capital and solvency
projections) considers how the regulatory
capital requirements, economic capitalneeds, own funds and the solvency
position of the Company is projected
to change over the three year time
horizon. It also includes a series of stresstests which assess the Group’s principal
risks and uncertainties, identifying andquantifying the operational, financial
and solvency impacts of these stresses
alongside potential mitigating factors
and management actions. Reverse stresstests are also considered as part of the
ORSA process to assess the potential risks
to Admiral’s viability.
The results of the stress tests form
part of the process to set the Group’s
capital risk appetite, which ensures thata buffer on top of the Group’s regulatory
capital requirement is held to protect
its capital position against shocks andstresses. As part of the ORSA process, key
strategic decisions including the settingof dividend payments considers thesolvency impact against the capital risk
appetite. Refer to the Strategic reportfor information on sensitivities to thereported 2018 solvency ratio position.

The threat of Brexit to the viability of
the insurance and price comparison
businesses in Europe has been mitigatedthrough the restructuring of thosebusinesses and the establishment of new
insurance and intermediary companies
in Spain. Portfolio transfers have been
implemented to ensure ongoing services
for existing and future customers in
Europe. In the UK, preparations are welladvanced for the provision of Green Cards
to customers for travel in Europe, supply
chain changes and communications
to customers. We remain reliant
on the regulatory assurances given
regarding the timely conclusion of
Brexit negotiations and associated UK
law changes by government in order tocontinue business in the UK and Gibraltar,
without the need to implement planned
mitigating actions.
Based on the results of this analysis, theDirectors have a reasonable expectationthat the Company will be able to continue
in operation and meet its liabilities as
they fall due over this three year period.

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

The Nomination and
Governance CommitteeStatement from Annette Court, Chairman of the Nomination and Governance Committee“Implementation of the recommendations contained in the external review of the Group’s
governance arrangements remained a key area of focus for the Committee during the year.”
Dear Shareholder,
The Committee received regular updates
from management on the implementationof the recommendations and considered
and approved, in November 2018, theclosure of the internal project that had been
formed to implement the actions that hadcome out of the external review and whichwere designed to strengthen the Group’s
existing governance arrangements. This
will be followed up by a review of how this isoperating in practice in 2019.
In keeping with its remit to review regularly
the composition and experience of theBoard, succession planning at Group andsubsidiary level occupied most of theCommittee’s time during the year. Following
a robust and transparent recruitment
process led by the Committee, Mike Brierleyjoined the Board as a Non-Executive Director
and member of Audit Committee in October
2018. Mike was also appointed Chairmanof the Group’s subsidiary, Admiral Financial
Services Limited (AFSL), which is thecompany through which the Group’s loans
business is written.
With Colin Holmes stepping down fromthe Board and as Audit Committee Chair in
December 2018, the process of recruiting a
replacement began earlier in the year. The
Committee carried out an assessment of
the requirements for the role and initiateda comprehensive recruitment process
to identify the person with the requisite
skill set and experience to fulfil the role.
Following completion of this process, Karen
Green was appointed as Non-Executive
Director and Chair of the Audit Committeewith effect from December 2018. The

appointment of both Mike and Karen
further enhances the range of skills, breadthof experience and diversity around theBoard table. The Committee will keep underreview whether it is appropriate in the next
12 to 24 months to begin the search foranother Director with digital expertise.
Following the issue of the revised
Corporate Governance Code in July 2018,
the Committee spent time considering
the enhanced reporting requirements thatwill be applicable for the Committee nextyear, when reporting on the Committee’s
activities in 2019, particularly as regards
the Group’s policy on diversity and inclusion,
gender balance of the Group’s senior
management and their direct reports andthe approach to succession planning.
In line with the requirements of Solvency II,
the Senior Insurance Manager Regime, andin accordance with the Group’s Fit andProper Policy, I also carried out the processof assessment for every person who
performs a key function to ensure
they meet the requirements in termsof qualifications, capability, honesty
and integrity.

Annette Court
Chairman of the Nomination and
Governance Committee
6 March 2019

Admiral Group plc · Annual Report and Accounts 201885

Corporate Governance

The Nomination and
Governance Committee continued
MEMBERSHIP
The membership of the Committee
at the year-end was Annette Court(Chair), Owen Clarke and Justine
Roberts, who was appointed following
Colin Holmes stepping down from theCommittee in December 2018. The
Company Secretary acts as Secretary
to the Committee. The Committee
invites the Chief Executive and/or
the Chief Financial Officer to attend
meetings when it deems appropriate.
The Committee met formally on fiveoccasions in 2018. In addition, membersof the Committee corresponded andmet informally on a number of occasions
to consider and meet with individuals
that the Committee had identified as
possible candidates to join the Board.

BOARD COMPOSITION AND
CHANGESThe Committee leads the process formaking appointments to the Board orwhere the appointee is likely to becomea Board member. The Committee
ensures there is a formal, rigorous
and transparent process for theappointment of new Directors to theBoard embracing a full evaluation of
the skills, knowledge and experience
required 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 the Chief Executive.
Following the appointment of Andy
Crossley in February 2018 and in linewith the Group’s policy of recruiting
well ahead of impending retirements tomaintain consistency of Board dynamics,
the Committee developed appropriate
specifications for two new NonExecutive Director roles and identified
the required skills and experience
required. The Board initiated a search
for two new Non-Executive Directors
in 2018. The firm engaged external

86

Admiral Group plc · Annual Report and Accounts 2018

recruitment consultants, Russell
Reynolds Associates (RRA), to lead therecruitment process for Karen and Mike.
RRA has no connection to the Group.
Following this process, the Committee
identified Mike Brierley as best placed
to fill the role of Non-Executive Director
and Chairman of AFSL and Karen Greenas Non-Executive Director and Audit
Committee Chair.
Mike Brierley has 35 years’ experience in
Chief Financial Officer (CFO) roles within
the financial services industry. Most
recently Mike was CFO of Metro Bankplc between 2009 and 2018, helping
lead the business from start-up to a
profitable FTSE 250 bank. He has beena director of Barclaycard responsible
for business risk and, between 1999
and 2006, held a variety of roles with
Capital One Bank (Europe) plc including
CFO Europe, CFO UK and Managing Vice
President and Chief Enterprise Risk
Officer Europe. Mike is a Fellow of The
Institute of Chartered Accountants in
England and Wales (FCA).
Karen Green has substantial financial
services experience including
investment banking, private equity andinsurance, most recently as the Chief
Executive of Aspen UK, which comprised
the UK insurance and reinsurancecompanies of Aspen Insurance Holdingsfor over 6 years. She also held a numberof other senior positions at Aspen
including Group Head of Strategy,
Corporate Development and Office of
the Group CEO. Prior to that, she held
various senior corporate finance, M&A
and private equity roles at GE Capital
Europe and then MMC Capital (nowStonepoint Capital) having started
her career as an investment banker at
Baring Brothers and then Schroders. She
is currently a Non-Executive Director of
Phoenix Holdings Group plc, the Councilof Lloyd’s of London and Deputy Chair
and Acting Chair of Aspen Managing
Agency Ltd.

Each Committee member met
separately with Mike and Karenand agreed that they would bringinvaluable experience to the Board.
The Board approved the Committee’s
recommendations and following
regulatory approval Mike was formallyappointed to the Board with effect from
5 October 2018 and Karen with effectfrom 14 December 2018.

SUCCESSION PLANNING AND
TALENT MANAGEMENT
Talent management continues to be a
key area of focus and the Board, at its
meeting in June 2018, considered talentmanagement within the Group andidentified where there were individuals
who, with further experience andguidance, might be capable of moving
into particular senior management
roles. There have also been several
Non-Executive-Director-only sessions
during which the Group’s internaltalent management capabilities havebeen discussed and considered. The
Committee remains satisfied thatsuccession plans for Directors andsenior management are in place toensure the continued ability of theGroup to implement strategy andcompete effectively in the markets inwhich it operates.

GENDER AND DIVERSITY
Given women constitute 40% of our plc
Board, the Group has already exceeded
the target set by both Lord Davies
in his report; Women on Boards, andthe Hampton Alexander Review (thatbuilds on the Davies Review), which
encourages FTSE 350 companies toachieve at least 33% women on Boardsby 2020. The Group is close (29%) tomeeting the Hampton Alexander Review
target of 33% women’s representation
across Executive Committees below
Board level and direct reports to
those Committees, as shown by thegender diversity table on page 108.
In June 2018 the Board reviewed therequirements of the Parker Review’sCompany Overview

Strategic Report

Corporate Governance

final report on ethnic diversity. The Board
considered the composition of its Groupand subsidiary Boards, the initiatives thatare being implemented to increase diversityand discussed how measures to develop adiverse pipeline of talent as regards Board
appointments could be developed andmonitored. However, the Group remains
strongly supportive of the principle ofboardroom diversity, of which gender andethnicity are important, but not the only,
aspects. What is important is diversity ofthought, experience and approach andeach new appointment must complement
what already exists at the Board table.
Accordingly, appointments will always be
made on merit against objective criteria,
including diversity and gender, and not justto achieve an externally prescribed number.

Financial Statements

In addition, in 2018 the Group signed up
to the Women in Finance Charter which
is a government initiative to see genderbalance at all levels across financial services
firms and encourages participating firms
to support the progression of women into
senior roles in the sector by focusing on theexecutive pipeline and the mid-tier level ofmanagement. The Group is committed tomeeting the target of 40% women in the
Senior Executive team by December 2023.
In 2018 the Chairman and CEO also signed
up to the 30% Club, which aims to develop
a diverse pool of talent for all businesses
through the efforts of its Chair and CEO
members who are committed to better
gender balance at all levels of theirorganisations with a minimum target of 30%
women at senior management level by 2020.

Additional Information

The Group remains committed toproviding equal opportunities, eliminating
discrimination, and encouraging diversity
amongst its workforce both in the UK andoverseas. A breakdown of the gender of
Directors and senior employees at the endof the financial year together with details of
the Group’s Equality, Diversity and Dignity
at Work Policy are set out in the Directors’
Report on page 108.
The Group’s gender pay gap is alreadymaterially lower than the UK average andthe industry average for the financial
services sector, however, the Groupremains committed to reducing it further
through a number of initiatives that are
being introduced to address the current
imbalance of men and women at differinglevels of the business.

Pride
Our continued sponsorship of Pride
Cymru, South Wales’ biggest celebrationof LGBT+ equality and diversity,
illustrates our celebration of the LGBT+
community and our recognition of thecontribution they have made to Admiral.
We have sponsored Pride Cymru in some
way since 2004 and we have participatedin the annual Pride march for the last
three years.
Many of our staff attend this event andmemories and photos from the eventare shared in Column, our monthly
newsletter and on Atlas, inspiring ourstaff to take pride in diversity. In 2018
over 30 staff, plus families and friends,
represented Admiral in the parade
before the event and our choir and an
Admiral staff member’s band performedon the stage.
Rhys, from our training department
regularly attends the event. Here iswhat he had to say, “I love that thecompany I work for sponsors Pride
Cymru and I’m really proud that wecelebrate sexual diversity.” And amember of staff who represented
Admiral at this year’s parade said,“I loved walking with my friends from my
Admiral family and I was very proud tocarry the Admiral banner. It was good to
support such a fantastic cause”.
Staff were inspired to form a
LGBT+ network off the back of ourparticipation in the parade when lastyear, those representing Admiral in theparade decided to keep in touch andthey regularly organise meet ups andevents together.

Admiral Group plc · Annual Report and Accounts 201887

Corporate Governance

The Remuneration
Committee
A Statement to Shareholders from the Chairman of the Remuneration Committee“Admiral has a remuneration structure which reinforces our unique culture and createsstrong alignment with our shareholders.”
DEAR SHAREHOLDER,
I am pleased to introduce the Directors’
Remuneration Report for the year
ended 31 December 2018, which has
been prepared by the Remuneration
Committee (the Committee) andapproved by the Board.
2018 has been a positive year for
Admiral Group. Earnings per share in
the year were 137.1 pence (2017: 117.2
pence) and return on equity was 56%(2017: 55%). Total dividends for thefinancial year (including the proposed
final dividend of 66.0 pence per share)
will be 126.0 pence per share.

Remuneration in 2018
Admiral has a remuneration structure
which reinforces our unique culture
and creates strong alignment with ourshareholders:• Base salaries are targeted at thelower end of our peer group, andexecutives are encouraged to build up
significant shareholdings in the Groupto maximise shareholder alignment.
• Our main incentive plans are a
Share Incentive Plan (‘SIP’), which
encourages wide share ownership
across our employees, and the
Discretionary Free Share Scheme(‘DFSS’), which incentivises Earnings
per Share growth, Return on Equity
and Total Shareholder Return vs.
the FTSE 350 (excluding investmentcompanies) over a three-year period.

88

Admiral Group plc · Annual Report and Accounts 2018

• We do not pay annual cash bonuses
and instead have in place a bonus
structure (the ‘DFSS Bonus’) that is
directly linked to the number of DFSS
awards held and actual dividends paidout to shareholders.
Our remuneration structure is aligned
to our philosophy around the efficientuse of capital and distribution of
profit. It focuses heavily on reinforcing‘collective’ performance through theuse of the DFSS and DFSS bonus, butalso reflects individual and business
unit performance through theallocation of awards and the applicationof adjustments to their vesting.
At the 26 April 2018 AGM, we asked
shareholders to approve a new
Remuneration Policy, which included
updates to align with evolving bestpractice and regulatory requirements
and to improve the alignment of the
CFO’s remuneration with both themarket and other senior Admiralexecutives, as well as our Annual Report
on Remuneration.
We were pleased to note that the
majority of our shareholders approved
both resolutions with a 99% vote for theRemuneration Policy and 90% vote for
the Annual Report on Remuneration. The
approved Remuneration Policy cameinto effect from the date of the AGM.
In line with this policy, the Committee
made the following decisions:• Geraint Jones received his award of
5,000 salary shares, equivalent to£98,225. In line with policy, theseshares will vest after three years
subject to continued employment. An
additional two-year holding period
will apply and malus and clawback
provisions will apply during thevesting and holding periods. Further
details on these shares can be foundon page 91;

Company Overview

Strategic Report• In September 2018, Geraint Jones was
also granted an award under the DFSS of
50,000 shares, equivalent to £1,020,000
or 416% of salary. This award will veston three-year EPS growth vs. LIBOR,
TSR vs. FTSE 350 (excluding investmentcompanies) and ROE. David Stevens
again declined to be included given his
significant shareholding. Further details
on this award can be found on page 101;
• Based on performance to 31 December
2018, 87.6% of the DFSS award granted
in 2016 will vest. The EPS condition waspartially achieved, vesting at 75.5% of thiselement and the ROE condition was also
partially achieved, vesting at 87.5% of thiselement. The TSR condition fully vested
at 100% of the element. This means that
Geraint Jones will receive 43,800 vested
DFSS shares. The Committee reviewed
this vesting outcome and concluded that
it was appropriate. The Committee madeno adjustment for the EPS enhancement
during the period from the partial reversalof the provisioning for the Ogden ratechange two years ago as this approachis consistent with that taken previously
by the Committee for the vesting of the2014 DFSS awards where no adjustment
was made to neutralise the substantial
negative impact on 2016 EPS from theinitial provision for the Ogden rate change;• Last year, we stated that the DFSS bonus
for the CFO would include a +/- 20%
adjustment based on performanceagainst a set of risk metrics. The
Committee invested considerable timein reviewing appropriate measures andtargets for determining any adjustments,
which would also apply for the wider
senior management population in 2019,
and the Committee concluded that theadjustment would be first introduced forthe 2019 DFSS bonus. This decision was
taken as the risk metrics were still being

Corporate Governance

Financial Statements

developed in 2018 and consistency withthe wider senior management population
was preferred; and• David Stevens’s salary was increasedby 2.5% to £416,048 effective from 1
September 2019 and the cash element of
Geraint Jones’s salary was also increasedby 2.5% to £251,125, effective from 1
January 2019. These increases are below theaverage increase across the Group for 2018.
During the year ended 31 December 2018,
additional to its regular activities, theCommittee also:• Developed and implemented a malus andclawback framework;

Additional Information• Agreed the basis for linking the CEO’s
remuneration to gender-diversity targets.
The Committee strongly believes that
the Remuneration Policy and structure
remains fit for purpose, aligning executives
to the collective culture at Admiral and toshareholders’ interests.
The Annual Report on Remuneration(subject to an advisory vote) will be put toour shareholders at the AGM on 25 April
2019. We do hope that you vote in favourof the report. I am available to meet anddiscuss our Remuneration Policy and Annual
Report on Remuneration with shareholders.

• Established a fixed/variable pay policy forstaff in control functions;• Reviewed the DFSS vesting and bonus
arrangements for Executive Directors,
senior management and relevant staff(Material Risk Takers) covered under
Solvency II;

Owen Clarke
Chairman of the Remuneration
Committee
6 March 2019

• Agreed changes to the DFSS vesting
conditions for our European Insurance
businesses, Elephant Auto andCompare.com so that vesting is linked
to business unit, rather than Group,
performance;• Reviewed remuneration arrangements for
Confused and the other European pricecomparison businesses, replacing DFSS
awards with bonuses focused on bothprofitability and growth;• Reviewed executive and workforce
remuneration trends and changes to the
UK Corporate Governance Code and bestpractice guidelines;• Reviewed alignment of the Group’s
current remuneration structure with the
Living Wage;• Reviewed Admiral’s Gender Pay
reporting stats; andAdmiral Group plc · Annual Report and Accounts 201889

Corporate GovernanceDirectors’ Remuneration
PolicyCOMPLIANCE STATEMENT
This Remuneration Report has been
prepared according to the requirementsof the Companies Act 2006 (the Act),
Regulation 11 and Schedule 8 of the Large
and Medium-Sized Companies and Groups(Accounts and Reports) (Amendment)
Regulations 2013 and other relevant
requirements of the FCA Listing Rules.
In addition, the Board has applied theprinciples of good corporate governanceset out in the UK Corporate Governance
Code (the Code) and has considered theguidelines issued by its leading shareholders
and bodies such as ISS, the Investment
Association, and the Pensions and Lifetime
Savings Association. The Committee has
decided to implement early the changes to
Schedule 8 on UK remuneration reporting
requirements which is required from
FY2019 and includes both the disclosureof discretion used by the Remuneration
Committee in the Annual Statement andCEO pay ratios.
Unless otherwise stated, information
contained within this Remuneration Reportis unaudited.
The following Remuneration Policy wasapproved, and therefore came into effect,
at the April 2018 AGM. There have been
two minor changes to the Remuneration
Policy since the 2018 AGM. These changes
are in the Remuneration Policy table andare updates to the malus and clawback
provisions for the Discretionary Free Share
Scheme (DFSS) and DFSS bonus awards
to reflect the malus and clawback policy
developed in 2018.

90

KEY PRINCIPLES OF ADMIRALREMUNERATION ARRANGEMENTS
The Group is committed to the primaryobjective of maximising shareholder value
over time in a way that also promotes
effective risk management and excellent
customer outcomes, and ensuring that
there is a strong link between performanceand reward. This is reflected in the Group’s
stated Remuneration Policy of paying
competitive, performance-linked andshareholder-aligned total remuneration
packages comprising basic salaries coupledwith participation in performance-based
share schemes to generate competitive total
reward packages for superior performance.
The Board is satisfied that the adoption ofthis Policy continues to meet the objectivesof attracting and retaining executives of thehighest quality across the Group.
The Committee reviews the remuneration
framework and packages of the Executive
Directors and the most senior managers
and recognises the need to ensure that
the Remuneration Policy is firmly linked
to the Group’s strategy, including its risk
management approach. In setting the
Policy and making remuneration decisions,the Committee takes into account pay andconditions elsewhere in the Group. The mainprinciples underlying the Remuneration
Policy are:• Competitive total package – the Groupaims to deliver total remuneration
packages that are market-competitive,
taking into account the role, job size,
responsibility, and the individual’s
performance and effectiveness.
Prevailing market and economic
conditions and developments ingovernance are also considered, as are
general salary levels throughout theorganisation;

Admiral Group plc · Annual Report and Accounts 2018

• Significantly share-based – our basesalaries are targeted towards the lower
end of market, but are combined withmeaningful annual share awards thatvest on long-term performance to ensure
strong alignment with shareholders andthe long-term interests of the Group.
Executives are also encouraged to build
up significant shareholdings in the Groupto maximise shareholder alignment;• Long-term perspective – a significant
part of senior executives’ remuneration isbased on the achievement of stretching
performance targets that support
the delivery of the Group’s strategy
and shareholder value. The extended
performance and vesting horizons
promote a long-term perspective that is
appropriate to the insurance sector;• Effective risk management – incentives
are designed to ensure they do not
encourage excessive risk-taking. They
are aligned with the delivery of positive
customer outcomes and reinforce theGroup’s risk policy;• Open and honest culture – the Group has
a strong culture of focussing on collective
success, whilst still recognising individual
contribution to the Group’s performance,
and this is reflected in our remuneration
structure across the business; and• Transparency to stakeholders – theremuneration structure is designed tobe simple and easy to understand, andall aspects are clear to employees andopenly communicated to employees,
shareholders, and regulators.

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

REMUNERATION POLICY TABLE
This table describes the key components of the remuneration arrangements for Executive Directors.
Purpose and link to strategy

Operation

Opportunity and performance metrics

Salaries are reviewed annually or following a significant
change in responsibilities.

Any salary increases are applied in linewith the outcome of the review.

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

Base Salary
To attract and retain talent
by setting base salaries atlevels appropriate for thebusiness.

•

Scope and responsibility of the position.

•

Individual performance and effectiveness, and experienceof the individual in the role.

•

Average increase awarded across the Group.

The CFO receives an annual award of ‘salary’ shares in
addition to his cash salary. The salary share award vests
after three years subject to continued employment, and an
additional two-year holding period applies, during whichtime shares may not be sold, save to meet income tax, NI orother regulatory obligations. Malus and clawback provisions
apply during the vesting and holding periods. The salaryshare award is not included in base salary when calculating
the CFO’s pension benefit.

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

PensionTo provide retirement
benefits.

The Group operates a Personal Pension Plan, a DefinedContribution Scheme.
This is available to all employees following completion of theirprobationary period.

In the UK, the Group matches employee
contributions up to a maximum of 6%
of base salary subject to an overallmaximum employer contribution of£15,000, or provides the equivalent value
in cash. Base salary is the only element of
remuneration that is pensionable.

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

•

Death in service scheme.

•

Private medical cover.

•

Permanent health insurance.

•

Relocation, at the Committee’s discretion.

None of the existing Executive Directors
received total taxable benefits
exceeding 5% of base salary during themost recent financial year, and it is not
anticipated that the cost of benefits
provided will exceed this level over theterm of this Policy.

Other Benefits
To provide competitive
benefits.

All benefits are non-pensionable.

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

Admiral Group plc · Annual Report and Accounts 201891

Corporate GovernanceDirectors’ Remuneration Policy continued
Purpose and link to strategy

Operation

Opportunity and performance metrics

Discretionary Free Share Scheme (DFSS)
To motivate and reward
longer term performance, aid
long term retention of key
executive talent, use capitalefficiently, grow profits
sustainably and further
strengthen the alignment of
the interests of shareholders
and staff.

Executive Directors may be granted awards annually at thediscretion of the Committee. David Stevens has declined toparticipate given his significant shareholding.
Awards may be in the form of nil or nominal priced options
or conditional shares. Awards vest after a minimum of
three years subject to Group performance and continued
employment.
For DFSS awards made in 2018 and subsequent years, a twoyear holding period applies to vested awards, during whichtime Executive Directors may not sell the vested awards
except to cover tax liabilities.
Awards are subject to malus and clawback provisions, i.e.
forfeiture or reduction of unvested awards and recovery ofvested awards needs to be awards. Events which may leadto the malus and clawback are set out in the Group’s Malus
and Clawback Framework and include material financial
misstatement, responsibility for conduct which results insignificant loss, material failure of risk management andmisconduct.

Maximum opportunity: £2,000,000. Forawards above £1,000,000 a maximum of
600% of base salary (excluding any salaryshares) applies. Threshold performance
will result in vesting of up to 25% of the
maximum award.
Vesting of DFSS awards is subject to theGroup’s performance over a three-year
performance period. The performancemeasures may include EPS, ROE andrelative TSR, or other measures selectedby the Committee, as appropriate.
Measures will typically be weighted
equally unless the Committee determines
otherwise to reflect strategic priorities.
Details of the measures, weightings andperformance targets used for specific
DFSS grants are included in the relevant
year’s Annual Report on Remuneration.

The Remuneration Committee has discretion to adjust theformulaic vesting outcome to ensure the final outcome is afair and true reflection of underlying business performance.
DFSS Bonus
To further align incentive
structures with shareholderinterests through the deliveryof dividend equivalentbonuses.

To incentivise shareholder value creation, in particular in
the form of dividends, management participate in a bonus
scheme which directly links their awards to dividends paid
to shareholders. Bonus is calculated to be equivalent todividends that would have been payable during the year on all
outstanding DFSS shares awarded but not vested, includingsalary shares for the CFO.
The DFSS bonus is subject to a ±20% adjustment based on
performance against a set of risk metrics. The metrics will
be set each year for all significant areas of the businesswith specified targets to determine the amount of any
DFSS bonus adjustment. It is anticipated that many of thesemeasures will be directly related to customer outcomes.
Whilst the bonus may be adjusted upwards or downwards
by up to 20% in any given year, it is not anticipated that theadjustment will increase the CFO’s remuneration on averageover the long term.
The DFSS bonus is subject to malus and clawback provisions,i.e. forfeiture or reduction of unvested awards and recovery
of vested awards needs to be awards. Events which may leadto the malus and clawback are set out in the Group’s Malus
and Clawback Framework and include material financial
misstatement, responsibility for conduct which results insignificant losses, material failure of risk management andmisconduct.

92

Admiral Group plc · Annual Report and Accounts 2018

Maximum opportunity: sum equal
to the dividends payable during theyear on awarded but unvested DFSS
shares, subject also to a possible 20%
enhancement based on the Committee’s
assessment of the risk metrics scorecard.
No bonus is payable unless dividends arepayable on Admiral shares.

Company Overview

Purpose and link to strategy

Strategic Report

Corporate Governance

Financial Statements

Operation

Additional Information

Opportunity and performance metrics

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

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

The SIP is an all-employee scheme andExecutive Directors participate on
the same terms as other employees.
The acquisition of shares is therefore
not subject to the satisfaction of aperformance target.
Maximum opportunity is in line with
HMRC limits.

Shareholding Requirement
To align interests of
Executive Directors withshareholders.

Guideline to be met within five years of the later of theintroduction of the guidelines and an Executive Director’s
appointment.

300% of base salary (base salary excludes
any salary shares).

The Committee is satisfied that the above Remuneration Policy is in the best interests of shareholders and does not promote excessiverisk-taking. The Committee retains discretion to make changes required to satisfy legal or regulatory requirements and other nonsignificant changes to the Remuneration Policy without reverting to shareholders.

NOTES TO THE REMUNERATION POLICY TABLE
Payments from Existing Awards
Executive Directors are eligible to receive payment from any award made prior to the approval and implementation of the Remuneration
Policy. This includes all outstanding awards under the previous 2015 Remuneration Policy, or any awards made prior to appointment to theBoard. Details of any such payments will be set out in the Annual Report on Remuneration as they arise.

Selection of Performance Measures
Vesting under the DFSS is currently linked to EPS vs. LIBOR, ROE, and relative TSR. EPS vs. LIBOR has been selected as a performancemeasure as the Committee feels it is a strong indicator of both long-term shareholder return and the underlying financial performance ofthe business. It is transparent and visible and provides good line-of-sight to executives. ROE has been selected as the Committee believes
that a returns metric reinforces the focus on capital efficiency and delivery of strong returns for our shareholders, thereby further
strengthening the alignment of incentives with Admiral’s strategy. The third DFSS measure is relative TSR vs. the FTSE 350 (excluding
investment companies). This has been selected to reflect value creation for Admiral’s shareholders as compared with the general market.
The specific performance measures and their respective weightings in respect of each DFSS award may vary to reflect the strategic
priorities at the time of the award.
Performance targets are set taking into account broker forecasts for Admiral and its insurance peers, the Company’s strategic priorities
and the economic environment in which the Company operates. The Committee believes that the performance targets set are stretching
and motivational, and that maximum outcomes are available only for outstanding performance.

Remuneration Policy for Other Employees
The Company’s approach to annual salary reviews is consistent across the Group, with consideration given to the role size, experience
required, individual performance and pay levels in comparable companies.
In general, the Remuneration Policy which applies to other senior executives is consistent with that for Executive Directors. Remuneration
is typically linked to Company and individual performance in a way that reinforces shareholder value creation.
Approximately 3,945 employees from across the Group, as well as the CFO, participate in the DFSS. The Committee recommends forapproval by the Board DFSS awards for those executives within its remit and on an aggregate basis for all other participants in the
DFSS. For the CFO, all DFSS share awards are subject to performance conditions. For other senior managers and employees at lower
organisational levels, a proportion of awards (ranging from 50% to two-thirds) is subject to performance, with performance conditions
either in line with those described above, or set based on key performance drivers of the individual’s relevant business unit, and theremainder has no performance conditions attached other than the requirement that the recipient remains an employee of the Group at
the date of vesting. Award sizes vary by organisational level and an assessment of both financial and non-financial individual and business
unit performance.
All holders of DFSS awards receive the DFSS bonus. Most overseas employees receive an equivalent award to the UK SIP awards whichcomes within the DFSS scheme and these awards have no performance measures attached.
All UK employees are eligible to participate in the SIP on the same terms.
Admiral Group plc · Annual Report and Accounts 201893

Corporate GovernanceDirectors’ Remuneration Policy continued
Remuneration Arrangements for David Stevens (Founding Director)
David Stevens is a founding Director, and he and the Committee continue to hold the view that his significant shareholding provides
sufficient alignment of his interest in the performance of the Group with the interests of other shareholders. In light of this, David
Stevens’ remuneration package consists only of a cash salary, benefits such as private medical cover, permanent health insurance anddeath in service cover, and matching pension contributions from the Company under the Group’s Personal Pension Plan. David Stevens has
not participated, nor is it intended that he participates, in any Group share schemes.

SERVICE CONTRACTS AND LEAVER/CHANGE OF CONTROL PROVISIONSThe Company’s Policy is to limit termination payments on termination to pre-established contractual arrangements. In the event thatthe employment of an Executive Director is terminated, any compensation payable will be determined in accordance with the terms of
the service contract between the Company and the employee, as well as the rules of any incentive plans. Under normal circumstances,
Executive Directors are entitled to receive termination payments in lieu of notice based on base salary and compensation for loss ofbenefits. The Company has the ability to pay such sums in instalments, requiring the Executive Director to mitigate loss over the relevant
period. The notice period for all Executive Directors is one year.
Executive Director

Date of appointment

David Stevens

22 October 1999

Geraint Jones

13 August 2014

There is no provision in the Executive Directors’ contracts for compensation to be payable on early termination of their contract over andabove the notice period element. The Executive Directors’ service contracts are available to view at the Company’s registered office.
When considering termination payments, the Committee reviews all potential incentive outcomes to ensure they are fair to bothshareholders and participants. The table below summarises how the awards under the DFSS and DFSS bonus scheme are typically treatedin specific circumstances, with the final treatment remaining subject to the Committee’s discretion:
Plan

Scenario

Treatment of awards

Timing of vesting

DFSS

Resignation.

Awards lapse.

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

Any unvested award will be pro-rated for time withreference to the proportion of the vesting period
remaining at termination, and performance, unlessthe Committee determines otherwise.

Normal vesting date.

Change of control.

Any unvested award will be pro-rated for timewith reference to the proportion of the vesting
period remaining at change of control, and extent
to which the Committee determines that theperformance conditions have been met or are
likely to be met at the point of change of control,
unless the Committee determines otherwise.

Immediately.

Resignation.

n/a

n/a

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

Not payable after the event.

n/aChange of control.

Not payable after the event.

n/aDFSS bonus

94

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Plan

Scenario

Treatment of awards

Timing of vesting

Salary shares(CFO only)

Resignation.

Awards lapse.

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

Any unvested award will be pro-rated for timewith reference to the proportion of the vesting
period remaining at termination, unless theCommittee determines otherwise1.

Normal vesting date, with
Committee discretion toaccelerate.

Change of control.

Any unvested award will be pro-rated fortime with reference to the proportion of
the vesting period remaining, at the point ofchange of control, unless the Committee
determines otherwise.

Immediately.

1.	Note: the good leaver provisions for the salary shares disclosed in the 2017 Policy Report had a typographical error which mistakenly referred to ‘performance’ being assessed onleaving; as such shares have no performance conditions attached such wording has been removed from the table for clarity.

For all leavers (with the exception of in the event of termination for cause), in respect of vested DFSS and vested salary share awards thatare still subject to a holding period, awards will normally be released in full at the end of the holding period, though the Committee has
discretion to determine otherwise, taking into account the circumstances at the time.

NON-EXECUTIVE DIRECTORSThe Company has entered into letters of appointment with its Non-Executive Directors (NEDs). Summary details of terms and notice
periods are included below.

NED

Term

Initial date of
appointment

Commencement of
current contract

Notice period

Annette Court

3 years

21 March 201226 April 2017

Three months

Mike Brierley

3 years

5 October 2018

5 October 2018

One monthOwen Clarke

3 years

19 August 201519 August 2018

One month

Andy Crossley

3 years

27 February 201827 February 2018

One month

Karen Green

3 years

14 December 201814 December 2018

One month

Jean Park

3 years

17 January 201417 January 2017

One month

Justine Roberts

3 years

17 June 201617 June 2016

One month

Manning Rountree

3 years

16 June 201516 June 2018

One month

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

Operation

Opportunity and performance metrics

To attract and retain NEDsof the highest calibre withexperience relevant to theCompany.

Fees are reviewed annually.

Fee levels are set by reference to NED
fees at companies of a similar size andcomplexity. It is anticipated that NED
fee increases will normally be in line with
the increase for the general employee
population over the term of this Policy.

The Group Chairman fee is determined by the Committee
after consultation with the Executive Directors. The NED fees
are determined by the Group Chairman together with the
Executive Directors.
Additional fees are payable for acting as Senior Independent
Director or as Chair or member of a Board Committee asappropriate, and may be payable as appropriate in relation
to other additional responsibilities (e.g. attending meetings
overseas).
Fees are paid in a mix of cash and Company shares for theCompany Chair, and in cash for other Non-Executive Directors.
The Board retains discretion to vary the mix or determine thatfees are paid entirely in cash or Company shares.

In the event that there is a material
misalignment with the market or achange in the complexity, responsibility
or time commitment required to fulfil
an NED role, the Board has discretion to
make an appropriate adjustment to thefee level.
The maximum aggregate annual fee for
NEDs is capped at the limit provided for in
the Company’s Articles of Association.

Admiral Group plc · Annual Report and Accounts 201895

Corporate GovernanceDirectors’ Remuneration Policy continued
PAY-FOR-PERFORMANCE: SCENARIO ANALYSISThe following charts provide an estimate of the potential future reward opportunities for the Executive Directors, and the potential split
between the different elements of pay under three different performance scenarios: ‘Minimum’, ‘On-target’ and ‘Maximum’.
As described above, Admiral’s DFSS bonus is directly aligned with dividends received by our shareholders, with a final adjustment for risk.
Whilst the CFO’s final DFSS bonus outcome may be adjusted upwards or downwards for risk by up to 20% in any given year, it is anticipatedthat the average adjustment over the long term will be close to 0%. The figures shown in the chart below for the CFO’s DFSS bonus
therefore include the value of the actual DFSS bonus paid in 2018 as an illustration of the value he might receive. Under all scenarios,
potential reward opportunities are based on the Remuneration Policy, applied to salaries as at 1 January 2019.

Fixed Rem

2,500

DFSS bonus
DFSS
72%

2,000

1,500

64%

1,000
27%

500

£0

33%

24%

12%

67%

49%

24%

Minimum

On-target

Maximum

CFO: Geraint Jones

8%
20%

100%

100%

100%

100%

Maximum+50% share
growth priceMinimum

On-target

Maximum

Maximum+50% share
growth price

CEO: David Stevens

The value of DFSS awards is calculated based on the average share price in the last three months of 2018 (£20.07) and the number of DFSS
shares awarded in 2018 (50,000 shares) and salary shares expected to be awarded in 2019 (5,000 shares).
We have included in the charts above an additional scenario consistent with the remuneration reporting regulations which will come into
effect for accounting periods starting 1 January 2019. This scenario ‘Maximum with share price growth’ is based on the same assumptions
as used in the ‘Maximum’ scenario but also assuming the share price increases by 50% (as prescribed by the regulations).

96

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Component‘Minimum’‘On-target’

Base salary•

Annual cash salary and salary shares (CFO only) for 2019

Pension•£15,000 annual contribution for CFO and CEO

Benefits•

Taxable value of annual benefits provided

DFSS

•

0% vesting

DFSS bonus•

Based on DFSS bonus paid in 2018•

20% average vesting

Financial Statements‘Maximum’•

100% vesting

Additional Information‘Maximum with shareprice growth’•Same as otherscenarios but with
50% share priceappreciation onsalary shares•

100% vesting plus
50% share priceappreciation

APPROACH TO REMUNERATION RELATING TO NEW EXECUTIVE DIRECTOR APPOINTMENTS
External Appointments
In the case of appointing a new Executive Director, the Committee may make use of any of the existing components of remuneration as
set out in the Policy Table. The Committee’s policy is to set the remuneration package for a new Executive Director in accordance with theapproved Remuneration Policy at the time of the appointment.
In determining the appropriate remuneration for a new Executive Director, the Committee will consider all relevant factors to ensure that
arrangements are in the best interests of the Company and its shareholders. Where an individual is appointed on an initial base salary thatis below market, any shortfall may be managed with phased increases over a period of time, subject to the individual’s performance anddevelopment in the role. This may result in above-average salary increases during this period.
The Committee may also make an award in respect of a new Executive Director appointment to ‘buy out’ incentive arrangements forfeitedon leaving a previous employer. In doing so, the Committee will consider relevant factors including any performance conditions attachedto the forfeited awards and the likelihood of those conditions being met to ensure that the value of the buy-out award is no greater than
the fair value of the awards it replaces. The Committee may also avail itself of Listing Rule 9.4.2 R if appropriate in respect of buy-out
incentive arrangements.

Internal Appointments
Remuneration for new Executive Directors appointed by way of internal promotion will similarly be determined in line with the Policy forexternal appointees, as detailed above. Where an individual has contractual commitments made prior to their promotion to the Board, theCompany will continue to honour these arrangements. Incentive opportunities for below-Board employees are typically no higher than for
Executive Directors, but measures may vary if necessary.

OTHER DIRECTORSHIPS
Executive Directors are permitted to accept appointments as Non-Executive Directors of companies with prior approval of the Group
Chairman. Approval will be given only where the appointment does not present a conflict of interest with the Group’s activities, and where
the wider exposure gained will be beneficial to the development of the individual.

CONSIDERATIONS OF CONDITIONS ELSEWHERE IN THE GROUPThe Committee considers the pay and employment conditions elsewhere in the Group when determining remuneration for Executive Directors.

CONSIDERATIONS OF SHAREHOLDER VIEWS
When determining remuneration, the Committee takes into account best practice guidelines issued by institutional shareholder bodies.
The Committee is open to feedback from shareholders on the Remuneration Policy and will continue to monitor trends and developments
in corporate governance and market practice to ensure the remuneration structure for our Executive Directors remains appropriate.

CONSIDERATIONS OF REGULATORY REQUIREMENTS
The Committee regularly reviews the Remuneration Policy and structure in the context of Solvency II remuneration guidance. The Chief
Risk Officer periodically attends Committee meetings as part of this process and provides support to the Committee in understanding
any risk-related implications of remuneration decisions. Whilst the Remuneration Policy includes several features which help ensurecompliance with current regulatory guidance, the Committee reserves the discretion to adjust the Remuneration Policy, and its execution,
to take into account any developments in such regulatory guidance.

Admiral Group plc · Annual Report and Accounts 201897

Corporate Governance

Annual Report on
Remuneration
This section of the report provides details of how Admiral’s Remuneration Policy was implemented in 2018 and how the Remuneration
Committee intends to implement the Remuneration Policy in 2019.

REMUNERATION COMMITTEE MEMBERSHIP IN 2018
The Board sets the Group’s Remuneration Policy and, through the authority delegated to it by the Board, the Committee is responsible
for making recommendations to the Board on the structure and implementation of the Remuneration Policy across the Group withconsideration to the prevailing economic climate within the economies in which the Group operates. Its remit includes recommending the
remuneration of the Group Board Chairman, the Executive Directors and the Company Secretary; approving the remuneration of senior
management; and reviewing the composition of and awards made under the performance-related incentive schemes.
At the end of 2018 the Committee consisted of Owen Clarke, Jean Park and Justine Roberts. The Committee met 8 times during the year.
The Group Chairman, CEO, CFO and Chief Risk Officer are invited to meetings where the Committee considers it appropriate to obtain theiradvice on Group strategy and performance and Senior Executive pay strategy. The members of the Committee do not have any personal
financial interests (other than shareholdings), or any conflicts, that relate to the business of the Committee. The Committee members do
not have any day-to-day involvement in the running of the Group.

ADVISOR TO THE COMMITTEE
During the year, in order to enable the Committee to reach informed decisions on Executive remuneration, advice on market
data and trends was obtained from independent consultants, Mercer Kepler. Mercer Kepler reports directly to the Committee
Chairman, and is a signatory to and abides by the Code of Conduct for Remuneration Consultants (which can be found at www.
remunerationconsultantsgroup.com). Other than advice on remuneration, no other services were provided by Mercer Kepler to theCompany. The fees paid to Mercer Kepler in respect of work carried out in 2018 (based on time and materials) totalled £54,956 excluding
expenses and VAT.
The Committee undertakes due diligence periodically to ensure that Mercer Kepler remains independent of the Company and that theadvice provided is impartial and objective. The Committee is satisfied that the advice provided by Mercer Kepler is independent.
The Company Secretary also circulates market survey results as appropriate.

SUMMARY OF SHAREHOLDER VOTING AT THE 2018 AGM
The table below shows the results of the binding vote on the 2018 remuneration policy and the advisory vote on the 2017 Annual Report
on Remuneration at the 2018 AGM.
For2018 Remuneration Policy
2017 Annual Report on Remuneration98

Total number of votes% of votes cast
Total number of votes% of votes cast

Admiral Group plc · Annual Report and Accounts 2018

Against Total votes cast

214,282,051

2,306,994

98.93%

1.07%

190,878,704

20,357,584

90.36%

9.64%

Abstentions

216,589,045

136,242

211,236,288

5,479,236

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

TOTAL SINGLE FIGURE OF REMUNERATION FOR EXECUTIVE DIRECTORS (AUDITED)The table below sets out the total single figure remuneration received by each Executive Director for the year ended 31 December 2018and 31 December 2017.

Executive Director

Geraint JonesDavid Stevens*1

1. Base salary

2. Benefits

3. Pension

4. SIP

5. DFSS

6. DFSS bonus

Total
remuneration

2018£343,225£488£14,700£3,600£878,905£180,000£1,420,918

2017£245,000£604£8,996£3,600£772,720£153,525£1,184,445

2018£399,301£488£3,873

n/a

n/a

n/a

£403,662

2017£390,824£404£3,791

n/a

n/a

n/a

£395,019*1 David Stevens does not participate in any incentive plan given his significant shareholdings.

The figures have been calculated as follows:
1. Base salary/fee: amount earned for the year. For Geraint Jones, this also includes 2,500 salary shares awarded on 9 March 2018, and 2,500
awarded on 24 August 2018. These have been valued using closing share price at date of grant of £18.70 and £20.59 respectively.
2. Benefits: the taxable value of annual benefits received in the year.
3. Pension: the value of the Company’s contribution during the year.
4. SIP: the face value at grant.
5. DFSS: the value at vesting of shares vesting on performance over the three-year periods ending 31 December 2018 and 31 December
2017. For the 2018 figures, given that vesting occurs after the 2018 Directors’ Remuneration Report is finalised, the figures are based on
the average share price in the last three months of 2018 (£20.07). The 2017 figures have been trued up based on the actual share priceon vest (£20.80). For 2018, an unfavourable movement of £31,552 is included in the DFSS value, attributable to a reduction in the shareprice over the vesting period. For 2017, £220,300 of the DFSS value is attributable to share price appreciation over the vesting period.
6. DFSS bonus: the bonus equivalent to dividends that were paid during the year on all outstanding DFSS shares awarded but not yet vested.

Admiral Group plc · Annual Report and Accounts 201899

Corporate Governance

Annual Report on Remuneration continued
TOTAL SINGLE FIGURE OF REMUNERATION FOR NON-EXECUTIVE DIRECTORS (AUDITED)The table below sets out the total single figure remuneration received by each NED for the year ended 31 December 2018 and 31
December 2017.
Total fees
Director

Annette Court

2018

2017

£319,438£217,121

Owen Clarke£88,100£77,438

Colin Holmes£91,525£89,250

Jean Park

1£101,500£113,750

Justine Roberts£60,500£59,229

Manning Rountree£73,100£70,350

Andy Crossley£92,522n/aMichael Brierley4,8£47,125

n/a

2

3,8

n/a

£115,656

6

n/a£48,575

Karen Green7£33,171n/aAlastair Lyons
Penny James

5

1.	Annette Court was appointed Chairman of the Board with effect from 26 April 2017 on an annual fee of £300,000 (split £210,000 cash and £90,000 to be used to buy shares– the share fee). For 2018, the fee was increased to £307,500 (£215,250 cash, £92,250 share fee). Due to the timing of the cash payments for the share fee for 2017, the 2017
fee includes only one instalment of £45,000, representing the fee for 6 months. As Annette was in the role of Chairman for 8 months, an additional cash payment of £15,000
representing 2 months of the 2017 fee was paid alongside the first 2018 instalment. A payment of £3,062, in respect of Annette’s annual fee for 2018, was paid in 2019.
2.	Jean Park’s fees for 2017 and 2018 include additional fees relating to her position as Chair of the Group Risk Committee and is in recognition of the increased time commitment
required of her as a consequence of Solvency II regulations and the Internal Model Application Process. The 2017 fees also include an amount relating to this role for 2016, which
was paid during 2017.
3.

Andy Crossley was appointed to the Board on 27 February 2018.

4.

Michael Brierley was appointed to the Board on 5 October 2018 and his fee includes fees paid for Board and Committee attendance prior to his formal appointment.

5.

Alastair Lyons retired from the Board with effect from 26 April 2017.

6.

Penny James retired from the Board with effect from 8 September 2017.

7.	Karen Green was appointed to the Board on 14 December 2018 and her fee includes fees paid for Board and Committee attendance from June 2018 prior to herformal appointment.
8.	The 2018 fees for Andy Crossley and Michael Brierley include additional fees in relation to their positions as Chairman of the Admiral Financial Services Limited and EUI Limited
Board of Directors respectively.

INCENTIVE OUTCOMES FOR FINANCIAL YEAR TO 31 DECEMBER 2018 (AUDITED)DFSS Awards Vesting on Performance to 31 December 2018
In September 2016, Geraint Jones was granted an award under the DFSS of 50,000 shares with a value at the date of award of £1,039,500(based on a grant date share price of £20.79), equivalent to 495% of salary at date of grant.
Vesting of the award was based 100% on the achievement of performance conditions, being EPS growth vs. LIBOR, TSR vs. FTSE 350(excluding investment companies), and ROE, weighted equally and all measured over the three-year period 1 January 2016 to 31 December
2018. Over this period, the returns to our shareholders were strong, with TSR in the top of the second quartile versus FTSE350 companies
and with ROE of 50%. The combination of these shareholder returns and EPS growth contributed to a vesting level of 87.6%.
The Committee reviewed this vesting outcome and concluded that it was appropriate. In particular, the Committee considered the EPS
performance over the period, taking into account the positive impact of the partial reversal of the provisioning for the Ogden rate change
two years ago, and concluded that no adjustment should be made to ensure consistency of approach with that taken previously by theCommittee for the vesting of the 2014 DFSS awards (where no adjustment was made to neutralise the substantial negative impact on2016 EPS from the initial provision for the Ogden rate change).

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Strategic Report

Corporate Governance

Financial Statements

Additional Information

The table below details the Company’s performance against targets and the resulting vesting outcome.
Performance range

Vesting outcome (%of maximum)

Performance measureThresholdMaximum

Vesting schedule

Actual outturn

EPS growth vs. LIBOR(weighted 33%)

Growth in linewith LIBOR

Growth of 36 points(equivalent to 10%p.a.) in excessof LIBOR

10% for achieving thresholdwith straight line relationshipto 100% for maximum
performance

26.2% points inexcess of LIBOR

75.5%

TSR vs. FTSE 350(excluding investmentcompanies) (33%)

MedianUpper quartile

25% for median, with straightline relationship to 100% for
upper quartile

74th percentile

100%

Return on Equity(ROE) (33%)

25%

55%

25% for achieving thresholdwith straight line relationshipto 100% for maximum
performance

50.0%

87.5%

Total vesting

87.6%

Based on performance, the total amount that will vest to Geraint Jones in September 2019 will therefore be 87.6% of his award (i.e. 43,800
shares), subject to his continued employment on the vesting date.
Vested DFSS awards are subject to clawback provisions. Events which may lead to the application of clawback are set out in the Group’s
Malus and Clawback Framework and include material financial misstatement, responsibility for conduct which results in significant losses,
material failure of risk management and misconduct.

DFSS BONUS IN RESPECT OF 2018
In line with the Remuneration Policy, the Group paid a bonus to all holders of DFSS shares in 2018, which was equivalent to the dividend
payable on all outstanding DFSS shares awarded but not yet vested. The Committee continues to believe that having a bonus equivalent
to the dividend flow received by investors further aligns the incentive structure with shareholders. The 2018 Remuneration Policy was
updated to include a +/- 20% adjustment to the DFSS Bonus based on performance of a set of risk metrics. The Committee invested
considerable time in reviewing appropriate measures and targets for determining any adjustments which would also apply for the wider
senior management population in 2019, and the Committee concluded that the adjustment would be first introduced for the 2019
DFSS bonus. This decision was taken as the risk metrics were still being developed during 2018 and consistency with the wider senior
management population was preferred.
In 2018, Geraint Jones received a DFSS bonus of £180,000 (2017: £153,525). David Stevens did not receive a DFSS bonus as he does notparticipate in the DFSS.
DFSS bonus payments are subject to malus and clawback provisions.

SCHEME INTERESTS GRANTED IN 2018 (AUDITED)DFSSIn September 2018, Geraint Jones was granted an award under the DFSS of 50,000 shares with a value at the date of award of £1,020,000(based on share price of £20.40), equivalent to 416% of base salary. The three-year period over which performance will be measured is 1
January 2018 to 31 December 2020. The award is eligible to vest on the third anniversary of the date of grant (i.e. September 2021), subject
to performance and to continued employment. Vested awards will be subject to an additional two-year post-vest holding period. David
Stevens again declined to be included given his significant shareholding.
The award will vest on three-year EPS growth vs. LIBOR, TSR vs. FTSE 350 (excluding investment companies), and ROE, weighted equally.
The performance conditions are summarised in the table below.
Performance range
Performance measureThresholdMaximum

Vesting

EPS growth vs. LIBOR

Growth in linewith LIBOR

Growth of 36 points(equivalent to 10% p.a.)in excess of LIBOR

10% for achieving threshold with straight line
relationship to 100% for maximum performance

TSR vs. FTSE 350 (excluding
investment companies)

MedianUpper quartile

25% for median, with straight line relationshipto 100% for upper quartile

Return on Equity (ROE)

25%

55%

25% for achieving threshold with straight line
relationship to 100% for maximum performance

Admiral Group plc · Annual Report and Accounts 2018101

Corporate Governance

Annual Report on Remuneration continued
SCHEME INTERESTS GRANTED IN 2018 (AUDITED) CONTINUEDDFSS continued
DFSS awards are subject to clawback and malus provisions, i.e. forfeiture or reduction of unvested awards and recovery of vested
awards. Events which may lead to the application of malus or clawback are set out in the Group’s Malus and Clawback Frameworkand include material financial misstatement, responsibility for conduct which results in significant losses, material failure of risk
management and misconduct.

SIP
In March and August 2018, Geraint Jones was granted awards under the SIP of 96 shares with a face value of £1,795, and 87 shares with aface value of £1,791 respectively. The shares will vest on 9 March 2020 and 24 August 2020 respectively subject to continued employment
only. David Stevens again declined to be included given his significant shareholding.

EXIT PAYMENTS (AUDITED)No exit payments were made to an Executive Director during the year.

PAYMENTS TO PAST DIRECTORS (AUDITED)No payments were made to a past Director during the year.

IMPLEMENTATION OF REMUNERATION POLICY FOR 2019
Executive Directors
Salary, Pension and Benefits
Salaries for the Executive Directors in 2019 will be determined in line with the proposed Remuneration Policy, subject to shareholder
approval. David Stevens’ salary will be increased by 2.5% effective 1 September 2019. For 2019, the CFO’s cash salary will be £251,125, anincrease of 2.5% effective 1 January 2019, and he will continue to be granted an award of 5,000 salary shares, unchanged from 2018. The
salary share award will vest after three years subject to continued employment. An additional two-year holding period will apply, during
which time shares may not be sold, save to meet income tax, NI or other regulatory obligations. Malus and clawback provisions will apply
during the vesting and holding periods. The salary share award is not included in base salary when calculating the CFO’s pension benefit.
The Executive Directors will continue to participate in the Group Personal Pension Plan, where employee contributions are matched up
to a maximum 6% of base salary with a cap on the maximum employer contribution of £15,000 p.a. The Company will offer individuals a
choice between pension contributions and cash in lieu. Both Executive Directors will continue to receive benefits in line with the Policy.

DFSS
As in prior years, the Committee intends to make an award under the DFSS to Geraint Jones in September 2019. In advance of each
DFSS cycle, the Committee reviews the appropriateness of the performance measures and corresponding targets. The Committee will
determine the award size to be attached to the 2019 DFSS award closer to the award date (expected to be in September 2019), and will
disclose this in the 2019 Annual Report on Remuneration. It is currently anticipated that the vesting of 2019 DFSS award for the CFO willcontinue to depend on three-year EPS growth vs. LIBOR, TSR vs. FTSE 350 (excluding investment companies), and ROE as well as additional
non-financial customer and risk metrics. The Committee believes that the additional emphasis on risk and customer will help to reinforce
our focus on risk management and our customers, whilst also more clearly demonstrating alignment of Group remuneration practices withthe requirements of Solvency II. As per award size, the Committee will determine the performance conditions and targets to be attachedto the 2019 DFSS award closer to the award date, and will disclose them in the 2019 Annual Report on Remuneration.

DFSS bonus
As in prior years, Geraint Jones will be eligible to receive a DFSS bonus in 2019. The bonus is calculated to be equivalent to dividends thatwould have been payable during the year on all outstanding DFSS shares and any salary shares awarded but not vested. The DFSS bonus will
include a ±20% adjustment based on performance against a set of risk metrics. The details of the risk metrics and any adjustment applied
will be provided in the 2019 Annual Report on Remuneration.

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Strategic Report

Corporate Governance

Financial Statements

Additional Information

Chairman and Non-Executive Directors
Fees for the Board Chairman and other Non-Executive Directors were last reviewed in January 2019, with increases effective from 1
January 2019. The fees are as follows:

Chairman2019 fee (p.a.)2018 fee (p.a.)£315,187

1£307,5001£60,500£60,500

NED base fee
Additional fee for chairing:•

Audit Committee£21,000£21,000•

Group Risk Committee£41,000

3£41,0002•

Remuneration Committee£15,000£15,000•

Nomination and Governance Committee£10,000£5,250Additional fee for membership of:•

Audit Committee£12,600£12,600•

Group Risk Committee£12,600£12,600•

Remuneration Committee£5,000–•Nomination Committee£5,000–£11,025£11,025

Additional fee for being Senior Independent Director

1.	The 2019 fee for the Board Chairman increased by 2.5% from £307,500 to £315,187 (inclusive of committee membership or committee chair fees) and comprises a cash fee of£220,631 and a share fee of £94,556 with which the Chairman is required under a Share Agreement entered into with the Group to use the net proceeds in two equal instalments
to purchase Group shares after the Group’s Full Year Results and Half Year Results are announced each year.
2.	The fee payable to Jean Park, Chair of the Group Risk Committee, includes an additional fee of £20,000 per annum, with effect from 1 January 2017 until 31 December 2018, inrecognition of the increased time commitment required of her as a consequence of the Solvency II regulations and Internal Model Application Process.
3.	The fee payable to Jean Park with effect from 1 January 2019 will include an additional fee of £20,000 per annum in continued recognition of the continued increased timecommitment required as a consequence of the Solvency II regulations and Internal Model Application Process.

PERCENTAGE CHANGE IN CEO REMUNERATION
The table below shows the percentage change in CEO remuneration from 2017 compared to the average percentage change inremuneration for all other employees. The analysis is based on a consistent set of employees, i.e. the same individuals appear in the 2017and 2018 populations. As the CEO does not participate in the DFSS bonus scheme, to provide a meaningful comparison we have also
included data for the CFO who receives DFSS awards.

CEO

SalaryTaxable benefits
DFSS bonus1
1.

Other
employees

CFO

2018

2017

% change

2018

2017

% change£399,301£488––% change£390,824+2%£343,225£245,000

+41%

+5%

£404

+21%

£488

£604

-19%

-10%

£180,000£153,525

+17%

+5%

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

2.	The employee salary change figure of 5% reflected increases, particularly in respect of employee basic pay, that were made to recognise movements in the Minimum Wage andadjustments to reflect local market pressures.

CEO AND CFO PAY RATIOThe UK Government has introduced legislation that will require all companies with more than 250 employees to publish the ratio of the
CEO’s pay, using his single figure remuneration, to that of the 25th percentile, median and 75th percentile total remuneration of the fulltime equivalent employees.
Whilst the legislation does not require Admiral to comply until the 2019 Annual Report, the Committee is cognisant of the interest in
this area and has concluded that “early” disclosure in this Annual Report is helpful. Furthermore, given our CEO does not participate in
the DFSS, the Committee has also provided the equivalent pay ratios against the CFO single figure remuneration, which includes salary,pension, benefits, DFSS Bonus and vested DFSS awards for the year. The table below sets out the pay ratios for CEO and CFO for the period
ended 31 December 2018.

Admiral Group plc · Annual Report and Accounts 2018103

Corporate Governance

Annual Report on Remuneration continued
CEO AND CFO PAY RATIO CONTINUED
Financial year 2018

CEO pay ratio

MethodLower quartile

Median quartile

Upper quartile

Option A

18:1

15:1

11:1

62:1

54:1

38:1

CFO pay ratio

The CEO pay ratio will likely be relatively stable from one year to the next given David Stevens’ pay does not include any variable
components. The CFO pay ratio, however, will vary from year to year as Geraint Jones’ remuneration package is heavily weighted to variable
and equity-based components.
The Lower Quartile and Median employees were not in receipt of DFSS Bonus and/or DFSS vesting in the year.
The legislation provides three options to calculate the pay ratio; Option “A”, which involves calculating the actual full time equivalent(FTE) remuneration for all relevant employees for the fiscal year in question, has been used for the calculation above, consistent with theGovernment’s and investor bodies’ preferred approach. The employee data has been reviewed and we are satisfied that it fairly reflects
pay at the relevant quartiles. No adjustments have been applied in determining the employee pay levels which are set out below.

SalaryTotal Remuneration

1

CEO

CFO

P25 (lower quartile)P50 (median)

P75 (upper quartile)£399,301£343,225£16,850£21,000£21,750£403,662£1,420,918£22,751£26,361£37,055

1.	The single figure of remuneration for the CEO and CFO includes actual salary and pension costs paid during 2018, in line with The Companies (Miscellaneous Reporting)regulations 2018. For other employees, salary and pension costs are included on an FTE basis, in line with the legislation. While the basis of calculation differs between CEO/CFO
and other employees, management considers this a fair comparison of remuneration.

RELATIVE IMPORTANCE OF SPEND ON PAY
The table below shows the percentage change in dividends and total employee remuneration spend from the financial year ended 31
December 2017 to the financial year ended 31 December 2018.
2018
£m

2017
£m

%
changeDistribution to shareholders

357

320

+12%

Employee remuneration

382

324

+18%

The Directors are proposing a final dividend for the year ended 31 December 2018 of 66 pence per share bringing the total dividend for2018 to 126 pence per share (2017: 114 pence per share).

PAY FOR PERFORMANCE
The following graph sets out a comparison of Total Shareholder Return (TSR) for Admiral Group plc shares with that of the FTSE 100 and
FTSE 350 indices, of which the Company is a constituent, over the ten-year period to 31 December 2018. The Directors consider these
to be the most appropriate indices against which the Company should be compared. TSR is defined as the percentage change over theperiod, assuming reinvestment of income.

104

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

10-YEAR TSR PERFORMANCE: ADMIRAL VS. FTSE 100 AND FTSE 350 INDICES
Growth in the value of a hypothetical £100 holding over the 10 years to 31 December 2018.

£500
£400
£300
£200
£100
£0
Dec 08

Dec 09Dec 10AdmiralCEO
Incumbent

Dec 11FTSE 100

Dec 12

Dec 13

Dec 14

Dec 15

Dec 16

Dec 17

Dec 18FTSE 350

2009

2010

2011

2012

2013

2014

2015

2017

2018

Henry
Engelhardt

Henry
Engelhardt

Henry
Engelhardt

Henry
Engelhardt

Henry
Engelhardt

Henry
Engelhardt

Henry
Engelhardt

Henry
Engelhardt1

2016
David
Stevens2

David
StevensDavid
Stevens£328,027£343,106£358,199£373,759£387,546£393,260£397,688£148,776£246,023£395,019£403,662

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

2015

2016

2017

2018

Kevin
Chidwick3

Geraint
Jones4

Geraint
Jones

Geraint
Jones

Geraint
Jones

Geraint
Jones£1,431,218 £1,444,4435 £1,204,1645£363,551£539,704£599,139 £1,184,4456£1,420,918

CEO single figureof remuneration
DFSS vesting outcome(% of maximum)

CFO

2009

2010

2011

2012

2013

Incumbent

Kevin
Chidwick

Kevin
Chidwick

Kevin
Chidwick

Kevin
Chidwick

Kevin
Chidwick

CFO single figure£632,312£1,269,535£1,048,130

98%

100%

100%

2014

of remuneration
DFSS vesting outcome(% of maximum)

100%

100%

70%

85%

69% 50% and 0%

1.

Henry Engelhardt stepped down from the Board on 13 May 2016. His 2016 remuneration includes salary and benefits in respect of his service as CEO.

2.

David Stevens was appointed as the CEO on 13 May 2016. His 2016 remuneration includes salary, pension and benefits in respect of his service as CEO.

74.2%

87.6%

3.	Kevin Chidwick left the Board on 13 August 2014 to focus on his new role as CEO of Elephant Auto. His 2014 remuneration includes salary, pension and benefits in respect of his
service as CFO, his full year DFSS and his full year DFSS bonus.
4.	Geraint Jones was appointed to the Board as CFO on 13 August 2014. His 2014 remuneration includes salary, pension and benefits in respect of his service as CFO, his full year DFSSand his full year DFSS bonus.
5.

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

6.

This figure has been trued up since the 2017 report for the value of the 2015 DFSS based on the actual share price on vest (£20.80).

7.

87.6% of Geraint Jones’ 2016 DFSS award will vest in September 2019 subject to his continued employment on the vesting date.

Admiral Group plc · Annual Report and Accounts 2018105

Corporate Governance

Annual Report on Remuneration continued
There are no annual bonus outcomes to report in the table as the Admiral DFSS Bonus is not structured as a traditional annual bonus
scheme and consequently a vesting outcome (as a percentage of max) is meaningless.

DILUTION
The Company currently uses newly issued shares to fund the DFSS and SIP. The Company has controls in place to ensure that sharesawarded under the incentive schemes operated by the Company within any rolling ten-year period do not exceed 10% (on a net basis) of
the number of ordinary shares in the capital of the Company in issue at the time of each award. As at the end of 2018, assuming full vestingof outstanding awards, the maximum number of shares granted under the DFSS and SIP was 100% of shares outstanding. It is currently
anticipated that a combination of attrition and actual vesting will result in dilution of less than 10%. As required by the rules of our shareschemes, the Company will in any event ensure that the actual dilution level does not exceed 10% in any rolling ten-year period by fundingof any vested (and future) DFSS and SIP awards as appropriate with market-purchased shares.

INTERESTS HELD BY DIRECTORS (AUDITED)The Company has adopted Executive Director shareholding guidelines whereby all Executive Directors are required to acquire and retain abeneficial shareholding in the Company equal to at least 300% of base salary (excluding salary shares, where applicable), which can be built
up over a period of five years from the later of the introduction of the guidelines and the individual’s date of appointment. All Executive
Directors currently hold shares in excess of the guideline.
As at 31 December 2018, the Directors held the following interests:
Shares held

Beneficiallyowned outright

Subject tocontinued
employment
only

Subject toperformance
conditions

Shareholding
requirement(% of salary)

Current
shareholding(% of salary)

Requirement
met?

Geraint Jones

61,8191

43,800100,000

300%

>300%

Yes

David Stevens

9,082,950

n/a

n/a

300%

>300%

Yes

Director

Annette Court

6,410

Owen Clarke

142,852

Colin Holmes

23,500Jean Park

4,000

Justine Roberts–

Manning Rountree–

Andy Crossley–

Mike Brierley

1,384

Karen Green–1.

Total includes SIP shares both matured and awarded.

2.

Total reflects shares from the 2016 DFSS award (performance test has been applied, and award is due to vest in September 2019).

There have been no changes to Directors’ shareholdings since 31 December 2018.
None of the Directors had an interest in the shares of any subsidiary undertaking of the Company or in any significant contracts of the Group.

106

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

CURRENT CFO GERAINT JONES’ INTERESTS IN SHARES UNDER THE DFSS AND SIP AND SALARY SHARE AWARDS (AUDITED)
Vested/maturedduring year

At endof yearPrice ataward (£)

Value atValue at
31 Dec 2018
award date (£) or maturity (£)

Type

At startAwardedof year during year

DFSS

50,000–37,150–£14.87£743,500£772,7201,2

29/09/2015

29/09/2018

DFSS

50,000––50,000£20.79£1,039,500£1,023,500

26/09/2016

26/09/2019

DFSS

50,000––50,000£18.10£905,000£1,023,500

26/09/2017

26/09/2020

DFSS

–

50,000–50,000£20.40£1,020,000£1,023,500

26/09/2018

26/09/2021

Salary Share

–

2,500

–

2,500

£18.70£46,750£51,175

09/03/2018

09/03/2021

Salary Share

–

2,500

–

2,500

£20.59£51,475£51,175

24/08/2018

24/08/2021

SIP

101

–

101

–

£14.88

SIP

118

–

118

–

£15.21

SIP

92

–

–

92

£19.47

SIP

87

–

–

87

£20.51

SIP

95

–

–

95

£19.08

SIP

85

–

–

85

£21.08

SIP

–

96

–

96

SIP

–

87

–

87

1.

Date of award

Final vesting/maturity date

£1,503£1,9171

13/03/2015

13/03/2018£1,795£2,452124/08/2015

24/08/2018£1,791£1,883

11/03/2016

11/03/2019£1,784£1,781

02/09/2016

02/09/2019£1,813£1,945

17/03/2017

17/03/2020£1,792£1,74018/08/2017

18/08/2020£18.70£1,795£1,96509/03/2018

09/03/2021£20.59£1,791£1,781

24/08/2018

24/08/2021

Value at maturity.

2.	The vesting percentage for performance-related awards made in 2014 was 74.2%. The award made to Geraint Jones in September 2015 was 100% performance-related, which
resulted in the lapsing of 12,850 shares. The value at maturity relates only to shares vested.

The closing price of Admiral shares on 31 December 2018 was £20.47 per share.
By order of the Board,

Owen Clarke
Chairman of the Remuneration Committee
6 March 2019

Admiral Group plc · Annual Report and Accounts 2018107

Corporate GovernanceDirectors’ Report
The Directors present their Annual Report
and the audited financial statements for theyear ended 31 December 2018.

STATUTORY DISCLOSURES
Group results and dividends
The profit for the year, after tax but before
dividends, amounted to £390.5 million(2017: £331.6 million).
The Directors declared and paid dividendsof £332.7 million during 2018 (2017:£300.3 million) – refer to note 12b forfurther details.
The Directors have proposed a final dividendof £188 million (66 pence per share) payable
on 31 May 2019.

Employee policies
Detailed information on the Group’s
employment practices is set out in theStrategic Report and on the corporatewebsite. The Group purchases appropriate
liability insurance for all staff and Directors.

Diversity, ethics and human rights
Admiral Group respects and values
the individuality and diversity of every
employee. The Group’s Equality, Diversity
and Dignity at Work policy ensures thatevery employee is treated equally and fairly
and that all employees are aware of their
obligations. The Group is fully committed
to the health and safety and the humanrights of its employees regardless of
their background. In addition, the Group
maintains a number of employee codesof conduct regarding appropriate ethicalstandards in the workplace.

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

Anti-Bribery
The Group’s Bribery policy strictly prohibits
the solicitation or the acceptance of any
bribe, whether cash or inducement, to orfrom any person or company, wherever
they are situated and whether they are apublic official or body or private person orcompany, by any individual employee, Board
member, agent or other person or body on
the Group’s behalf.

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

Company Directors*1
Other senior managers*2

All employees

MaleFemale

6

4

41

22

5,260

5,586

Disabled employees
Admiral Group gives full and fairconsideration to applications for
employment made by those withdisabilities, having regard to their particular
aptitudes and abilities. Admiral Group’s
UK businesses are Disability Confident
Employers. This means they are recognised
as going the extra mile to make suredisabled people get a fair chance.
The Group will support any employee who
is disabled or has a life-threatening illness
and help them to contribute to the Group as
long as their health allows.
Managers in the Group are sensitive tohealth concerns and special needs and will
not knowingly allow any employee with adisabling or life threatening illness to sufferfrom discrimination at work. The Group
provides staff with access to the EAP CareFirst confidential helpline which offers advice
and support on a range of health issues.

Communication
There are a wide range of communication
tools used by the Group to communicate
with employees, which assists in theunderstanding of business goals andobjectives, including: the staff portal (Atlas),internal newsletters, videos, team briefings,
suggestion schemes, staff forums, updates
on the staff share scheme and the annual
Staff General Meeting (SGM). In the 2018
annual staff survey, 84% of staff were happy
with the amount of information they receive
about the Company (2017: 83%).

Notes*1	Company Directors consists of the Board of Directors, as detailed on pages 64 to 65.
*2	Other senior managers is as defined in the Companies Act 2006 (Strategic Report and Directors’ Report) and includes persons responsible for planning, directing or controllingthe activities of the Company, or a strategically significant part of the Company, other than Company Directors. Any other Directors of undertakings included in the consolidated
accounts that are not considered strategically significant have not been included.

108

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

The transparency of our communication
philosophy extends to senior managers
and Directors, who sit amongst their teams
which encourages a dialogue between
staff of all levels of seniority across allareas of our business. Furthermore, ourChief Executive Officer (CEO) operates an‘open door’ policy so if any member of ourstaff wants to ask him a question, they canemail him directly through our ‘Ask David’
intranet initiative. Our senior managers andDirectors also participate in regular online
chats with staff.

Greenhouse gas emissions

Going concern

The annual level of greenhouse gas
emissions, resulting from activities forwhich the Group is responsible, was 3,926
CO2e (2017: 3,642 CO2e), equivalent to 0.39
tonnes (2017: 0.42 tonnes) per employee*3.
In accordance with GHG Protocol Scope 2
guidance released 20 January 2015, Admiralis exempt from reporting greenhouse gas
emissions from electricity supply to thethree largest UK offices which meets the
GHG Protocol Corporate Standard. Notethat L’olivier in France and, Elephant, in theUSA, have been unable to provide data for2018 data and are excluded from the resultsin this and future reports until they are able
to do so. LeLynx in France is also excluded
but is immaterial to the overall view due toits size.

Under Provision C.1.3 of the 2016 UK
Corporate Governance Code, the Board isrequired to report on whether the businessis a going concern. In considering thisrequirement, the Directors have taken into
account the following:

Contractual arrangements
The Group considers its co-insurance andreinsurance contracts, as described in theStrategic Report, to be essential to therunning of the Group’s business. No othercontractual arrangements are considered
to be essential.

Financial instruments
The objectives and policies for managing
risks in relation to financial instruments
held by the Group are set out in note 7 tothe financial statements.

Directors and their interests
The present Directors of the Company are
shown on pages 64 to 65 of this Report,
whilst Directors’ interests in the sharecapital of the Company are set out in the
Remuneration Report on pages 98 to 107.

Financial Statements

The data has been prepared with reference
to the WRI/WBCSD Greenhouse Gas
Protocol: A Corporate Accounting andReporting Standard (Revised Edition) and inaccordance with the guidance for corporate
reporting issued by the Department forEnvironment, Food and Rural Affairs (DEFRA).
There are no material exclusions from thisdata. Exclusions included figures for air
conditioning from all sites because theinformation was not available from the
managing agents of the Group’s multiple
office locations.
Detailed information on the Group’s
environmental performance and themethodology for the measurement ofgreenhouse gas emissions is available on thecorporate website, www.admiralgroup.co.uk.

Additional Information• The Group’s projections for the next 12months and beyond, in particular the profit
forecasts, regulatory capital surpluses andlevels and sources of liquidity;• The risks included on the Group’s risk
register that could impact on the Group’s
financial position and performance, levelsof liquidity and solvency over the next
12 months; and• The risks on the Group’s risk register that
could be a threat to the Group’s businessmodel and capital adequacy.
The Group’s business activities, together
with the factors likely to affect its future
development, performance and position
are set out in the Strategic Report. The
Strategic Report also includes the Group’s
principal risks and uncertainties. In addition,
the governance report includes the
Directors’ statement on the viability of theGroup over a three year period.
Following consideration of the above, theDirectors have reasonable expectation that
the Group has adequate resources to continue
in operation for the foreseeable future, aperiod of not less than 12 months from thedate of this report, and that it is therefore
appropriate to adopt the going concern basis
in preparing the financial statements.

*3	Average employee number excludes employees from offices for which data could not be collected.

Admiral Group plc · Annual Report and Accounts 2018109

Corporate GovernanceDirectors’ Report continued
SHARE CAPITAL, AGM AND RELATEDMATTERS

Additional information for shareholders

Major Shareholders
Other than as stated below, as far as theCompany is aware, there are no persons
with significant direct or indirect holdingsin the Company. Information provided to
the Company pursuant to the Financial
Conduct Authority’s (FCA) Disclosure andTransparency Rules (DTRs) is published on a
Regulatory Information Service and on the
Company’s website.
At 31 January 2019, the Company hadreceived notifications in accordance with
the FCA’s DTRs of the following notifiableinterests in the voting rights in the
Company’s issued share capital:
Number ofshares%29,349,400

10.1%Henry Engelhardt& Diane Briere de l’Isle 29,305,472

10.1%BlackRock Inc

14,298,745

4.9%

N.M. Rothschild & Sons
Ltd.
12,861,068

4.8%

Fidelity Management& Research Company

12,337,444

4.2%

Moondance
Foundation

11,400,000

3.9%

Munich Re

The interests of Directors and officers andtheir connected persons in the issued sharecapital of the Company are given in the
Remuneration Report.

Where not provided previously in thisDirectors’ Report, the following provides
the additional information required
for shareholders as a result of theimplementation of the Takeovers Directive
into UK law.
At 31 December 2018, the Company’s issued
share capital comprised a single class ofshares referred to as ordinary shares. Detailsof the share capital and shares issued during
the year can be found in note 12d.
On a poll, every member present in personor by proxy and entitled to vote shall haveone 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 or byproxy in relation to resolutions to be passed
at general meeting. All proxy votes arecounted and the numbers for, against or
withheld in relation to each resolution are
announced at the Annual General Meetingand published on the Company’s website
after the meeting.
There are no restrictions on the transfer ofordinary shares in the company other than:• Certain restrictions may from time totime be imposed by laws and regulations(for example, insider trading laws); and• Pursuant to the Listing Rules of the
FCA whereby certain employees of
the Company require the approval of
the Company to deal in the Company’s
securities.
The Company has not purchased any of its
own shares during the period.
There are no agreements between the
Company and its Directors or employees
providing for compensation for loss ofoffice or employment (whether throughresignation, purported redundancy orotherwise) that occurs because of atakeover bid.

110

Admiral Group plc · Annual Report and Accounts 2018

There are a number of agreements thatalter or terminate upon a change of controlof the Company following a takeover bid,such as commercial contracts. None areconsidered to be significant in terms of theirimpact on the business of the Group as awhole except for the long term co-insurance
agreement in place with Munich Re.
Details relating to the Group’s co-insurance
and reinsurance agreements with Munich
Re agreement are contained in theStrategic Report.

Power to issue shares
At the last Annual General Meeting, heldon 26 April 2018, authority was given to
the Directors to allot unissued relevant
securities in the Company up to a maximumof £95,904, equivalent to one third of theissued share capital as at 20 March 2018.
This authority expires on the date of theAnnual General Meeting to be held on 25
April 2019 and the Directors will seek torenew this authority for the following year.
A further special resolution passed at thatmeeting granted authority to the Directors
to allot equity securities in the Company(up to a maximum of 5% of the issued sharecapital of the Company) for cash, without
regard to the pre-emption provisions of theCompanies Act 2006. This authority also
expires on the date of the Annual General
Meeting to be held on 25 April 2019 and the
Directors will seek to renew this authority
for the following year.
In line with the new principles published by
the Pre-Emption Group in March 2015, andtheir template resolutions published in May
2016, allowing a company the ability to seek
authority over a further 5% of the issued
ordinary share capital on a non-pre-emptivebasis subject to certain conditions, it is theintention of the Company, at the AGM on 25
April 2019, to seek this additional authority
by special resolution and will confirm in
the Notice of AGM that such additional
shares are only issued in connection with a
specified acquisition or capital investment.

Company Overview

Strategic Report

Appointments of Directors
The Company’s Articles of Association(the Articles) give the Directors power toappoint and replace Directors. Under theTerms of Reference of the Nomination and
Governance Committee, any appointment
must be recommended by the Nomination
and Governance Committee for approvalby the Board of Directors. At the Group’s
AGM on 26 April 2018, new Articles of
Association were approved by shareholders
which provide that all Directors will retire
and offer themselves for re-election at each
AGM, in accordance with the UK Corporate
Governance Code and the Company’s
current practice. Therefore, all Directors will
be submitting themselves for re-election byshareholders at the forthcoming AGM.

Corporate Governance

Financial Statements

The Board is of the view that it is in thebest interests of the Group to attract
and retain the services of the most able
and experienced Directors by offering
competitive terms of engagement,
including the granting of such indemnities.
Neither the Deed Poll of Indemnity nor
insurance cover would provide any coveragein the event that a Director is proved to haveacted fraudulently or dishonestly.

Annual General Meeting (AGM)
It is proposed that the next AGM be held at
City Hall, Cardiff on Thursday 25 April 2019at 2.00pm, notice of which will be sent toshareholders with the Annual Report.

REPORTING, ACCOUNTABILITY
AND AUDIT

Articles of Association

UK Corporate Governance CodeThe Articles may only be amended by special
resolution of the shareholders.

Admiral is subject to the UK Corporate
Governance Code (the Code), published by
the Financial Reporting Council (FRC) in April
2016 and available on their website, www.
frc.org.uk. The Company’s Annual Reportand Accounts, taken as a whole, addresses
the requirements of the 2016 Code.

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

Directors’ indemnities and insurance
Directors’ and Officers’ insurance cover isin place for all Directors to provide coveragainst certain acts or omissions on behalfof the Company. A Deed Poll of Indemnity
was executed in October 2015, indemnifying
each of the Directors, and Company
Secretary, in relation to certain losses andliabilities that they might incur in the courseof acting as Directors of the Company. The
Deed Poll of Indemnity is categorised as
qualifying third party indemnity provisions
as defined by section 234 of the Companies
Act 2006 and remains in force for all pastand present Directors of the Company.

During the year to 31 December 2018, theCompany has in all respects complied withthe provisions of the 2016 Code except
with regard to non-compliance with theprovisions as set out in the Corporate
Governance Report at page 66.
The Directors confirm that the Annual
Report and Accounts, taken as a whole,is fair, balanced and understandable andprovides the information necessary forshareholders to assess the Company’s
position and performance, businessmodel and strategy.

Additional Information

Directors’ responsibilities
The Directors are responsible for preparing
the Annual Report and the Group and parent
company financial statements in accordancewith applicable law and regulations.
Company law requires the Directors to
prepare Group and parent company financial
statements for each financial year. Under
that law they are required to prepare theGroup financial statements in accordancewith IFRS’s as adopted by the EU andapplicable law and have elected to prepare
the parent company financial statementsin accordance with UK AccountingStandards, including FRS 101 Reduced
Disclosure Framework.
Under company law the Directors must not
approve the financial statements unlessthey are satisfied that they give a true andfair view of the state of affairs of the Groupand parent company and of their profit orloss for that period. In preparing each of
the Group and parent company financial
statements, the directors are required to:• select suitable accounting policies andthen apply them consistently;• make judgements and estimates that arereasonable and prudent;• for the Group financial statements, state
whether they have been prepared inaccordance with IFRS’s as adopted by
the EU; and• for the parent company financial
statements, state whether applicable
UK Accounting Standards, including FRS
101 Reduced Disclosure Framework, havebeen followed, subject to any material
departures disclosed and explained in theparent company financial statements.

Admiral Group plc · Annual Report and Accounts 2018111

Corporate GovernanceDirectors’ Report continued
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the parent
company’s transactions and disclosewith reasonable accuracy at any time thefinancial position of the parent company
and enable them to ensure that its financial
statements comply with the Companies
Act 2006. They have general responsibility
for taking such steps as are reasonably
open to them to safeguard the assets of
the Group and to prevent and detect fraud
and other irregularities.
Under applicable law and regulations,the directors are also responsible forpreparing a Strategic Report, Directors’
Report, Directors’ Remuneration Report
and Corporate Governance Statement thatcomplies with that law and those regulations.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on
the Company’s website. Legislation in
the UK governing the preparation anddissemination of financial statements may
differ from legislation in other jurisdictions.

Responsibility statement

Disclosure of information to auditor
The Directors who held office at the date of
approval of this Directors’ Report confirm
that, so far as they are each aware, there
is no relevant audit information of which
the Company’s auditor is unaware; andeach Director has taken all the steps thatthey ought to have taken as a Director to
make themselves aware of any relevant
audit information and to establishthat the Company’s auditor is awareof that information.

Auditor
The Company’s auditor, Deloitte LLP,
has indicated willingness to continue in
office and resolutions to reappoint it
and to authorise the Directors to fix its
remuneration will be proposed at theAnnual General Meeting.
By Order of the Board,

Mark Waters
Company Secretary
6 March 2019

The Directors confirm that to the best of
their knowledge:• the financial statements, prepared inaccordance with the applicable set ofaccounting standards, give a true and fairview of the assets, liabilities, financial
position and profit or loss of the Company
and the undertakings included in the
consolidation taken as a whole; andGeraint Jones
Chief Financial Officer
6 March 2019

• the Strategic Report includes a fair reviewof the development and performance ofthe business and the position of the issuer
and the undertakings included in the
consolidation taken as a whole, together
with a description of the principal risks
and uncertainties that they face.

112

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Independent Auditor’s Reportto the Members of Admiral Group Plc

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
OpinionIn our opinion:• the financial statements of Admiral Group plc (the ‘parent company’) and its subsidiaries (the ‘group’) give a true and fair view of thestate of the group’s and of the parent company’s affairs as at 31 December 2018 and of the group’s profit for the year then ended;• the group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union;• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards
the group financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements which comprise:• the Consolidated and Parent Company Income Statements;• the Consolidated and Parent Company Statements of Comprehensive Income;• the Consolidated and Parent Company Statements of Financial Position;• the Consolidated Cash Flow Statement;• the Consolidated and Parent Company Statements of Changes in Equity;• the related notes 1 to 13 to the Group financial statements, excluding the capital adequacy disclosures in note 12e calculated inaccordance with the Solvency II regime which are marked as unaudited; and• the related notes 1 to 12 to the Parent Company financial statements.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and IFRSs
as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company
financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework”(United Kingdom Generally Accepted Accounting Practice).

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our auditof the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public
interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the nonaudit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Admiral Group plc · Annual Report and Accounts 2018113

Independent Auditor’s Report continued
to the Members of Admiral Group Plc

Summary of our audit approach
Key audit matters The key audit matters that we identified in the current year were:••

Valuation of gross insurance claims reserves; andRevenue recognition - profit commission income.

The key audit matters identified are the same as the prior year.
Materiality

The materiality that we used for the group financial statements was £20.7 million, which was determined with reference
to profit before tax.

Scoping

We identified nine reporting components which we determined should be subjected to audits for group reporting
purposes this year.
Further specific audit procedures were completed in respect of eight further components which, although notfinancially significant, did present some specific audit risks which needed to be addressed.
The components within the scope of our audit procedures account for 96% of the group’s profits and losses before tax,
95% of revenue and 94% of the group’s net assets.

Significant
changes in our
approach

The main changes in component scoping since 2017 are to subject the group’s underwriting division in Spain and thegroup’s subsidiary Admiral Financial Services Limited (“AFSL”) to full scope audits.
Whilst the Spanish underwriting division is not considered significant to the group as a whole in 2018, it does represent
a significant portion of the group’s European underwriting activity and therefore we have determined that treating it inthis way is the most appropriate approach.
AFSL includes the group’s loans portfolio, which has grown to a size that we consider to represent a significant
component of the group in 2018.

Conclusions relating to going concern, principal risks and viability statement
Going concern
We have reviewed the directors’ statement in note 2 to the financial statements about whether they
considered it appropriate to adopt the going concern basis of accounting in preparing them and theiridentification of any material uncertainties to the group’s and company’s ability to continue to do so over a
period of at least twelve months from the date of approval of the financial statements.

We confirm that wehave nothing material
to report, add or draw
attention to in respectof these matters.

We considered as part of our risk assessment the nature of the group, its business model and related risks
including where relevant the impact of Brexit, the requirements of the applicable financial reporting frameworkand the system of internal control. We evaluated the directors’ assessment of the group’s ability to continue asa going concern, including challenging the underlying data and key assumptions used to make the assessment,
and evaluated the directors’ plans for future actions in relation to their going concern assessment.
We are required to state whether we have anything material to add or draw attention to in relation to thatstatement required by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent with ourknowledge obtained in the audit.
Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were consistent with theknowledge we obtained in the course of the audit, including the knowledge obtained in the evaluation of thedirectors’ assessment of the group’s and the company’s ability to continue as a going concern, we are required
to state whether we have anything material to add or draw attention to in relation to:•

the disclosures on pages 52 to 57 that describe the principal risks and explain how they are being
managed or mitigated;•the directors’ confirmation on page 52 that they have carried out a robust assessment of the principal
risks facing the group, including those that would threaten its business model, future performance,
solvency or liquidity; or•the directors’ explanation on page 84 as to how they have assessed the prospects of the group, over what
period they have done so and why they consider that period to be appropriate, and their statement as towhether they have a reasonable expectation that the group will be able to continue in operation and meetits liabilities as they fall due over the period of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.

We are also required to report whether the directors’ statement relating to the prospects of the grouprequired by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.

114

Admiral Group plc · Annual Report and Accounts 2018

We confirm that wehave nothing material
to report, add or draw
attention to in respectof these matters.

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due tofraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocationof resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Valuation of gross insurance claims reserves
Key audit matterdescription

The group’s gross insurance claims reserves total £2,740 million (2017 year-end: £2,403 million). The judgements which
are made by management in determining the total valuation of claims reserves are by far the most significant, in termsof their impact on the group’s financial position. Setting these claims reserves is an inherently subjective exercise andsmall changes in underlying assumptions such as average frequency or average severity may have a material impact on
the overall year end result reported. We therefore consider that this account balance contains potential fraud risks.
Specifically, our significant areas of focus are management’s assumptions underpinning the modelled frequency andseverity of large bodily injury claims arising in the UK Car Insurance business. These particular claims result in higher
individual claims reserves and are more judgmental, in terms of the development of the ultimate losses, due to thelonger-term nature of the group’s exposure (compared to property damage claims).
In line with the group’s accounting policy, management adds a margin to the actuarial best estimate to arrive at thebooked gross claims reserves. This margin reflects the inherent uncertainty in estimating the ultimate losses onclaims, over and above that which can be projected actuarially based on underlying claims development data. This is asignificant area of management judgement and, therefore, a focus of our audit. Specifically, the consistency of the levelof prudence within the margin for the UK Car Insurance reserves, related to large bodily injury claims, is our key area of
focus in respect of the margins included.
The uncertainty associated with future changes in the Ogden discount rate is a key area of judgement and effects both
the derivation of the best estimate assumptions and the margin required to achieve the desired level of confidence
in the booked reserves. The impact of royal assent to the Civil Liability Bill on the estimate of future rate changes is
specifically considered in responding to the areas of focus set out above.
Refer to page 76 in the audit committee report where this is included as a significant issue and note 3 and note 5d in thefinancial statements which refer to this matter.

How the scopeof our audit
responded to the
key audit matter

We have assessed the design and implementation and tested the operating effectiveness of relevant controls relating to
the key actuarial assumptions identified and the setting of the reserve margin. These controls include those concerning
the oversight and challenge of management’s external actuarial expert by management and the Audit Committee.
We reviewed the reports from management’s external expert actuary and involved our own Deloitte actuarial experts
to support our challenge of management’s assumptions. We performed procedures to assess the objectivity andcompetence of management’s expert.
We benchmarked management’s frequency assumptions against available industry working party data and considered thecomparison in the context of the risk profile of Admiral’s portfolio and the year-on-year changes in these assumptions.
We undertook a graphical analysis of incurred development patterns to assess and challenge management’s severity
assumptions. We benchmarked the average cost per claim assumptions against available third party industry data in thecontext of this incurred development analysis. We gave specific consideration to the Ogden discount rate assumption
selected by management, inspected the evidence to support a change in assumption for 2018 and benchmarked theselected rate against that selected by a range of industry peers.
We challenged management’s qualitative and quantitative justifications for the margin held over the actuarial best
estimate reserves through review of management’s accounting judgement papers and claims distribution model. We
analysed the consistency of prudence within the booked margin against previous reporting periods in the context of theunderlying uncertainty in incurred claims development and challenged management’s justification for the booked position.

Key observations

Based on the procedures described above, we consider that the booked reserves remain appropriate and in line with thegroup’s prudent accounting policy.

Admiral Group plc · Annual Report and Accounts 2018115

Independent Auditor’s Report continued
to the Members of Admiral Group Plc

Key audit matters continued
Revenue recognition – profit commission income
Key audit matterdescription

The auditing standards prescribe that a risk of fraud in revenue recognition should be presumed for all trading groups
and companies. We therefore performed an assessment of the group’s classes of revenue transactions to identify theareas where there was a potential for fraud through possible manipulation of this balance.
In our view, the UK car insurance profit commission income earned by the group, which, on a consolidated basis,consists of amounts due from the group’s co-insurer of £95.1 million (2017: £64.7 million), represents a revenue classfor which there is an incentive to fraudulently overstate the amounts recorded. Accordingly, we have determined thatthe accuracy of profit commission income due from the group’s co-insurance arrangement includes elements whichconstitute a significant risk of material misstatement for the group financial statements and therefore identified thisas a key audit matter.
The risk is particularly acute where there have been changes to the terms of the profit commission arrangements or otherone-off adjustments which therefore mean that the calculation to be performed is not uniform across all underwriting
years – i.e. where the same underwriting result within two different periods could give rise to different levels of profit
commissions for each because of variances in the applicable contracted terms. The accuracy of the calculation in respectof these changes is the specific risk area which we determined represents a significant risk of misstatement.
Refer to page 77 in the audit committee report where this is included as a significant issue, and note 3 and note 5c in thefinancial statements which refer to this matter.

How the scopeof our audit
responded to the
key audit matter

We have assessed the design and implementation and tested the operating effectiveness of relevant controls
associated with the accuracy of the calculation. These controls are designed to ensure that the inputs to the calculation
are accurate and include a review by management to check that any requisite changes have been reflected in the formof the detailed calculation.
We have inspected the applicable co-insurance contracts to evaluate the form and content of management’s calculationand performed a substantive analytical review to respond to the key audit matter. We developed an independent
expectation of the commission income, based upon our understanding of the contracts and using the loss ratios audited
as part of our insurance reserves testing. We compared our expectation to the amount recorded by management in thecontext of an appropriate threshold of variance.

Key observations

116

Based on the procedures described above, we consider the profit commission income to be appropriately stated.

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisionsof a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work
and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements

Parent company financial statements

Materiality£20.7 million (2017: £20.1 million)£1.8 million (2017: £3.8 million)

Basis for determining
materiality

5% of profit before tax, adjusted for the movement due 3% of net assets (2017: 3%)
to the change in the Ogden rate assumption (2017: 5% ofprofit before tax).

Rationale for thebenchmark applied

We consider profit before tax to be the criticalbenchmark of the performance of the group andconsider this benchmark to be suitable having comparedto other benchmarks: our materiality equates to 1% ofgross earned premium and 3% of equity (2017: 1% ofgross earned premium and 2% of equity).

The parent company primarily exists as the holding
company which carries investments in groupsubsidiaries and is the issuer of listed securities. We
consider that net assets is the critical benchmark forthe company.

We adjusted our materiality basis to exclude the impactof the Ogden discount rate change in order to remove
year on year volatility.
The actual profit recorded for the year is greater thanthe profit before tax prior to the release of reserves
resulting from the change in Ogden rate assumption,
as set out on page 24.

Group materiality £20.7m

Component materiality range £0.3m to £14.1m

Audit Committee reporting threshold £1m
Adjusted PBT £410m
Group materiality £20.7m

We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole. Group performance materiality was set at 70% of groupmateriality for the 2018 audit (2017: 70%).
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £1 million (2017: £1 million),
as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit
Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

Admiral Group plc · Annual Report and Accounts 2018117

Independent Auditor’s Report continued
to the Members of Admiral Group Plc

AN OVERVIEW OF THE SCOPE OF OUR AUDITThe nine financially significant components of the group which were identified in our audit planning are the UK branches of Admiral
Insurance (Gibraltar) Limited, Admiral Insurance Company Limited, EUI Limited and Inspop.com Limited, the Italian branch of Admiral
Insurance Company Limited, the Italian branch of Admiral Insurance (Gibraltar) Limited, the Spanish branch of Admiral Insurance Company
Limited, Admiral Financial Services Limited and the Admiral Group plc parent entity itself.
In 2017, we identified seven of these as significant reporting components. The changes in component scoping since 2017 are in classifying thegroup’s underwriting division in Spain and the group’s subsidiary Admiral Financial Services Limited as significant reporting components.
Each of these components was subjected to a full-scope audit for group reporting purposes, completed to individual component materiality
levels which ranged from £0.3 million to £14.1 million (2017: £0.76 million to £13.2 million) dependent upon the relative significance of eachindividual component.
Additionally, we have completed specific audit procedures, designed to address specific audit risks, for eight further components,
including Elephant Insurance Company, a subsidiary entity in the USA.
We engaged local component auditors, being Deloitte member firms in the USA, Italy and Spain, to perform the audit work and specified
audit procedures in these respective territories on our behalf. We directed and supervised the work of the component auditors, including
through visits to the components and component auditors in Rome, Madrid, Seville and Richmond and remote communication and reviewof their work.
For the remaining components, which were not subject to audit or specified audit procedures, we performed analysis at an aggregatedgroup level to re-assess our evaluation that there were no significant risks of material misstatement presented by any of thesecomponents. The components within the scope of our audit procedures account for 96% of the group’s profits and losses before tax,
95% of revenue and 94% of the group’s net assets (2017: 93% of profits and losses before tax, 90% of revenue and 90% of net assets).

Revenue

Full audit scope
Specified audit procedures
Review at group level

Profit before tax

86%
9%
5%

Full audit scope
Specified audit procedures
Review at group level

Net assets

93%
3%
4%

Full audit scope
Specified audit procedures
Review at group level

Profit before tax coverage is stated in absolute terms – i.e. based on contribution to group profit less group loss.

118

Admiral Group plc · Annual Report and Accounts 2018

81%
13%
6%

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Other information
The directors are responsible for the other information. The other information comprises the information includedin the annual report, other than the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of assurance conclusion thereon.

We have nothing toreport in respect ofthese matters.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine
whether there is a material misstatement in the financial statements or a material misstatement of the otherinformation. If, based on the work we have performed, we conclude that there is a material misstatement of thisother information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material misstatements of
the other information include where we conclude that:•

Fair, balanced and understandable – the statement given by the directors that they consider the annual reportand financial statements taken as a whole is fair, balanced and understandable and provides the informationnecessary for shareholders to assess the group’s position and performance, business model and strategy, ismaterially inconsistent with our knowledge obtained in the audit;•

Audit committee reporting – the section describing the work of the audit committee does not appropriately
address matters communicated by us to the audit committee; or•Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the directors’
statement required under the Listing Rules relating to the company’s compliance with the UK Corporate
Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.

Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue
as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a highlevel of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditor’s report.

Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design andperform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis
for our opinion.

Admiral Group plc · Annual Report and Accounts 2018119

Independent Auditor’s Report continued
to the Members of Admiral Group Plc

Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws andregulations, our procedures included the following:• enquiring of management, internal audit, and the audit committee, including obtaining and reviewing supporting documentation,
concerning the group’s policies and procedures relating to:– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and– the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations.
• discussing among the engagement team including significant component audit teams and involving relevant internal specialists,
including tax and IT specialists regarding how and where fraud might occur in the financial statements and any potential indicators offraud. As part of this discussion, we identified potential for fraud in the following areas:– valuation of gross insurance claims reserves; and– revenue recognition – profit commission income.
• obtaining an understanding of the legal and regulatory frameworks that the group operates in, focusing on those laws and regulations
that had a direct effect on the financial statements or that had a fundamental effect on the operations of the group. The key laws
and regulations we considered in this context included the UK Companies Act, Listing Rules, and relevant tax legislation. In addition,compliance with terms of the group’s regulatory solvency requirements were fundamental to the assessment of the group’s ability tocontinue as a going concern.

Audit response to risks identified
As a result of performing the above, we identified the valuation of gross insurance claims reserves and revenue recognition in respect of
profit commission income as key audit matters. The key audit matters section of our report explains the matters in more detail and also
describes the specific procedures we performed in response to those key audit matters.
In addition to the above, our procedures to respond to risks identified included the following:• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant laws andregulations discussed above;• enquiring of management, the audit committee and legal counsel concerning actual and potential litigation and claims;• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement
due to fraud;• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with
HMRC, the Financial Conduct Authority and the Prudential Regulation Authority; and• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and otheradjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating
the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members includinginternal specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws
and regulations throughout the audit.

120

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies
Act 2006.
In our opinion, based on the work undertaken in the course of the audit:• the information given in the strategic report and the directors’ report for the financial year for which the financial statements areprepared is consistent with the financial statements; and• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and of the parent company and their environment obtained in the courseof the audit, we have not identified any material misstatements in the strategic report or the directors’ report.

Matters on which we are required to report by exception
Adequacy of explanations received and accounting records

We have nothing toreport in respect ofthese matters.

Under the Companies Act 2006 we are required to report to you if, in our opinion:•

we have not received all the information and explanations we require for our audit;•

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 are not in agreement with the accounting records and returns.

Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’
remuneration have not been made or the part of the directors’ remuneration report to be audited is not inagreement with the accounting records and returns.

We have nothing toreport in respect ofthese matters.

Other matters
Auditor tenure
Following the recommendation of the audit committee, we were appointed by shareholders’ approval at the Annual General Meeting on
28 April 2016 to audit the financial statements for the year ending 31 December 2016 and subsequent financial periods. The periodof total uninterrupted engagement including previous renewals and reappointments of the firm is 3 years, covering the years ending
31 December 2016 to 31 December 2018.

Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).

Use of our report
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 anauditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Mark McQueen (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
6 March 2019

Admiral Group plc · Annual Report and Accounts 2018121

Consolidated income statement
For the year ended 31 December 2018Year ended
31 December
2018£m

31 December
2017£mInsurance premium revenue

2,079.6

1,729.9

Insurance premium ceded to reinsurers(1,407.8)(1,110.8)

Note

Net insurance premium revenue

5

671.8

619.1

Other revenue

8

449.2

399.9

Profit commission

5

93.2

67.0

Interest income

8

15.0

1.6

Interest expense

6

Net interest income from loans
Investment return

6

(3.6)

(0.4)

11.4

1.2

36.0

41.7

Net revenue

1,261.6

1,128.9

Insurance claims and claims handling expenses(1,513.8)(1,308.8)

Insurance claims and claims handling expenses recoverable from reinsurers

1,163.7

961.7

Net insurance claims(350.1)(347.1)

Operating expenses and share scheme charges

9(842.8)(753.5)

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

9

418.8

386.6

Net operating expenses and share scheme charges(424.0)(366.9)Total expenses(774.1)(714.0)Operating profit

487.5

414.9

Finance costs

6

Profit before tax
Taxation expense

10

Profit after tax(11.3)(11.4)

476.2

403.5

(85.7)(71.9)

390.5

331.6

395.1

334.2

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

(4.6)

(2.6)

390.5

331.6

Earnings per share
Basic

12

137.1p117.2p

Diluted12

136.8p117.0pDividends declared and paid (total)

12

332.7

300.3

Dividends declared and paid (per share)

12118.0p107.5p122

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Consolidated statement of comprehensive income
For the year ended 31 December 2018Year ended
31 December
2018£m

31 December
2017
£m

390.5

331.6

(24.0)

12.4

0.7

(4.1)

Exchange differences on translation of foreign operations

2.2

(8.0)

Movement in hedging reserve

(0.3)

–

Other comprehensive income for the period, net of income tax(21.4)

0.3

Total comprehensive income for the period

369.1

331.9

373.7

334.8

Profit for the period
Other comprehensive income
Items that are or may be reclassified to profit or loss
Movements in fair value reserve
Deferred tax charge in relation to movement in fair value reserve

Total comprehensive income for the period attributable to:Equity holders of the parent
Non-controlling interests

(4.6)

(2.9)

369.1

331.9

Admiral Group plc · Annual Report and Accounts 2018123

Consolidated statement of financial position
As at 31 December 2018

As at

Note

31 December
2018£m

31 December
2017£mProperty and equipment

11

28.1

31.3

ASSETS
Intangible assets

11

162.0

159.4

Deferred income tax

10

0.2

0.3

Reinsurance assets

5

1,883.5

1,637.6

Insurance and other receivables

7

1,082.0

939.7

Loans and advances to customers

7

300.2

66.2

Financial investments

72,969.7

2,697.8

Cash and cash equivalents

7

Total assets

376.8

326.8

6,802.5

5,859.1

EQUITY
Share capital

0.3

0.3

Share premium account

12

13.1

13.1

Other reserves

31.4

52.4

Retained earnings

713.5

580.3

Total equity attributable to equity holders of the parent

758.3

646.1

Non-controlling interests

12.8

9.7

Total equity

771.1

655.8

3,736.4

3,313.9

LIABILITIESInsurance contracts
Subordinated and other financial liabilities

5
7

444.2

224.0

7, 11

1,801.5

1,641.6

10

49.3

23.8

Total liabilities

6,031.4

5,203.3

Total equity and total liabilities

6,802.5

5,859.1

Trade and other payables
Current tax liabilities

The accompanying notes form part of these financial statements.
These financial statements were approved by the Board of Directors on 6 March 2019 and were signed on its behalf by:

Geraint Jones
Chief Financial Officer
Admiral Group plc

Company Number: 03849958

124

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Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Consolidated cash flow statement
For the year ended 31 December 2018Year ended

Note

Profit after tax

31 December
2018£m

31 December
2017
£m

390.5

331.6

Adjustments for non-cash items:– Depreciation

11

12.0

10.1

– Amortisation of software

11

15.5

13.8

– Movement in provision for loans and advances to customers

7

8.9

1.3

– Share scheme charges

9

49.8

35.6

– Loans: interest income receivable

8(15.0)

(1.6)

13.6

1.6

– Loans: interest income received– Investment return6(36.0)(41.7)– Finance costs, including interest expense on funding for loans

6

14.9

11.8

– Taxation expense

10

85.7

71.9

Change in gross insurance contract liabilities

422.5

564.4

Change in reinsurance assets(245.9)(511.2)

Change in insurance and other receivables(145.0)(154.3)

Change in loans and advances to customers(242.9)(65.2)

Change in trade and other payables, including tax and social security

159.9

349.5

Cash flows from operating activities, before movements in investments

488.5

617.6

Purchases of financial instruments(1,830.2)(549.2)

Proceeds on disposal/maturity of financial instruments

1,573.4

311.8

8.0

8.0

Cash flows from operating activities, net of movements in investments

239.7

388.2

Taxation payments(55.6)(55.9)Net cash flow from operating activities

184.1

332.3

Purchases of property, equipment and software(23.9)(22.7)Net cash used in investing activities(23.9)(22.7)

Non-controlling interest capital contribution

19.3

1.8

Proceeds on issue of financial liabilities

220.2

–

Finance costs paid, including interest expense paid on funding for loans(14.1)(11.6)–

0.1(332.7)(300.3)(107.3)(310.0)Net increase/(decrease) in cash and cash equivalents

52.9

(0.4)

Cash and cash equivalents at 1 January

326.8

326.6

Interest and investment income received

Cash flows from investing activities:

Cash flows from financing activities:

Repayment of finance lease liabilities
Equity dividends paid

12

Net cash used in financing activities

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

7

(2.9)

0.6

376.8

326.8

Admiral Group plc · Annual Report and Accounts 2018125

Consolidated statement of changes in equity
For the year ended 31 December 2018

Attributable to the owners of the Company
Sharecapital£m

At 1 January 2017
Profit/(loss) for the period

Share
Fair
Foreignpremium
value Hedging exchange
account reserve reserve
reserve
£m
£m
£m
£m

Retained
profitand loss£m

Noncontrolling
Totalinterests
£m
£m

Total
equity
£m

581.7

0.3

13.1

28.1

–

23.7

505.7

570.9

10.8

–

–

–

–

–

334.2

334.2

(2.6) 331.6

–

–

12.4

–

–

–

12.4

Other comprehensive income
Movements in fair value reserve

–

12.4

Deferred tax charge in relation to movement infair value reserve

–

–

(4.1)

–

–

–

(4.1)

–

(4.1)

Currency translation differences

–

–

–

–

(7.7)

–

(7.7)

(0.3)

(8.0)

Total comprehensive income for the period

–

–

8.3

–

(7.7)

334.2

334.8

(2.9) 331.9

Dividends

–

–

–

–

–

(300.3) (300.3)– (300.3)

Share scheme credit

–

–

–

–

–

37.9

37.9

Deferred tax credit on share scheme credit

–

–

–

–

–

2.8

2.8

–

2.8

Contributions by NCIs

–

–

–

–

–

–

–

1.8

1.8

Transactions with equity holders

Total transactions with equity holders

–

37.9

–

–

–

–

–

(259.6) (259.6)

1.8 (257.8)

As at 31 December 2017

0.3

13.1

36.4

–

16.0

580.3

646.1

9.7

655.8

Balance at 1 January 2018

0.3

13.1

36.4

–

16.0

580.3

646.1

9.7

655.8

Initial application of IFRS 9
Adjusted balance at 1 January 2018
Profit/(loss) for the period

–

–

0.4

–

–

(0.4)

–

–

–

0.3

13.1

36.8

–

16.0

579.9

646.1

9.7

655.8

–

–

–

–

–

395.1

395.1

(4.6) 390.5––(24.0)–––(24.0)

Other comprehensive income
Movements in fair value reserve–(24.0)

Deferred tax charge in relation to movement infair value reserve

–

–

0.7

–

–

–

0.7

–

0.7

Movement in hedging reserve

–

–

–

(0.3)

–

–

(0.3)

–

(0.3)

Currency translation differences

–

–

–

–

2.2

–

2.2

–

2.2

Total comprehensive income for the period––(23.3)

(0.3)

2.2

395.1

373.7

(4.6) 369.1

–

–

–

–

–

(332.7) (332.7)(0.4) (333.1)

Transactions with equity holders
Dividends
Share scheme credit

–

–

–

–

–

56.7

56.7

–

56.7

Deferred tax credit on share scheme credit

–

–

–

–

–

3.3

3.3

–

3.3

Changes in ownership interests without a change
in control

–

–

–

–

–

11.2

11.2

8.1

19.3

Total transactions with equity holders

–

–

–

–

–

0.3

13.1

13.5

(0.3)

18.2

As at 31 December 2018126

Admiral Group plc · Annual Report and Accounts 2018

(261.5) (261.5)

7.7 (253.8)

713.5

12.8

758.3

771.1

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Notes to the Financial Statements
For the year ended 31 December 2018

1.

GENERAL INFORMATION

Admiral Group plc is a company incorporated in England and Wales. Its registered office is at Tŷ Admiral, David Street, Cardiff, CF10 2EH andits shares are listed on the London Stock Exchange.
The consolidated financial statements have been prepared and approved by the Directors in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union (EU). The Company has elected to prepare its Parent Company financial
statements in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101).
The Group has branches in Spain, Italy, France, Canada and India as part of its international insurance and price comparison businesses.

Adoption of new and revised standards
The Group has adopted the following IFRS and interpretations during the year, which have been issued and endorsed by the EU:• IFRS 9 “Financial Instruments”.
• IFRS 15 “Revenue from Contracts with Customers”.
• Amendments to IFRS 2 “Classification and Measurement of Share-based payment transactions”.
The application of these amendments has not had a material impact on the Group’s results, financial position and cash flows. Further
information on the impact of the transition to IFRS 9 and IFRS 15 is provided below.

IFRS 9During the year the Group has applied IFRS 9 Financial Instruments with a date of initial application of 1 January 2018, which resulted inchanges in accounting policies and the potential for adjustments to the amounts previously recognised in the financial statements in
respect of financial instruments.
As permitted by the transitional provisions of IFRS 9 the Group elected not to restate comparative figures. Any adjustments to thecarrying amounts of financial assets and liabilities at the date of transition would be recognised in the opening retained earnings andother reserves of the current period.
The adoption of IFRS 9 has resulted in changes to the Group’s accounting policies for recognition, classification and measurement offinancial assets and liabilities and impairment of financial assets.
Set out below are disclosures relating to the impact of the adoption of IFRS 9 on the Group. Further details of the specific IFRS 9
accounting policies applied in the period (as well as previous IAS 39 accounting policies applied in the comparative period) are described in
more detail in note 7.

a)Impact of transition

A reconciliation of the opening retained earnings and fair value reserve under IAS 39 and IFRS 9 is provided below:

Note

Impact of adopting
IFRS 9 on opening
balance sheet£m

Fair value reserve
Recognition of expected credit losses under IFRS 9 for financial assets at FVOCI, net of tax

7c

Impact at 1 January 2018

0.4
0.4

Retained profit and loss
Recognition of expected credit losses under IFRS 9 for financial assets at FVOCI, net of tax

7c

Impact(0.4)
0.4Admiral Group plc · Annual Report and Accounts 2018127

Notes to the Financial Statements continued
For the year ended 31 December 2018

1.

GENERAL INFORMATION CONTINUED

Adoption of new and revised standards continuedb)Classification and measurement of financial instruments

IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through othercomprehensive income (FVOCI) and fair value through profit or loss (FVTPL). IFRS 9 classification is generally based on the business modelin which a financial asset is managed and its contractual cash flows. The standard eliminates the previous IAS 39 categories of held-tomaturity, loans and receivables and available-for-sale.
The measurement category and the carrying amount of financial assets and liabilities in accordance with IAS 39 and IFRS 9 at 1 January
2018 are as follows:
IAS 39IFRS 9Measurement
Category

Carrying
Amount(£m)

Measurement
Category (£m)

Carrying
Amount(£m)

Financial Assets
Government gilts

Available for sale (FVOCI)

173.8

FVOCI

173.8

Debt securities

Available for sale (FVOCI)

1,319.7

FVOCI

1,319.7

Loans and receivables (Amortised cost)

130.0

Amortised cost

130.0

Money-market funds

FVTPL

1,069.3

FVTPL (mandatory)

1,069.3

Equity instruments

FVTPL

2.6

FVOCI (designated)

2.6

Cash and cash equivalents

Loans and receivables (Amortised cost)

326.8

Amortised cost

326.8

Trade and other receivables

Loans and receivables (Amortised cost)

202.1

Amortised cost

202.1

FVTPL

2.4

FVTPL

2.4

Insurance receivables

Loans and receivables (Amortised cost)

737.6

Amortised cost

737.6

Loans and advances to customers

Loans and receivables (Amortised cost)

66.2

Amortised cost

66.2

Deposits with credit institutions

Derivative financial instruments

It can be seen from the above that there is no difference in the carrying amount of financial instruments under IAS 39 and IFRS 9. The
classification of all financial assets has also remained consistent other than equity investments which have been elected to be treated as
FVOCI as permitted under IFRS 9. The basis for the classification of the financial assets is set out in note 7c. There is no material impact tothe income statement as a result.
There were no changes to the classification and measurement of financial liabilities. Financial liabilities consist of subordinated notes,
trade and other payables, loan backed securities through the Group’s special purpose entity (“SPE”), and a credit facility. These aremeasured at amortised cost under IAS 39 and this has not changed under IFRS 9.

c)

Impairment of financial assets

IFRS 9 replaces the “incurred loss” model in IAS 39 with an “expected credit loss” model. Under IFRS 9, credit losses are recognised earlier
than under IAS 39. For an explanation of how the Group applies the impairment requirements of IFRS 9, see note 7.

IFRS 15
During the year the Group has applied IFRS 15 Revenue from Contracts with Customers with a date of initial application of 1 January 2018.
The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The Group has opted to apply IFRS 15 retrospectively using the cumulative effect method i.e. by recognising the cumulative effect of
initially applying IFRS 15 as an adjustment to the opening balance of equity as at 1 January 2018. Therefore, the comparative information
has not been restated and continues to be reported under IAS 18 and IAS 11. No differences in the accounting treatment between thesestandards have been identified in relation to the Group’s revenue.
The Group has not identified any impact on the consolidated financial statements for the year ending 31 December 2018 as a result of
adopting IFRS 15 and therefore no transition adjustment is presented. The disclosures required by IFRS 15 are set out in note 8 to thefinancial statements.

128

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Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Standards endorsed but not yet effective
As at 31 December 2018, the following standards had been endorsed by the EU but are not yet effective:• IFRS 16 Leases (effective date 1 January 2019).
IFRS 16 Leases was issued in early 2016 and is effective from 1 January 2019. The standard specifies how firms will recognise, measure, present
and disclose leases. It presents a single lessee accounting model and requires that assets and liabilities be recognised in the Consolidated
statement of financial position, other than in the cases where leases are of low value or of a short-term nature of 12 months or less.
The Group has opted to apply the modified retrospective approach to transition that is permitted under IFRS 16. Impact assessments
performed during 2018 conclude that:• Property leases represent the most significant class of lease held by the Group that will be impacted by the new standard.
• There will be no adjustment to IFRS equity at the transition date of 1 January 2019.
• The presentation of the Consolidated statement of financial position will be significantly impacted, with material lease liabilities and‘Right of Use’ assets being included for the first time. The total lease liability is expected to be in the region of £140 million to £160
million, with a corresponding ‘Right of Use’ asset.
The profile of lease related expense recognised in the Consolidated income statement is not expected to change materially.

Standards yet to be endorsed by the EU
There are a number of standards, amendments to standards and interpretations that were issued by 31 December 2018 but have either
yet to be endorsed by the EU, or were endorsed shortly after the year end. The following IFRSs have been issued but have not been appliedby the Group in these financial statements:• IFRS 17 Insurance Contracts.
• Annual improvements to IFRS standard 2015-2017 cycle.
• Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures”.
• Amendment to IFRS 3 “Business Combinations”.
• Amendments to IAS 1 and IAS 7 “Definition of Material”.

IFRS 17 – Insurance contracts
IFRS 17 Insurance Contracts was issued in May 2017. The standard will replace IFRS 4, establishing new principles for the recognition,measurement, presentation and disclosure of Insurance contracts within the scope of the standard. The current IASB effective date is 1
January 2021, although the IASB has proposed a delay of one year to the effective date to 1 January 2022.
The Group is currently assessing the impact of IFRS 17 on its results and financial position, along with any impacts of the other standards
and amendments which have yet to be endorsed.

2.

BASIS OF PREPARATION

The accounts have been prepared on a going concern basis. In considering this requirement, the Directors have taken into accountthe following:• The Group’s projections for the next 12 months and beyond, in particular the profit forecasts, regulatory capital surpluses and levels
and sources of liquidity.
• The risks included on the Group’s risk register that could impact on the Group’s financial performance, levels of liquidity and solvency
over the next 12 months.
• The risks on the Group’s risk register that could be a threat to the Group’s business model and capital adequacy.
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in
the Strategic Report. The Strategic Report also includes the Group’s principal risks and uncertainties. In addition, the Governance report
includes the Directors’ statement on the viability of the Group over a three year period.

Admiral Group plc · Annual Report and Accounts 2018129

Notes to the Financial Statements continued
For the year ended 31 December 2018

2.

BASIS OF PREPARATION CONTINUED

Following consideration of the above, the Directors have a reasonable expectation that the Group has adequate resources to continue inoperation for the foreseeable future, a period not less than 12 months from the date of this report, and that it is therefore appropriate to
adopt the going concern basis in preparing the financial statements.
Further information regarding the Company’s business activities, together with the factors likely to affect its future development,
performance and position, is set out in the Strategic Report. Further information regarding the financial position of the Company, its cash
flows, liquidity position and borrowing facilities are also described in the Strategic Report. In addition, notes 7 and 12 to the financial
statements include the Company’s objectives, policies and processes for managing its capital; its financial risk management objectives;
details of its financial instruments; and its exposures to credit risk and liquidity risk.
The accounting policies set out in the notes to the financial statements have, unless otherwise stated, been applied consistently to all
periods presented in these Group financial statements.
The financial statements are prepared on the historical cost basis, except for the revaluation of financial assets classified as fair value
through profit or loss or as available for sale. The Group and Company financial statements are presented in pounds sterling, rounded to
the nearest £0.1 million.
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns
from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, theGroup takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control istransferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the datethat control commences until the date that control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocatedto the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.
The Group has securitised certain loans and advances to customers by the transfer of the loans to a special purpose entity (“SPE”)
controlled by the Group. The securitisation enables a subsequent issuance of debt by the SPE to investors who gain the security of theunderlying assets as collateral. The SPE is fully consolidated into the Group financial statements under IFRS 10, as the Group controls theentity in line with the above definition.
The preparation of financial statements in conformity with adopted IFRS requires management to make judgements, estimates andassumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimatesand associated assumptions are based on historical experience and various other factors that are believed to be reasonable under thecircumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are notreadily apparent from other sources.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in theyear in which the estimate is reviewed. To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities,
it is recognised by adjusting the carrying amount of the related asset or liability in the period of the change.

3.

CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In applying the Group’s accounting policies as described in the notes to the financial statements, management has primarily appliedjudgement in the following areas:• Classification of the Group’s contracts with reinsurers as reinsurance contracts:
A contract is required to transfer significant insurance risk in order to be classified as such. Management reviews all terms and conditionsof each such contract, and if necessary obtains the opinion of an independent expert at the negotiation stage in order to be able to makethis judgement. All reinsurance contracts (both excess of loss and quota share contracts) held by the Group have been assessed and it has
been concluded that all contracts transfer significant insurance risk and have therefore been classified and accounted for as reinsurance
contracts within these financial statements.
• Consolidation of the Group’s special purpose entity (“SPE”):
During the year the Group set up an SPE in relation to the Admiral Loans business, whereby the Group has securitised certain loans by thetransfer of the loans to the SPE. The securitisation enables a subsequent issue of debt by the SPE to investors who gain the security of theunderlying assets as collateral.
The accounting treatment of the SPE has been assessed and it has been concluded that it should be fully consolidated into the Group’s
financial statements under IFRS 10. This is due to the fact that despite not having legal ownership, the Group has control of the SPE, being
exposed to the returns and having the ability to affect those returns through its power over the SPE.
The SPE has therefore been fully consolidated into the Group’s financial statements.

130

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Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

There are two further significant accounting estimates within the financial statements that also require management to apply judgement:• Calculation of insurance claims reserves:
The Group’s reserving policy requires management to set insurance claims reserves for the purpose of the financial statements,
above the projected best estimate outcome, to allow for unforeseen adverse claims development. Management applies judgement
in determining where, above the projected best estimate outcome the insurance claims reserves should sit, in line with the Group’s
reserving methodology. Refer to the section on estimation techniques below, and the analysis of Insurance risk in note 5 to the financial
statements for further detail on the development of the Group’s reserving methodology applied during the period and the calculation of
the projected best estimate outcome.
• Recognition of deferred tax assets relating to unused tax losses:
Management applies judgement in determining the probability of future taxable profits of an entity against which to utilise accumulated
losses in determining the recognition of deferred tax assets. In applying this judgement, management makes an assessment of thereliability of approved business plan projections using both qualitative and quantitative factors including the age and status of thebusiness, the Group’s previous experience in similar markets, historic performance against business plans and the application of a numberof stress and sensitivity tests to the projections.

Key sources of estimation uncertainty
Estimation techniques are used in the calculation of the provisions for claims outstanding, which represent a projection of the ultimate
cost of settling claims that have been incurred prior to the balance sheet date and remain unsettled at the balance sheet date.
The Group’s reserving policy requires management to reserve above the projected best estimate, or ultimate, outcome, to allow for
unforeseen adverse claims development. There are two key areas of estimation uncertainty: the actuarial best estimate and the margin
held above this best estimate.

Best estimate
The key area where estimation techniques are used is in the ultimate projected cost of reported claims. A secondary area relates to theemergence of claims that occurred prior to the balance sheet date, but had not been reported at that date.
The Group’s independent actuarial advisors project the best estimate claims reserves using a variety of different recognised actuarial
projection techniques (for example incurred and paid chain ladder and an average cost of claim approach) to allow an actuarial assessmentof their potential outcome. This includes allowance for unreported claims.
The most significant sensitivity in the use of the projection techniques arises from any future step change in claims costs, which would
cause future claim cost inflation to deviate from historic trends. This is most likely to arise from a change in the regulatory or judicial
regime that leads to an increase in awards or legal costs for bodily injury claims that is significantly above or below the historical trend.
The Group’s reserving methodology which determines the basis for setting this reserve estimate has been developed and enhanced in
the period in line with new information that has become available in relation to both the projected best estimate reserve and the reserve
uncertainty through the Group’s development of its internal capital model.

MarginA wide range of factors inform management’s recommendation in setting the margin held above actuarial best estimates, which is subject
to approval from the Group’s Reserving and Audit Committees, including:• Reserve KPIs such as the level of margin as a percentage of the ultimate reserve.
• Results of stress testing of key assumptions underpinning key actuarial assumptions within best estimate reserves.
• A review of a number of individual and aggregated reserve scenarios which may result in future adverse variance to the ultimate best
estimate reserve.
• Qualitative assessment of the level of uncertainty and volatility within the reserves and the change in that assessment compared toprevious periods.
In addition, the internal reserve risk distribution is used to determine the approximate confidence level of the recommended bookedreserve position which enables comparison of the reserve strength to previous periods and demonstration of the compliance with IFRS 4.
For further detail on objectives, policies and procedures for managing insurance risk, refer to note 5 of the financial statements.
Future changes in claims reserves also impact profit commission income, as the measurement of this income is dependent on the loss ratio
booked in the financial statements, and cash receivable is dependent on actuarial projections of ultimate loss ratios.

Admiral Group plc · Annual Report and Accounts 2018131

Notes to the Financial Statements continued
For the year ended 31 December 2018

4.

GROUP CONSOLIDATION AND OPERATING SEGMENTS

4a. Accounting policies(i)Group consolidation

The consolidated financial statements comprise the results and balances of the Company and all entities controlled by the Company,
being its subsidiaries and special purpose entity (together referred to as the Group), for the year ended 31 December 2018 andcomparative figures for the year ended 31 December 2017. The financial statements of the Company’s subsidiaries and its special purpose
entity are consolidated in the Group financial statements.
The Company controls 100% of the voting share capital of all its principal subsidiaries, except Admiral Law Limited, BDE Law Limited,
Inspop USA LLC, the indirect holding in comparenow.com Insurance Agency LLC, Rastreator.com Limited, the indirect holding in
Comparaseguros Correduría de Seguros, S.L., Sociedad Unipersonal, Preminen Price Comparison Holdings Limited and the indirect holdingin Preminen Dragon Price Comparison Limited.
The SPE is fully consolidated into the Group financial statements under IFRS 10, whereby the Group has control over the SPE.
The Parent Company financial statements present information about the Company as a separate entity and not about its Group. In
accordance with IAS 24, transactions or balances between Group companies that have been eliminated on consolidation are not reported
as related party transactions in the consolidated financial statements.

(ii) Foreign currency translation
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in pounds
sterling, rounded to the nearest £0.1 million, which is the Group’s presentation currency.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of thetransactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end
exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
Non-monetary items measured at cost are translated at their historic rate and non-monetary items held at fair value are translated using
the foreign exchange rate on the date that the fair value was established.
The financial statements of foreign operations whose functional currency is not pounds sterling are translated into the Group
presentation currency (sterling) as follows:• Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet.
• Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonableapproximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses aretranslated at the date of the transaction).
• All resulting exchange differences are recognised in other comprehensive income and in a separate component of equity except to theextent that the translation differences are attributable to non-controlling interests.
On disposal of a foreign operation, the cumulative amount recognised in equity relating to that particular operation is recognised in theincome statement.

4b. Segment reporting
The Group has four reportable segments, as described below. These segments represent the principal split of business that is regularly
reported to the Group’s Board of Directors, which is considered to be the Group’s chief operating decision maker in line with IFRS 8
Operating Segments.

UK Insurance
The segment consists of the underwriting of car insurance, van insurance, household insurance, travel insurance and other productsthat supplement these insurance policies within the UK. It also includes the generation of revenue from additional products and feesfrom underwriting car insurance in the UK. The Directors consider the results of these activities to be reportable as one segment as theactivities carried out in generating the revenue are not independent of each other and are performed as one business. This mirrors theapproach taken in management reporting.

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Financial Statements

Additional Information

International Car Insurance
The segment consists of the underwriting of car insurance and the generation of revenue from additional products and fees fromunderwriting car insurance outside of the UK. It specifically covers the Group operations Admiral Seguros in Spain, ConTe in Italy, L’olivier– assurance auto in France and Elephant Auto in the US. None of these operations are reportable on an individual basis, based on thethreshold requirements in IFRS 8.

Price Comparison
The segment relates to the Group’s price comparison businesses: Confused.com in the UK, Rastreator in Spain, LeLynx in France andcompare.com in the US. Each of the price comparison businesses are operating in individual geographical segments but are grouped into one
reporting segment as Confused.com, Rastreator, LeLynx and compare.com do not individually meet the threshold requirements in IFRS 8.

Other
The ‘Other’ segment is designed to be comprised of all other operating segments that do not meet the threshold requirements forindividual reporting. It includes the Admiral Loans business and the Group’s commercial van insurance broker, Gladiator.
Taxes are not allocated across the segments and, as with the corporate activities, are included in the reconciliation to the Consolidated
Income Statement and Consolidated Statement of Financial Position.
An analysis of the Group’s revenue and results for the year ended 31 December 2018, by reportable segment, is shown below. The
accounting policies of the reportable segments are materially consistent with those presented in the notes to the financial statements
for the Group.
Year ended 31 December 2018
UK
Insurance£m

Turnover*1

International
Price
Car Insurance Comparison
£m
£m

Other
£m

Eliminations*2
£m

Total
£m

2,575.7

538.7

151.0

17.5

(19.3)

3,263.6

Net insurance premium revenue

523.9

147.9

–

–

–

671.8

Other Revenue and profit commission

389.5

18.6

151.0

13.3

(18.6)

553.8

Investment return

32.3

1.3

–

–

(0.7)

32.9

Net revenue

945.7

167.8

151.0

13.3

(19.3)

1,258.5

Net insurance claims(242.5)(107.6)–––(350.1)

Expenses(146.5)(61.3)(144.4)(26.9)

19.3(359.8)Segment profit/(loss) before tax

556.7

(1.1)

6.6

(13.6)–

548.6

Other central revenue and expenses, including sharescheme charges(64.2)

Investment return

3.1

Finance costs(11.3)

Consolidated profit before tax

476.2

Taxation expense(85.7)

Consolidated profit after tax

390.5

Other segment items:– Intangible and tangible asset additions

43.0

29.8

2.0

2.2

–

77.0

– Depreciation and amortisation

49.7

26.4

1.1

0.8

–

78.0

*1	Turnover is an Alternative Performance Measure and consists of total premiums written (including co-insurers’ share) and Other Revenue. Refer to the glossary and note 13 forfurther information.
*2 Eliminations are in respect of the intra-group trading between the Group’s price comparison and UK and International insurance entities and intra-group interest.

Admiral Group plc · Annual Report and Accounts 2018133

Notes to the Financial Statements continued
For the year ended 31 December 2018

4.

GROUP CONSOLIDATION AND OPERATING SEGMENTS CONTINUED

4b. Segment reporting continued
Revenue and results for the corresponding reportable segments for the year ended 31 December 2017 are shown below.
Year ended 31 December 2017
UK
Insurance£m

Turnover*1

International
Price
Car Insurance Comparison
£m
£m

143.6

Other
£m

Eliminations*2
£m

Total
£m

10.8

(19.8)

2,938.4

2,354.0

449.8

Net insurance premium revenue

491.6

127.5

–

–

–

619.1

Other Revenue and profit commission

316.8

16.7

143.6

10.8

(19.8)

468.1

Investment return

32.6

0.6

–

–

–

33.2

Net revenue

841.0

144.8

143.6

10.8

(19.8)

1,120.4

Net insurance claims(250.1)(97.0)–––(347.1)

Expenses(124.3)(62.1)(138.2)

(8.4)

19.8

(313.2)

Segment profit/(loss) before tax

466.6(14.3)

5.4

2.4

–

460.1

Other central revenue and expenses, including sharescheme charges(53.7)

Investment return

8.5

Finance costs(11.4)

Consolidated profit before tax

403.5

Taxation expense(71.9)

Consolidated profit after tax

331.6

Other segment items:– Intangible and tangible asset additions

37.3

30.5

0.9

–

–

68.7

– Depreciation and amortisation

44.4

26.8

1.0

0.1

–

72.3

*1	Turnover is an Alternative Performance Measure and consists of total premiums written (including co-insurers’ share) and Other Revenue. Refer to the glossary and note 13 forfurther information.
*2 Eliminations are in respect of the intra-group trading between the Group’s price comparison and UK and International insurance entities.

Segment revenues
The UK and International 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 £19.3 million (2017: £19.8 million) which has
been eliminated on consolidation. There are no other transactions between reportable segments.
Revenues from external customers for products and services are consistent with the split of reportable segment revenues as shown on
page 133.

Information about geographical locations
All material revenues from external customers, and net assets attributed to a foreign country, are shown within the International
Car Insurance reportable segment shown on the previous pages. The revenue and results of the three international Price Comparison
businesses, Rastreator, LeLynx and compare.com are not yet material enough to be presented as a separate segment.

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Financial Statements

Additional Information

Segment assets and liabilities
The identifiable segment assets and liabilities at 31 December 2018 are as follows:
As at 31 December 2018
UK
Insurance£mInternational
Car
Insurance£m

Price
Comparison
£m

Other
£m

Eliminations
£m

Total
£m

Property and equipment

22.0

3.7

2.4

–

–

28.1

Intangible assets

64.9

30.8

1.3

65.0

–

162.0

Reinsurance assets

1,540.6

343.1

–

(0.2)

–

1,883.5

Insurance and other receivables

1,389.5

191.7

36.7

17.0

(552.9)1,082.0

Financial investments

2,590.6

182.8

20.0

–

–

2,793.4

–

–

–

300.2

–

300.2

Loans and advances to customers
Cash and cash equivalents

152.9

78.9

28.8

32.9

–

293.5

Reportable segment assets

5,760.5

831.0

89.2

414.9

(552.9)6,542.7

Insurance contract liabilities

3,197.9

538.9

–

(0.4)

–

3,736.4

Trade and other payables

1,672.4

163.2

35.0

383.7

(452.8)1,801.5

Other financial liabilities

–

–

–

240.1

–

240.1

Reportable segment liabilities

4,870.3

702.1

35.0

623.4

(452.8)5,778.0

Reportable segment net assets

890.2

128.9

54.2

(208.5)(100.1)

764.7

Unallocated assets and liabilities

6.4

Consolidated net assets

771.1

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 Insurance, Price Comparison and International Car Insurance segments is not allocated in arriving
at segment profits. This is consistent with regular reporting to the Board of Directors.
Eliminations represent inter-segment funding and balances included in insurance and other receivables.

Admiral Group plc · Annual Report and Accounts 2018135

Notes to the Financial Statements continued
For the year ended 31 December 2018

4.

GROUP CONSOLIDATION AND OPERATING SEGMENTS CONTINUED

4b. Segment reporting continued
The segment assets and liabilities at 31 December 2017 are as follows:
As at 31 December 2017
UK
Insurance£mInternational
Car
Insurance£m

Price
Comparison
£m

Other
£m

Eliminations
£m

Total
£m

24.8

5.2

1.3

–

–

31.3

Property and equipment
Intangible assets

68.9

25.4

1.5

63.6

–

159.4

Reinsurance assets

1,364.3

273.1

–

0.2

–

1,637.6

Insurance and other receivables

1,137.9

169.9

35.0

10.9

(347.8)1,005.9

Financial investments

2,411.5

50.1

3.8

–

–

2,465.4

Cash and cash equivalents

169.1

103.1

27.2

20.6

–

320.0

Reportable segment assets

5,176.5

626.8

68.8

95.3

(347.8)5,619.6

Insurance contract liabilities

2,883.4

430.2

–

0.3

–

3,313.9

Trade and other payables

1,540.6

142.4

21.4

200.4

(263.2)

1,641.6

Reportable segment liabilities

4,424.0

572.6

21.4

200.7

(263.2)

4,955.5

Reportable segment net assets

752.5

54.2

47.4

(105.4)(84.6)

664.1

Unallocated assets and liabilities
Consolidated net assets

5.

(8.3)
655.8

PREMIUM, CLAIMS AND PROFIT COMMISSIONS

5a. Accounting policies(i)Revenue – premiums

Premiums relating to insurance contracts are recognised as revenue, net of insurance premium tax, proportionally over the period ofcover. Premiums with an inception date after the end of the period are held in the statement of financial position as deferred revenue.
Outstanding collections from policyholders are recognised within policyholder receivables.

(ii) Revenue – profit commission
Under some of the co-insurance and reinsurance contracts under which motor premiums are shared or ceded, profit commission may
be earned on a particular year of account, which is usually subject to performance criteria such as loss ratios and expense ratios. The
commission is dependent on the ultimate outcome of any year, with revenue being recognised when loss and expense ratios used in the
preparation of the financial statements move below a contractual threshold.
Profit commission receivable from reinsurance contracts is accounted for in line with IFRS 4, whereas profit commission receivable fromco-insurance contracts is in line with IFRS 15. Further detail of the policy under IFRS 15 is set out in note 8.

(iii) Insurance contracts and reinsurance assets
Premiums
The proportion of premium receivable on in-force policies relating to unexpired risks is reported in insurance contract liabilities andreinsurance assets as the unearned premium provision – gross and reinsurers’ share respectively.

ClaimsClaims and claims handling expenses are charged as incurred, based on the estimated direct and indirect costs of settling all liabilities
arising on events occurring up to the balance sheet date.
The provision for claims outstanding comprises provisions for the estimated cost of settling all claims incurred but unpaid at the balance
sheet date, whether reported or not. Anticipated reinsurance recoveries are disclosed separately as assets.

136

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Financial Statements

Additional Information

Whilst the Directors consider that the gross provisions for claims and the related reinsurance recoveries are fairly stated on the basis of
the information currently available to them, the ultimate liability will vary as a result of subsequent information and events and may resultin significant adjustments to the amounts provided.
Adjustments to the amounts of claims provisions established in prior years are reflected in the income statement for the period in which
the adjustments are made and disclosed separately if material. The methods used, and the estimates made, are reviewed regularly.
Provision for unexpired risks is made where necessary for the estimated amount required over and above unearned premiums (net ofdeferred acquisition costs) to meet future claims and related expenses.

Co-insurance
The Group has entered into certain co-insurance contracts under which insurance risks are shared on a proportional basis, with the coinsurer taking a specific percentage of premium written and being responsible for the same proportion of each claim. The co-insurer
therefore takes direct insurance risk from the policyholder and is subsequently directly responsible to the claimant for its proportion of
the claim. As the contractual liability is several and not joint, neither the premiums nor claims relating to the co-insurance are included in
the income statement. Under the terms of these agreements the co-insurers reimburse the Group for the same proportionate share of
the costs of acquiring and administering the business.

Reinsurance assets
Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on the insurance contracts issued
by the Group are classified as reinsurance contracts. A contract is only accounted for as a reinsurance contract where there is significant
insurance risk transfer between the insured and the insurer.
Reinsurance assets are comprised of balances due from reinsurance companies for ceded insurance liabilities. Amounts recoverable fromreinsurers are estimated in a consistent manner with the outstanding claims provisions or settled claims associated with the reinsured
policies and in accordance with the relevant reinsurance contract.
The Group assesses its reinsurance assets for impairment on a regular basis, and in detail every six months. If there is objective evidence
that the asset is impaired, then the carrying value will be written down to its recoverable amount.
On the commutation of reinsurance contracts, the reinsurer is discharged from all obligations relating to the contract. Reinsurance assets
and liabilities relating to the commuted contracts are settled in the period in which the commutation agreement is signed.

5b. Net insurance premium revenue

Total insurance premiums written before co-insurance*1

31 December
2018£m

31 December
2017£m2,754.1

2,499.4

Group gross premiums written after co-insurance

2,166.7

1,927.7

Outwards reinsurance premiums(1,464.3)(1,299.7)

Net insurance premiums written

702.4

628.0

Change in gross unearned premium provision(87.1)(197.8)Change in reinsurers’ share of unearned premium provision

56.5

188.9

Net insurance premium revenue

671.8

619.1

*1 Alternative Performance Measures – refer to the end of the report for definition and explanation, and to note 13a for reconciliation to group gross premiums written.

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

Admiral Group plc · Annual Report and Accounts 2018137

Notes to the Financial Statements continued
For the year ended 31 December 2018

5.

PREMIUM, CLAIMS AND PROFIT COMMISSIONS CONTINUED

5c. Profit commission
31 December
2018£m

31 December
2017
£m

51.0

64.7

2014

10.1

–

2015

11.0

–

2016

22.9

–

2017

–

–

95.0

64.7

Underwriting year (UK car only)
2013 and priorTotal UK Car profit commission*1

Total UK Household profit commission* *

(1.8)

2.3

Total profit commission

93.2

67.0

1 2

*1	Profit commission for the UK Car business relates solely to co-insurance arrangements and profit commission for the UK Household business relates solely toreinsurance arrangements.
*2 Movement in UK Household profit commission reflects adverse movements in cumulative profit commission recognised in previous periods.

No profit commission has yet been recognised on the 2017 – 2018 underwriting years as the combined ratios calculated from the financial
statement loss ratios on these years sit above the threshold for profit commission recognition.

5d. Reinsurance assets and insurance contract liabilities(i)

Objectives, policies and procedures for the management of insurance risk

The Group’s primary business is the issuance of insurance contracts that transfer risk from policyholders to the Group and its
co‑insurance partners.
Insurance risk involves uncertainty over the occurrence, amount or timing of claims arising on insurance contracts issued. It is primarily
comprised of Reserve risk; the risk that the value of insurance liabilities established is insufficient to cover the ultimate cost of claims
incurred at the balance sheet date, and premium risk; the risk that the claims experience on business written but not earned is higher thanallowed for in the premiums charged to policyholders.
The Board of Directors is responsible for the management of insurance risk, although as mentioned in note 7, it has delegated the detailed
oversight of risk management to the Group Risk Committee.
The Group also has a Reserving Committee which comprises senior managers within the finance, claims, pricing and actuarial functions.
The Reserving Committee primarily recommends the approach for UK Car Insurance reserving but also reviews the systems and controls
in place to support accurate reserving and material reserving issues such as Periodic Payment Order (PPO) and claims inflation, which
represent the key uncertainties in the amount or timing of claims settlements.
The Board implements certain policies in order to mitigate and control the level of insurance risk accepted by the Group. These
include pricing policies and claims management and administration processes, in addition to reserving policies and co- and reinsurance
arrangements as detailed below.

Reserve Risk
Reserving risk is mitigated through a series of processes and controls. The key processes are as follows:• Regular management and internal actuarial review of individual and aggregate case claim reserves, including regular reporting ofmanagement information and exception reporting of significant movements;• Regular management and internal actuarial review of large claims, including claims settled or potentially settled by PPOs for which theuncertainty is increased by factors such as the lifetime of the claimant and movements in the indexation for the cost of future care of
the claimant;• Bi-annual external actuarial review of best estimate claims reserves using a variety of recognised actuarial techniques;• Internal actuarial analysis of reserve uncertainty through qualitative analysis, scenario testing and a range of stochastic
reserving techniques;

138

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Company Overview

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Corporate Governance

Financial Statements

Additional Information• Ad hoc external reviews of reserving related processes and assumptions; and• Use of a reserving methodology which informs management’s reserving decisions for the purposes of the Group’s financial statements.
As described in note 3, critical accounting judgements and estimates, the methodology determines that reserves should be set above
projected best estimate outcomes to allow for unforeseen adverse claims development.
As noted above, the Group shares a significant amount of the insurance business generated with external underwriters. As well as these
proportional arrangements, excess of loss reinsurance programmes are also purchased to protect the Group against very large individual
claims and catastrophe losses.

Claims reserving
As previously disclosed, Admiral’s reserving policy (both within the claims function and in the financial statements) is initially to reserve
conservatively, above internal and independent projections of actuarial best estimates. This is designed to create a margin held inreserves to allow for unforeseen adverse development in open claims and typically results in Admiral making above industry average
reserve releases. Admiral’s booked claims reserves continue to include a significant margin above projected best estimates of ultimate
claims costs.
As at 31 December 2018, the level of relative reserve margin is lower than that at 31 December 2017, albeit remaining prudent whenmeasured against the internal reserve risk distribution and other market benchmarks.
As profit commission income is recognised in the income statement in line with loss ratios accounted for on Admiral’s own claims reserves,
the reserving policy also results in profit commission income being deferred and recognised over time.

Premium Risk
As noted above, the Group defines Premium risk as the risk that claims cost on business written but not yet earned is higher than allowed
for in the premiums charged to policyholders. This also includes catastrophe risk; the risk of incurring significant losses as a result of theoccurrence of manmade catastrophe or natural weather events.
Key processes and controls operating to mitigate premium risk are as follows:• Experienced and focused senior management and teams in relevant business areas including pricing and claims management;• A data-driven and analytical approach to regular monitoring of claims and underwriting performance; and• Capability to identify and resolve underperformance promptly through changes to key performance drivers, in particular pricing.
In addition, as mentioned above, excess of loss reinsurance programmes are also purchased to protect the Group against very large
individual claims and catastrophe losses.
Other elements of insurance risk include reinsurance risk; the risk of placement of ineffective reinsurance arrangements, or the economicrisk of reduced availability of co-insurance and reinsurance arrangements in future periods.
The Group mitigates these risks by ensuring that it has a diverse range of financially secure reinsurance partners, including a long-term
relationship with Munich Re and a number of other very large reinsurers.

Concentration of insurance risk
The Directors do not believe there are significant concentrations of insurance risk. This is because, although the Group has historically
written only one significant line of UK insurance business, the risks are spread across a large number of people and a wide regional base.
The international car insurance and UK household businesses further contribute to the diversification of the Group’s insurance risk.

Admiral Group plc · Annual Report and Accounts 2018139

Notes to the Financial Statements continued
For the year ended 31 December 2018

5.

PREMIUM, CLAIMS AND PROFIT COMMISSIONS CONTINUED

5d. Reinsurance assets and insurance contract liabilities continued(ii) Sensitivity of recognised amounts to changes in assumptions
Ogden discount rate
As noted above, the gross and reinsurers’ share of UK motor insurance liabilities in these financial statements are prepared on the basis ofan Ogden discount rate of 0% (2017: minus 0.75%).
On 7 September 2017, the Lord Chancellor announced draft legislation to change the way in which the Ogden discount rate is set, withinitial indications being that the new discount rate could be set between 0% and 1%. Royal assent was received in December 2018, with
the new discount rate expected to be set during 2019.
The sensitivity of a change in this assumption by 50 basis points (both an increase and decrease) is shown in the table below. This isdisclosed as Management consider it to be the most material assumption in the projection of the best estimate reserve outcomes. The
impact presented is the total impact of the change on the Group’s pre-tax profit on an ultimate basis. It should be noted that not all of theultimate impact would necessarily be recognised immediately.
2018
Net
£m

2017
Net
£m

Impact of increase in assumed Ogden discount rate of 50 basis points (to 0.5%)(2017: 0% compared to minus 0.75%)

76.2

85.6

Impact of decrease in assumed Ogden discount rate of 50 basis points (to minus 0.5%)(2017: minus 1.5% compared to minus 0.75%)(94.2)(142.7)The impacts are stated net of co-insurance reinsurance and include the impact on net insurance claims along with the associated profit
commission movements that result from the change in the Ogden rate.

Underwriting year loss ratios – UK Car Insurance
In addition to the sensitivity above, the following table sets out the impact on equity and post-tax profit or loss at 31 December 2018 thatwould result from a 1% – 3% increase, and a 1%, 3%, and 5% decrease in the UK Car insurance loss ratios used for each underwriting year
for which material amounts remain outstanding.
Underwriting year
2015

2016

2017

2018

Booked loss ratio

77%

77%

83%

92%

Impact of 1% increase (£m)

(10.8)(12.6)

(3.4)

(1.9)

Impact of 3% increase (£m)

(30.6)(37.5)(10.1)(5.6)

Impact of 5% increase (£m)

(45.0)(60.5)(16.8)(9.3)

Impact of 1% decrease (£m)

10.9

12.6

6.0

1.9

Impact of 3% decrease (£m)

32.6

38.2

27.8

5.6

Impact of 5% decrease (£m)

54.6

64.6

54.2

9.3

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

140

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Company Overview

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Corporate Governance

Financial Statements

Additional Information(iii) Analysis of recognised amounts
31 December
2018£m

31 December
2017£m

2,740.5

2,403.2

Unearned premium provision

995.9

910.7

Total gross insurance liabilities

3,736.4

3,313.9

1,220.1

1,028.8

Gross
Claims outstanding*1

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

663.4

608.8

1,883.5

1,637.6

Net
1,520.4

1,374.4

Unearned premium provision

332.5

301.9

Total insurance liabilities – net

1,852.9

1,676.3

Claims outstanding*2*1

Gross claims outstanding at 31 December 2018 is presented before the deduction of salvage and subrogation recoveries totalling £56.4 million (2017: £42.7 million).

*2	Admiral typically commutes quota share reinsurance contracts in its UK Car Insurance business 24-36 months following the start of the underwriting year. After commutation,
claims outstanding from these contracts are included in Admiral’s net claims outstanding balance. Refer to note (v) below.

The maturity profile of gross insurance liabilities at the end of 2018 is as follows:

Claims outstanding< 1 year£m

1–3 years£m> 3 years
£m

739.9

383.7

1,616.9

Unearned premium provision

995.9

–

–

Total gross insurance liabilities

1,735.8383.7

1,616.9< 1 year£m

1–3 years£m> 3 years£m

Claims outstanding

847.7

697.9

857.7

Unearned premium provision

910.7

–

–

Total gross insurance liabilities

1,758.4

679.9

857.7

The maturity profile of gross insurance liabilities at the end of 2017 was as follows:

Admiral Group plc · Annual Report and Accounts 2018141

Notes to the Financial Statements continued
For the year ended 31 December 2018

5.

PREMIUM, CLAIMS AND PROFIT COMMISSIONS CONTINUED

5d. Reinsurance assets and insurance contract liabilities continued(iv) Analysis of claims incurred
The following tables illustrate the development of gross and net UK Insurance and International Insurance claims incurred for the past ten
financial periods, including the impact of re-estimation of claims provisions at the end of each financial year. The first table shows actual
gross claims incurred and the second shows actual net claims incurred. Figures are presented on an underwriting year basis.
Analysis ofclaims incurred(gross amounts)

Financial year ended 31 December
2009
£m

2010
£m

2011
£m

2012
£m

2013
£m

2014
£m

2015
£m

2016
£m

2017
£m

2018
£m

Total
£m

(239.3)(99.9)

7.1

(5.6)

5.0

8.5

(2.9)

0.0

(1.4)

6.5

–

(260.4)(257.2)

9.8

36.7

19.5

13.5

4.1

5.7

(0.1)

(428.4)

Underwriting year
(UK insurance)
2009 and prior
2010
2011

–

–

(444.3)(329.7)

43.3

51.4

47.9

(0.9)

26.8

21.0

(584.5)

2012

–

–

–

(463.7)(334.7)

49.8

69.2

8.6

59.9

30.3

(580.6)

2013

–

–

–

–

(431.1)(325.5)

53.6

44.4

34.2

35.2

(589.2)

2014

–

–

–

–

–

(438.2)(347.1)

25.6

17.1

52.0

(690.6)

2015

–

–

–

–

–

–

(428.4)(411.2)

21.7

53.3

(764.6)

2016

–

–

–

–

–

–

–

(529.4)(463.7)82.1(911.0)

2017

–

–

–

–

–

–

–

–

(691.8)

2018

–

–

–

–

–

–

–

–

–

(239.3)(360.3)(694.4)(789.2)(680.8)(634.5)(594.2)(858.8)UK insurance grossclaims incurred(615.0) (1,306.8)(818.8)(818.8)(991.5) (1,153.5)

Underwriting year
(International
insurance)
2009 and prior(23.2)(14.2)

(3.8)

(4.4)

(0.2)

1.6

0.3

0.1

0.2

0.6

2010

–

(17.6)(26.1)

(7.1)

0.1

3.5

1.0

0.5

0.4

0.9

(44.4)

2011––(35.7)(42.7)

1.2

5.7

1.7

4.0

1.2

1.3

(63.3)

2012

–

–

–

(58.0)(53.7)

0.7

4.0

6.0

2.6

2.0

(96.4)

2013

–

–

–

–

(68.2)(57.8)

4.2

7.7

3.3

5.8

(105.0)

2014

–

–

–

–

–

(85.2)(65.5)

4.4

5.8

5.5

(135.0)

2015

–

–

–

–

–

–

(92.6)(101.6)7.7

3.1(183.4)

2016

–

–

–

–

–

–

–

(138.9)(125.3)11.7(252.5)

2017

–

–

–

–

–

–

–

(174.1)(147.3)(321.4)2018(204.9)

–

–

–

–

–

–

–

–

–

(204.9)International insurance
gross claims incurred(23.2)(31.8)(65.6)(112.2)(120.8)(131.5)(146.9)(217.8)(278.2)(321.3)

Other gross claims
incurred(10.5)

(7.6)

–

(1.7)

(2.2)

(7.1)

(5.4)

(0.1)

(3.6)

(1.1)

Claims handling costs(10.1)(17.0)(25.9)(26.0)(22.9)(21.4)(22.6)(27.1)(35.5)(37.9)

Total gross claims
incurred(283.1)(416.7)(785.9)(929.1)(826.7)(794.5)(769.1) (1,103.8) (1,308.8) (1,513.8)

142Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Financial year ended 31 December
Analysis of claims
incurred (net amounts)

2009
£m

2010
£m

2011
£m

2012
£m

2013
£m

2014
£m

2015
£m

2016
£m

2017
£m

2018
£m

Total
£m

Underwriting year
(UK insurance)
2009 and prior(132.4)(53.9)

8.7

(5.6)

5.0

8.5

(2.9)

5.2

5.4

5.6

2010

–

(130.2)(128.6)

8.4

36.7

19.5

13.5

8.8

6.0

(2.0)

(167.9)

2011

–

–

(203.7)(151.1)

39.7

51.4

47.9

8.4

26.2

16.3

(164.9)

2012

–

–

–

(196.0)(139.3)

49.8

69.2

19.4

59.1

30.6

(107.2)

2013

–

–

–

–

(184.4)(135.0)

38.4

49.3

36.4

34.7

(160.6)

2014

–

–

–

–

–

(187.0)(144.1)(16.4)

25.3

38.4(283.8)

2015

–

–

–

–

–

–

(182.1)(162.0)

(2.6)

42.6

(304.1)

2016

–

–

–

–

–

–

–

(219.4)(180.7)48.1(352.0)

2017

–

–

–

–

–

–

–

–

(214.3)(182.9)(397.2)

2018

–

–

–

–

–

–

–

–

–

(261.0)(261.0)(132.4)(184.1)(323.6)(344.3)(242.3)(192.8)(160.1)(306.7)(239.2)(229.6)

(9.2)

(5.7)

(1.9)

(2.2)

(0.1)

0.8

0.1

–

0.1

0.3

2010

–

(7.1)

(11.5)

(3.5)

–

1.7

0.5

0.2

0.2

0.4

(19.1)

2011––(14.9)(18.7)

0.4

2.9

0.8

2.0

0.6

0.6

(26.3)

2012

–

–

–

(24.2)(22.8)

(0.8)

2.0

2.2

1.3

1.0

(41.3)

UK insurance net
claims incurred
Underwriting year
(International
insurance)
2009 and prior

2013

–

–

–

–

(26.6)(23.5)

1.7

4.8

0.9

3.0

(39.7)

2014

–

–

–

–

–

(31.6)(23.3)

1.8

1.8

2.2

(49.1)

2015

–

–

–

–

–

–

(33.4)(39.6)

5.1

1.3(66.6)

2016

–

–

–

–

–

–

–

(47.9)(43.5)

6.3(85.1)

2017

–

–

–

–

–

–

–

–

(60.7)(51.5)(112.2)

2018

–

–

–

–

–

–

–

–

–

(71.2)(71.2)

International insurance
net claims incurred(9.2)(12.8)(28.3)(48.6)(49.1)(50.5)(51.6)(76.5)(94.2)(107.6)

Other net claims
incurred

(4.4)

(3.1)

–

(0.8)

(2.1)

(6.9)

(5.4)

(0.2)

(2.6)

(1.1)

Claims handling costs

(5.7)

(8.5)

(11.9)(10.8)

(9.5)

(8.9)

(9.4)

(11.2)(11.1)(11.8)(151.7)(208.5)(363.8)(404.5)(303.0)(259.1)(226.5)(394.6)(347.1)(350.1)

Total net claims incurred

Admiral Group plc · Annual Report and Accounts 2018143

Notes to the Financial Statements continued
For the year ended 31 December 2018

5.

PREMIUM, CLAIMS AND PROFIT COMMISSIONS CONTINUED

5d. Reinsurance assets and insurance contract liabilities continued
The table below shows the development of UK Car Insurance loss ratios for the past five financial periods, presented on an underwriting
year basis.
Financial year ended 31 December
UK Car Insurance loss ratio development

2014

2015

2016

2017

2018

Underwriting year (UK car only)
2014

92%

89%

84%

81%

76%

2015

–

87%

87%

83%

77%

2016

–

–

88%

84%

77%

2017

–

–

–

87%

83%

2018

–

–

–

–

92%

(v) Analysis of claims reserve releases
The following table analyses the impact of movements in prior year claims provisions on a gross and net basis. Figures are presented on anunderwriting year basis.
Financial year ended 31 December
Gross

2014
£m

2015
£m

2016
£m

2017
£m

2018
£m

Underwriting year (UK Motor Insurance)
2014 and prior

148.1

197.7

133.8

158.3

123.6

2015

–

–

1.9

32.0

50.9

2016

–

–

–

23.7

70.6

2017

–

–

–

–

25.4

148.1

197.7

135.7

214.0

270.5

Total gross release (UK Motor Insurance)
Total gross release (UK Household Insurance)

–

–

–

1.6

4.6

Total gross release (International Insurance)

12.6

14.0

21.0

23.2

35.2

Total gross release

160.7

211.7

156.7

238.8

310.3

Net

2014
£m

2015
£m

2016
£m

2017
£m

2018
£m

Financial year ended 31 December

Underwriting year (UK Motor Insurance)
2014 and prior

137.4

173.4

74.6

158.3

123.4

2015

–

–

0.8

(2.4)

42.5

2016

–

–

–

10.0

47.1

2017
Total net release (UK Motor Insurance)
Total net release (UK Household Insurance)
Total net release (International Insurance)
Total net release

–

–

–

–

8.0

137.4

173.4

75.4

165.9

221.0

–

–

–

0.5

1.4

6.3

6.5

9.9

9.5

13.5

143.7

179.9

85.3

175.9

235.9

Analysis of net releases on UK Motor Insurance:– Net releases on Admiral net share (motor)

66.8

84.6

58.3

92.1

111.4

– Releases on commuted quota share reinsurance contracts

70.6

88.8

17.1

73.8

109.6

Total net release as above

137.4

173.4

75.4

165.9

221.0

144

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Admiral typically commutes quota share reinsurance contracts in its UK Car Insurance business 24 or 36 months following the start of
the underwriting year. After commutation, any changes in claims costs on the commuted proportion of the business are reflected withinclaims costs and are separately analysed here. Releases on commuted quota share contracts are analysed by underwriting year as follows:
Financial year ended 31 December
2014
£m

2015
£m

2016
£m

2017
£m

2018
£m

70.6

88.8

51.4

74.7

48.2

2014

–

–

(34.3)

14.9

22.4

2015

–

–

–

(15.8)

21.3

2016

–

–

–

–

17.7

70.6

88.8

17.1

73.8

109.6

Underwriting year
2013 and priorTotal releases on commuted quota share reinsurance contracts

Included within releases on commuted quota share contracts are accruals for additional reserves arising from the commutation of theremaining 2015 and all of the 2016 UK motor quota share contracts. Any future positive developments of this loss ratio would lead to thereversal of the amounts accrued. Refer to the business review earlier in this report for further detail.
Profit commission is analysed in note 5c.

(vi) Reconciliation of movement in claims provision
31 December 2018
Gross
£m

Reinsurance
£m

Net
£m

Claims provision at start of period

2,403.2(1,028.8)

1,374.4

Claims incurred (excluding releases)

1,786.2(1,212.0)

574.2

Reserve releases(310.3)74.4(235.9)

–

310.4

310.4

Claims paid and other movements

Movement in claims provision due to commutation(1,138.6)

635.9(502.7)

Claims provision at end of period

2,740.5(1,220.1)

1,520.4

31 December 2017
Gross
£m

Reinsurance
£m

Net
£m

Claims provision at start of period

2,030.8(701.6)

1,329.2

Claims incurred (excluding releases)

1,512.1(1,000.2)

511.9

Reserve releases(238.8)62.9(175.9)

–

109.1

109.1

Movement in claims provision due to commutation
Claims paid and other movements*(900.9)501.0(399.9)Claims provision at end of period

2,403.2(1,028.8)

1,374.4

1Admiral Group plc · Annual Report and Accounts 2018145

Notes to the Financial Statements continued
For the year ended 31 December 2018

5.

PREMIUM, CLAIMS AND PROFIT COMMISSIONS CONTINUED

5d. Reinsurance assets and insurance contract liabilities continued(vii) Reconciliation of movement in net unearned premium provision
31 December 2018
Gross
£m

Reinsurance
£m

Net
£m

910.7

(608.8)

301.9

Written in the period

2,166.7(1,464.3)

702.4

Earned in the period(2,081.5)

1,409.7(671.8)995.9(663.4)

332.5

Unearned premium provision at start of period

Unearned premium provision at end of period

31 December 2017
Gross
£m

Reinsurance
£m

Net
£m

718.7

(424.8)293.9

Written in the period

1,927.7(1,299.7)

628.0

Earned in the period(1,735.7)

1,115.7(620.0)910.7(608.8)301.9

Unearned premium provision at start of period

Unearned premium provision at end of period

6.

INVESTMENT INCOME AND COSTS

6a. Accounting policies
Investment return from financial assets comprises distributions as well as net realised and unrealised gains on financial assets classified as‘fair value through profit or loss’ (FVTPL), interest income and net realised gains, net of impairment losses, from financial assets classified
as “fair value through other comprehensive income” (FVOCI), and interest income on holdings in deposits with credit institutions (held at
amortised cost).
Finance costs from financial liabilities comprise interest expense on subordinated notes, loan backed securities and credit facilities,
calculated on the effective interest rate method. The effective interest rate method calculates the amortised cost of a financial asset or
liability (or group of financial assets or financial liabilities) and allocates the interest income or expense over the expected life of the asset
or liability.

146

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

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Financial Statements

Additional Information

6b. Investment return
31 December
2018£m

31 December
2017
£m

6.3

1.9

On debt securities classified as FVOCI

23.8

27.9

On deposits with credit institutions

3.0

3.4

On government gilt assets*1

4.1

4.6

–

5.4

Unrealised losses on forward contracts

(2.3)

(2.3)

Interest receivable on cash and cash equivalents*1

1.1

0.8

Total investment and interest income

36.0

41.7

31 December
2018£m

31 December
2017£mInterest payable on subordinated loan notes*1

11.3

11.4

Total finance costs

11.3

11.4

Investment return
On assets classified as FVTPL*3*1

Net realised gains:
Realised gains on sale of gilt assets
Net unrealised losses*2*1 Interest received during the year was £8.0 million (2017: £8.0 million).
*2 Total investment return excludes £0.7 million of intra-group interest (2017: £nil).
*3 Realised gains/losses on sales of debt securities classified as FVOCI are immaterial.

6c. Finance costs*1 Interest paid during the year was £11.0 million (2017: £11.1 million).

Finance costs represent interest payable on the £200 million (2017: £200 million) subordinated notes and other financial liabilities.

6d. Interest expense
31 December
2018£m

31 December
2017£mInterest payable on loan backed securities

1.7–

Interest payable on revolving credit facility

1.9

0.4

Total finance costs*1

3.6

0.4

*1 Interest paid in total during the year was £3.1 million (2017: £0.2 million).

Interest expense represents the interest payable on funding for the Admiral loans business, in the form of a credit facility of £200 million(of which £71.5 million was drawn down at 31 December 2018) and loan backed securities through an SPE with funding up to £300 million(of which £168.3 million was drawn down at 31 December 2018).

Admiral Group plc · Annual Report and Accounts 2018147

Notes to the Financial Statements continued
For the year ended 31 December 20187.

FINANCIAL ASSETS AND FINANCIAL LIABILITIES

7a. Accounting policies
i)Financial assets

Classification and measurement
The classification and subsequent measurement of the financial assets under IFRS 9 depends on:(a)the Group’s business model for managing the financial assets and(b) the contractual cash flow characteristics of the financial assets.
Based on these factors, a financial asset is classified into one of the following categories:• Amortised cost – assets which are held in order to collect contractual cash flows, and the contractual terms of the financial asset giverise to cash flows which are solely payments of principal and interest (SPPI) on the principal amount outstanding, where the asset is notdesignated as FVTPL.
The carrying amount is adjusted by the expected credit loss allowance. Interest income from these assets is included in ‘Interest return’using the effective interest rate method. For the Group these include deposits with credit institutions, cash and cash equivalents,
insurance receivables, trade and other receivables and loans and advances to customers.
• Fair value through other comprehensive income (FVOCI) – assets which are held both to collect contractual cash flows and to sell theasset, where the contractual terms of the financial asset give rise to cash flows which are solely payments of principal and interest on
the principal amount outstanding (SPPI), where the asset is not designated as FVTPL.
Movements in the carrying amount are taken through OCI, with the exception of recognition of impairment gains or losses, interest revenue
and foreign exchange gains or losses which are recognised in profit or loss. For the Group these assets include Government gilts and debt
securities. In addition, IFRS 9 allows an irrevocable election at initial recognition to designate equity investments at FVOCI that otherwise
would be held at FVTPL, provided these are not held for trading. The Group has made this election for certain equity investments.
• Fair value through profit or loss (FVTPL) – assets which do not meet the criteria for amortised cost or FVOCI, or which are designated as
FVTPL. For the Group these assets include investment liquidity funds investing in short duration assets and derivative financial instruments.
A gain or loss on a debt instrument measured at FVTPL which is not part of a hedging relationship is recognised in profit or loss andpresented within ‘Investment return’ in the period in which it arises.

Impairment
IFRS 9 outlines an expected credit loss (ECL) model for impairments, which replaces the incurred loss model under IAS 39. Under IFRS 9 an
expected credit loss should be calculated for all assets measured at amortised cost, as well as debt instruments measured at FVOCI.

De-recognition
A financial asset is derecognised when the rights to receive cash flows from that asset have expired, or when the Group transfers the asset
and all the attached substantial risks and rewards relating to the asset to a third party.

ii)

Financial Liabilities

Classification and subsequent measurement
Subsequent measurement of financial liabilities is at amortised cost using the effective interest method. Movements in the amortised
cost are recognised through the income statement.

De-recognition
A financial liability is derecognised when the obligation under that liability is discharged, cancelled or expires.

148

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

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Financial Statements

Additional Information

7b. Financial assets and liabilities
The Group’s financial assets and liabilities can be analysed as follows:
31 December
2018£m

31 December
2017£m1,301.1

1,069.3

Financial investments mandatorily measured at FVTPL
Money market funds
Derivative financial instruments–

2.4

1,301.1

1,071.7

Debt securities

1,389.9

1,319.7

Government gilts

170.9

173.8

7.8

2.6

1,568.6

1,496.1

100.0

130.0

2,969.7

2,697.8

Financial investments classified as FVOCI

Equity investments*

1

Financial assets measured at amortised cost
Deposits with credit institutions
Total financial investments
Other financial assets measured at amortised cost
Insurance receivables

842.3

737.6

Trade and other receivables

239.7

202.1

Insurance and other receivables

1,082.0

939.7

Loans and advances to customers

300.2

66.2

Cash and cash equivalents

376.8

326.8

4,728.7

4,030.5

Subordinated notes

204.1

204.0

Loan backed securities

168.3

–

Other borrowings

71.8

20.0

Total financial assets
Financial liabilities

Subordinated and other financial liabilities

444.2

224.0

Trade and other payables

1,801.5

1,641.6

Total financial liabilities

2,245.7

1,865.6*1 Previously held at FVTPL under IAS 39.

Admiral Group plc · Annual Report and Accounts 2018149

Notes to the Financial Statements continued
For the year ended 31 December 20187.

FINANCIAL ASSETS AND FINANCIAL LIABILITIES CONTINUED

7b. Financial assets and liabilities continued
The maturity profile of financial assets and liabilities at 31 December 2018 is as follows:

On demand£m< 1 year£m

Between1 and 2 years£m> 2 years£m

Money market funds and derivative
financial instruments–

1,296.9

2.1

2.1

Deposits with credit institutions

–

60.0

40.0

–

Debt securities

–

295.3

210.7

883.9

Government gilts

–

–

–

170.9

Total financial investments–

1,652.2

252.8

1,056.9

Insurance receivables

–

842.3

–

–

Financial investments

Trade and other receivables

–

239.7

–

–

Loans and advances to customers

–

102.1

91.2

106.9

Cash and cash equivalents

376.8

–

–

–

Total financial assets*

376.8

2,836.3

344.0

1,163.8

Subordinated notes

–

4.9

–

199.2

Loan backed securities

–

60.2

53.0

55.1

1

Financial liabilities

Other borrowings

–

71.8

–

–

Trade and other payables–

1,801.5––

Total financial liabilities–

1,938.4

53.0

254.3

*1 Equity investments totalling £7.8 million do not have a maturity date and are not included in the total above.

150

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

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Corporate Governance

Financial Statements

Additional Information

The maturity profile of financial assets and liabilities at 31 December 2017 was as follows:

On demand£m< 1 year£m

Between1 and 2 years£m> 2 years£m–

1,071.7––

Financial investments
Money market funds and derivative
financial instruments
Deposits with credit institutions

–

30.0

70.0

30.0

Equity investments

–

2.6

–

–

Debt securities

–

341.2

199.5

779.0

Government gilts

–

1.0

–

172.8

Total financial investments–

1,446.5

269.5

981.8

Insurance receivables

–

737.6

–

–

Trade and other receivables

–

202.1

–

–

Loans and advances to customers

–

17.0

16.9

32.3

Cash and cash equivalents

326.8

–

–

–

Total financial assets

326.8

2,403.2

286.4

1,014.1

Subordinated notes

–

4.8

–

199.2

Other borrowings

–

20.0

–

–

Trade and other payables–

1,641.6––

Total financial liabilities–

1,666.4

–

199.2

FVTPL
£m

FVTOCI£m

Amortised Cost
£m

Total
£m

Financial liabilities

7c. Financial Investments

AAA- AA

496.3

685.7

95.3

1,277.3

A

547.6

609.5

344.2

1,501.3

BBB

8.1

256.6

36.9

301.6

Sub BBBNot rated*1
Total financial investments

–

—

0.4

0.4

249.1

16.8

—

265.9

1,301.1

1,568.6476.8

3,346.5*1	The majority of exposure which is ‘Not rated’ stems from a holding in a AAA rated liquidity fund (rated AAAf/S1 by Fitch) which invests in money market instruments collateralisedby UK government bonds.

Classification
At initial recognition, the Group measures financial investments at fair value plus or minus, in the case of financial instruments notmeasured at fair value through profit and loss, directly attributable transaction costs. Transaction costs of financial instruments
measured at fair value through profit and loss are expensed to the income statement when incurred.
Money market funds and derivative financial instruments are measured at FVTPL. These assets used to invest regulatory capital within theGroup, and surplus liquidity which may be held. Buying and selling activity depending on timing of different cashflows.
Government gilts and debt securities are measured at FVOCI and as such fall under the scope of the ECL model. These assets are held tomatch policyholder liabilities or interest on debt liabilities. Selling of these assets has occurred, and is likely to occur in future.
Private Equity investments have been designated as being reported through FVOCI. These investments are long term, strategic
investments. Dividends are recognised in the Income Statement whilst a change in fair values will be reflected in OCI. Given the immaterial
amount (£7.8 million) of these investments, detailed levelling disclosures have not been provided.

Admiral Group plc · Annual Report and Accounts 2018151

Notes to the Financial Statements continued
For the year ended 31 December 20187.

FINANCIAL ASSETS AND FINANCIAL LIABILITIES CONTINUED

7c. Financial Investments continued
Impairment
All financial assets held at FVOCI and at amortised cost have been assessed for impairment using the expected credit loss model under
IFRS 9. The assessment has been made based on the credit ratings of the entities, and externally available credit loss ratios.
The fair value of the gilts and debt securities is calculated with reference to quoted market valuations and as such take into accountfuture expected credit losses. As a result, no material impairment provision is required. The calculated impairment loss within the fairvalue is recognised through the Income Statement whilst fair value movements are recognised in other comprehensive income.
All assets that are purchased, which require a calculation of impairment, are of considered investment grade or above (i.e. BBB rated or higher),as defined by an external credit rating agency or an assessment from Admiral’s external asset managers. The credit rating of all assets isregularly monitored. As at the year end reporting date, all financial assets are of investment grade and considered low credit risk under IFRS 9.
Therefore, these assets remain within stage 1 and a 12 month expected loss is used to calculate the impairment provision required.
If any assets where to be downgraded below BBB the Group would consider these to be have significantly increased in credit risk since
inception, therefore enter stage 2 under IFRS 9.
On transition from IAS39 to IFRS 9 an impairment provision of £0.4 million was recognised on these assets. This increased to £0.5 million
at 31 December 2018. Given there is no material change in the credit quality or type of financial assets in the year, and the movement inprovision is immaterial, no further disclosure has been made.
Deposits are held with well rated institutions; as such no impairment provision is required.

Fair value measurement
For assets held at fair value through profit and loss, their value equates to level one (quoted prices in active markets) of the fairvalue hierarchy.
The measurement of debt securities and government gilts is based on active quoted market values (level one).
Deposits are held with well rated institutions; as such the approximate fair value is the book value of the investment as impairment of thecapital is not expected. There is no quoted market for these holdings and as such a level two valuation is used. The book value of these
deposits is £100.0 million (2017: £130.0 million).
Equity investments held at fair value are measured at level three of the fair value hierarchy. No further information is provided due to theimmateriality of the balance at 31 December 2018.

7d Cash and cash equivalents

Cash at bank and in hand
Short-term deposits
Total cash and cash equivalents

31 December
2018£m

31 December
2017
£m

376.0

325.3

0.8

1.5

376.8

326.8

Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term deposits with original maturities ofthree months or less. All cash and cash equivalents are measured at amortised cost.
An assessment has been completed for impairment purposes. Given the short-term duration of these assets and low risk of these assets,
no impairment provision has been recognised. This will be regularly tracked and monitored.
For cash at bank and cash deposits and other receivables, the fair value approximates to the book value due to their short maturity. All
assets are of investment grade or above (e.g. BBB rated or higher). The credit rating of all assets is regularly monitored. As at the year end
reporting date all financial assets are of investment grade and considered low risk under IFRS 9. These therefore remain within stage 1 anda 12 month expected loss is used to calculate the impairment provision required.

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Additional Information

7e Loans and advances to customers
31 December
2018£m

31 December
2017£mLoans and advances to customers – gross carrying amount

310.4

67.4

Loans and advances to customers – provision(10.2)(1.2)

Total loans and advances to customers

300.2

66.2

Loans and advances to customers relate to the Admiral loans business. This includes unsecured personal loans and car finance products.
Due to the size of the provision and sensitivities that could reasonably be applied, this is not considered a critical accounting judgement or
key source of estimation uncertainty.

Classification
Loans and advances to customers are measured at amortised cost. This is because the assets are held in order to collect contractual cash
flows, and the contractual terms of the financial asset give rise to cash flows which are solely payments of principal and interest on theprincipal amount outstanding.

Fair value measurement
The amortised cost of loans and advances to customers is a reasonable approximation of fair value.

Expected credit losses
The expected credit loss model is a three-stage model based on forward looking information regarding changes in the credit quality
since origination. Credit risk is measured using a probability of default (PD), exposure at default (EAD) and loss given default (LGD) defined
as follows:• Probability of Default (PD): The likelihood of an account default calibrated through analysis of historic customer behaviour.
• Exposure at Default (EAD): The amount of balance at the time of default. For loans that are in arrears the EAD is taken as the current
balance, for up to date loans the contractual outstanding balance in each future month is used.
• Loss Given Default (LGD): The amount of the asset lost if a borrower defaults, determined through a combination of historic recovery
performance and expert judgement.
The PD is applied to the EAD balance to calculate the expected loss stemming from each future period based on the likelihood of thecustomer entering default on the exposure at that point. The LGD is then applied to this loss to calculate the total expected loss excluding
recoveries. A forward looking provision is also calculated, as set out later in this note.
The three stages of the model are defined as follows:• Stage 1 – no significant increase in credit risk of the financial asset since inception;• Stage 2 – significant increase in credit risk of the financial asset since inception; and• Stage 3 – financial asset is credit impaired.
For instruments in stage 1, the allowance is calculated as the expected credit losses that result from default events possible within
12 months after the reporting date. For instruments in stages 2 and 3 the allowance is calculated as the expected credit loss on alifetime basis.

Significant increase in credit risk
A significant increase in credit risk is deemed to have occurred where:• The loan is 1 to 3 loan payments in arrears; or• Two or more payments are overdue elsewhere, other than within the Admiral loans business.
The Group will not rebut the presumption within IFRS 9 that loans which are 30 days past due have experienced a significant increase incredit risk.

Admiral Group plc · Annual Report and Accounts 2018153

Notes to the Financial Statements continued
For the year ended 31 December 20187.

FINANCIAL ASSETS AND FINANCIAL LIABILITIES CONTINUED

7e Loans and advances to customers continued
Credit Impaired
A loan is deemed to be credit impaired where 4 or more payments have been missed, or where there is a confirmed IVA agreement or
debt collection agency instruction. The Group will not rebut the presumption within IFRS 9 that default has occurred when an exposure isgreater than 90 days past due, which is consistent with a customer being 4 or more payments in arrears.
Payments in arrears

Days past due

1

0 – 302

31 – 603

61 – 90

4

91+

Write off policy
Loans are written off where there is no reasonable expectation of recovery. The Group’s policy is to write off balances to their estimated
net realisable value. Write-offs occur on a case by case basis taking into account the operational position and the collections strategies.

Forward-looking information
Under IFRS 9 the provision must reflect an unbiased and probability-weighted amount that is determined by evaluating a range of possible
outcomes. The means by which the Group has determined to this is to run scenario analysis.
Economic downturn and upturn scenarios are given a 25% weighting with the best estimate provision receiving a 50% weighting.
Management judgement has been used to define the weighting and severity of the different scenarios, based on available data without
undue cost or effort. A downturn has been calibrated to be consistent with a return to losses from loans written in 2007 and 2009, themost recent economic downturn. The 2007/09 period is considered to be a significant economic global event. The upturn is consistent
with a consumer behaviour from loans written in 2013, when credit providers tightened significantly on their lending criteria. These
scenarios are reviewed on a semi-annual basis, and the assumptions and weighting reviewed based on additional information available atthe time of review.

Amounts arising from ECL: loans and advances to customers
The Group is exposed to credit risk from the Admiral loans business, which has continued to expand during 2018.
The following table sets out information about the credit quality of the loans and advances to customers, measured at amortised cost.
Credit grades are used to segment customers by apparent credit risk at the time of acquisition. The Group does not have any purchased ororiginated credit-impaired (POCI) assets.
All probability of defaults include forward looking information. The average probability of default in relation to the assets in Stage 1 is
1.8% based on defaults within 12 months of the reporting date. On entering Stage 2 the average PD increases to 5.2% reflecting losses
over the life of the asset. The average PD for all assets in Stage 2 is 25.1%. Assets in Stage 3 are deemed to be in default.

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Stage 1£m

Stage 2£m

Higher*1

138.0

1.5

Medium*1

113.9

3.8

Lower*145.0

3.6

Additional Information

POCI

31 December
2018
£m
Total

–

–

139.5

–

–

117.7

–

–

48.6

Stage 3£m

Credit Grade

Credit Impaired
Gross carrying amount
Expected credit loss allowance
Other loss allowance
Carrying amount

—

—

4.6

–

4.6

296.9

8.9

4.6

–

310.4

(4.4)

(1.4)

(4.1)

–

(9.9)

(0.3)

–

–

–

(0.3)

292.2

7.5

0.5

–

300.2

*1 This reflects the internal credit grade given to a customer at origination. This is based on external credit rating information.

The following tables shown reconciliations from the opening to the closing balance of the gross carrying value and loss allowance.

Stage 1£m

Stage 2£m

Stage 3£m

POCI

31 December
2018
£m
Total

64.5

2.8

0.2

–

67.5

Transfers from Stage 1 to Stage 2

(2.2)

2.2

–

–

–

Transfers from Stage 1 to Stage 3

(1.8)

–

1.8

–

–

Gross carrying amount as at 1 January 2018
Transfers

2.0

(2.0)

–

–

–

Principle redemption payments

Transfers from Stage 2 to Stage 1(22.7)

(1.1)

0.5

–

(23.3)

New financial assets originated or purchased

257.1

7.0

2.1

–

266.2

Gross carrying amount as at 31 December 2018

296.9

8.9

4.6

–

310.4

Expected credit loss allowance as at 1 January 2018

Stage 1£m

Stage 2£m

Stage 3£m

POCI

31 December
2018
£m
Total

0.6

0.5

0.2

–

1.3

–

–

–

–

–

Movements with a profit and loss impact
Transfers
Transfers from Stage 1 to Stage 2
Transfers from Stage 1 to Stage 3

–

–

–

–

–

Transfers from Stage 2 to Stage 1

0.1

(0.1)

–

–

–

Transfers from Stage 3 to Stage 1

–

–

–

–

–

Changes in PDs/ LGDs/ EADs

0.1

0.1

1.9

–

2.1

New financial assets originated or purchased

3.6

0.9

2.0

–

6.5

Total net profit and loss charge in the period

3.8

0.9

3.9

–

8.6

Transfers from Stage 2 to Stage 3

–

–

–

–

–

Transfers from Stage 3 to Stage 2

–

–

–

–

–

–

–

–

–

–

4.4

1.4

4.1

–

9.9

Other movements with no profit and loss impact
Transfers

Write-offs
Expected credit loss allowance as at 31 December 2018

Admiral Group plc · Annual Report and Accounts 2018155

Notes to the Financial Statements continued
For the year ended 31 December 20187.

FINANCIAL ASSETS AND FINANCIAL LIABILITIES CONTINUED

7f

Other Assets

Insurance and other receivables
31 December
2018£m

31 December
2017£mInsurance receivables*1

842.3

737.6

Trade receivables

227.0

193.7

Prepayments and accrued income

12.7

8.4

1,082.0

939.7

Total insurance and other receivables*1 Insurance receivables at 31 December 2018 includes £59.3 million in respect of salvage and subrogation recoveries (2017: £42.7 million).

Insurance receivables
Insurance receivables are also measured at amortised cost. Given the short-term duration of these assets no impairment provision has
been recognised.

Trade receivables
Classification. Trade and other receivables are measured at amortised cost, being made up of multiple types of receivable balances.
Impairment. Where a provision is required for these receivables, it is calculated in line with the simplified method for trade receivables
per IFRS 9, whereby lifetime expected credit losses are recognised irrelevant of the credit risk. In this case, the provision is based on a
combination of:(i)aged debtor analysis(ii) historic experience of write-offs for each receivable,(iii) any specific indicators of credit deterioration observed, and(iv) management judgement
The level of provision is immaterial. There was no change to the provision at 1 January 2018 on transition from IAS39 to IFRS 9.
The amortised cost carrying amount of receivables is a reasonable approximation of fair value.

7g Financial liabilities
Financial liabilities are inclusive of £200 million subordinated notes issued on 25 July 2014 at a fixed rate of 5.5% with a redemption date of
25 July 2024.
The notes are unsecured subordinated obligations of the Group and rank pari passu without any preference among themselves. In theevent of a winding-up or bankruptcy, they are to be repaid only after the claims of all other creditors have been met.
There have been no defaults on any of the notes during the year. The Group has the option to defer interest payments on the notes but todate has not exercised this right.
The fair value of subordinated notes (level one valuation) at 31 December 2018 is £211.3 million (2017: £229.2 million).
The Group holds a revolving credit facility of £200 million which expires in December 2020. As at 31 December 2018, £71.5 million (2017:£20 million) was drawn under this agreement as shown within other borrowings in the table above.
In addition, during 2018 an asset backed senior loan note facility of £300 million was established in relation to the Admiral loans business.
As at the year end, £168.3 million of this facility had been utilised.

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Financial Statements

Additional Information

7h. Objectives, policies and procedures for managing financial assets and liabilities
The Group’s activities expose it primarily to financial risks of credit risk, interest rate risk, liquidity risk and foreign exchange risk. The
Board of Directors has delegated the task of supervising risk management and internal control to the Group Risk Committee. There is alsoan 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 are detailed in full in the Corporate
Governance Statement. Specific considerations for the risks arising from financial assets and liabilities are detailed below.

Credit risk
The Group defines credit risk as the risk of loss if another party fails to perform its obligations. The key areas of exposure to credit
risk for the Group result through its reinsurance programme, investments, bank deposits, loans and advances to customers andpolicyholder receivables.
The Directors consider counterparty exposure frequently and in significant detail. The Directors consider that the policies and proceduresin place to manage credit exposure continue to be appropriate for the Group’s risk appetite and, during 2018 and historically, no material
credit losses have been experienced by the Group.

Financial Investments
There are no specific concentrations of credit risk with respect to investment counterparties due to the structure of the liquidity funds
and the parameters set for managing the Fixed Income Mandates. Both forms of investment hold a wide range of very short duration, highquality securities. Cash balances and deposits are placed only with highly rated credit institutions. The detailed holdings are reviewed
regularly by the Investment Committee.

Reinsurance assets
To mitigate the risk arising from exposure to reinsurers (in the form of reinsurance recoveries and profit commissions), the Group only
conducts business with companies of appropriate financial strength ratings. In addition, many reinsurance contracts are operated on afunds withheld basis, which substantially reduces credit risk, as the Group withholds the cash received from policyholders as collateral.

Loans and Advances to Customers
The risk appetite for the lending business is set with respect to anticipated loan losses over a 12-month period. Management has defined
an amber and a red loan loss limit, representing points at which action is required. These limits have been defined by management toreflect the business maturity, the business ambitions and the economic climate. Risk appetite is assessed at least annually, while the limits
are continuously monitored.

Insurance assets
A further principal form of credit risk is in respect of amounts due from policyholders, largely due to the potential for default by
instalment payers. The impact of this is mitigated by the large customer base and low average level of balance recoverable. There is also
mitigation by the operation of numerous high- and low-level controls in this area, including payment on policy acceptance as opposed toinception and automated cancellation procedures for policies in default.
The amount of bad debt expense relating to policyholder debt charged to the income statement in 2018 and 2017 is insignificant.

Trade and other receivables
Trade receivables and other debtors are also subject to credit risk, although this is mitigated by a review of the credit worthiness of all
counterparties prior to them being accepted.

Admiral Group plc · Annual Report and Accounts 2018157

Notes to the Financial Statements continued
For the year ended 31 December 20187.

FINANCIAL ASSETS AND FINANCIAL LIABILITIES CONTINUED

7h. Objectives, policies and procedures for managing financial assets and liabilities continued
Other Assets
All other assets are assessed as low credit risk under IFRS 9, with no significant amounts past due or impaired.
The Group’s credit risk exposure to assets with external ratings is as follows:

Rating31 December
2018£m

31 December
2017£mFinancial institutions – Credit institutions

AAA

164.3

210.7

Financial institutions – Credit institutions

AA

942.1

650.3

Financial institutions – Credit institutions

A

1,501.3

1,737.0

Financial institutions – Credit institutions

BBB and below

567.9

249.7

UK Government gilts

AA

170.9

173.8

Reinsurers

AA

458.5

355.7

Reinsurers

A

303.6

256.4

The Group’s maximum exposure to credit risk at 31 December 2018 is £4,507.4 million (2017: £3,723.8 million), being the carrying value offinancial investments and cash, the carrying value of loans and advances to customers, and the excess of reinsurance assets over amounts
owed to reinsurers under funds withheld arrangements. The Group does not use credit derivatives or similar instruments to mitigate exposure.
£9.2 million (2017: £1.0 million) was charged to the income statement in respect of loans and advances to customers. Further details areprovided in note 7e above.
There were no further significant financial assets that were past due at the close of either 2018 or 2017.

Interest rate risk
The Group considers interest rate risk to be the risk that unfavourable movements in interest rates could adversely impact on the capitalvalues of financial assets and liabilities.

Invested Assets
As noted above, the Group primarily invests the following asset types:• Investment funds and cash plus liquidity funds, which in turn invest in a mixture of short dated fixed and variable rate securities, such as
cash deposits, certificates of deposits, floating rate notes and other commercial paper.
• Deposits with well rated institutions are short in duration (one to five years). These are classified as held at amortised cost. Therefore
neither the carrying value of the asset, nor the interest return will be impacted by fluctuations in interest rates.
• Debt securities are held within two segregated mandates. The guidelines of the investments retain a similar credit quality of theinvestment funds (all holdings are investment grade). The duration of the securities is relatively short and similar to the duration of theon book claims liabilities (the average duration is three years).
• UK Government gilts are classified FVOCI.

Loans and Advances to customers
The Group’s Loan portfolio is made up of fixed rate on loans and funded at floating variable rate. The Group has instigated an interest
rate swap arrangement in the year. The risk management objective is to eliminate the majority of the Interest Rate risk from the Loansportfolio. This relates to the difference between fixed rate on loans written and floating variable rate on funding.

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Corporate Governance

Financial Statements

Additional Information

Hedge Accounting
Hedge accounting is applied when the criteria specified in IFRS 9 are met. In line with IFRS 9, the gain or loss on the hedged position as at
the balance sheet date is recognised through Other Comprehensive Income.
This results in a hedging reserve at 31 December 2018 in relation to the interest rate swap.
Due to the immateriality of the transaction and balance, no further disclosure is made.

Financial Liabilities
The Group also holds a financial liability in the form of £200 million of subordinated notes with a ten year maturity and fixed rate couponof 5.5%. This liability is valued at amortised cost and therefore neither the carrying value of the deposits, nor the interest payable, will be
impacted by fluctuations in interest rates.
No sensitivity analysis to interest rates has been presented on the grounds of materiality.

Liquidity risk
Liquidity risk is defined as the risk that the Group does not have sufficient, available financial resources to enable it to meet its obligations
as they fall due, or can only secure them at excessive cost.
The Group is strongly cash-generative due to the large proportion of revenue arising from non-underwriting activity. Further, as noted
above, a significant portion of insurance funds are invested in investment funds with same day liquidity, meaning that a large proportionof the Group cash and investments is immediately available.
A breakdown of the Group’s other financial liabilities, trade payables and other payables is shown in note 11.
The subordinated notes have a ten year maturity whereas all trade and other payables will mature within three to six months of thebalance sheet date. (Refer to the maturity profile at the start of this note for further detail.)
In practice, the Group’s Directors expect actual cash flows to be consistent with this maturity profile except for amounts owed to coinsurers and reinsurers. Of the total amounts owed to co-insurers and reinsurers of £1,275.9 million (2017: £1,157.5 million), £1,022.7
million (2017: £938.4 million) is held under funds withheld arrangements and therefore not expected to be settled within 12 months.
A maturity analysis for insurance contract liabilities is included in note 5. The maturity profile for financial assets is included at the start ofthis note.
The Group’s Directors believe that the cash flows arising from these assets will be consistent with this profile. Liquidity risk is not,therefore, considered to be significant.

Foreign exchange risk
Foreign exchange risk arises from unfavourable movements in foreign exchange rates that could adversely impact the valuation ofoverseas assets and liabilities.
The Group is exposed to foreign exchange risk through its operations overseas. Although the relative size of the international operations
means that the risks are relatively small, increasingly volatile foreign exchange rates could result in larger potential gains or losses. Assets
held to fund insurance liabilities are held in the currency of the liabilities; however, surplus assets held as regulatory capital in foreign
currencies remain exposed.
The Group’s exposure to net assets and profits in currencies other than the reporting currency is immaterial other than for US dollars
and Euros. The Group’s exposure to net assets held in dollars at the balance sheet date was £60.7 million (2017: £55.1 million) ); theexposure to net assets held in Euros was £69.3 million (2017: nil).
The loss before tax derived from business carried out in the US was £19.2 million (2017: £23.4 million). If the Sterling rates with US dollars
had strengthened/weakened by 10%, the Group’s profit before tax for the year would increase/decrease by £1.8 million (2017: £2.2 million).
The profit before tax derived from business carried out in Euros was £5.2 million (2017: loss before tax of £0.7 million). If the Sterling rates
with euros had strengthened/weakened by 10%, the Group’s profit before tax for the year would increase/decrease by £0.4 million (2017:£0.1 million).

Admiral Group plc · Annual Report and Accounts 2018159

Notes to the Financial Statements continued
For the year ended 31 December 20188.

OTHER REVENUEThe Group has applied IFRS 15 using the cumulative effect method therefore the comparative information has not been restated andcontinues to be reported under IAS 18 and IAS 11. No material differences in the accounting treatment between these standards has
been identified.

8a. Accounting policy(i)Contribution from additional products and fees and Other Revenue

Revenue is credited to the income statement over the period matching the Group’s obligations to provide services. Where the Group has
no remaining obligations, the revenue is recognised immediately. An allowance is made for expected cancellations where the customer
may be entitled to a refund of the amount charged.
Commission from the provision of insurance intermediary services is credited to revenue on the sale of the underlying insurance policy.
There has been no change in revenue recognition from the comparative period, as revenue recognition was in line with the requirementsof IFRS 15.
Interest income received in relation to loans and advances to customers is calculated using the effective interest method which allocatesinterest, and direct and incremental fees and costs, over the expected lives of the assets and liabilities. There has been no change inrecognition of interest income from the comparative period.

(ii) Nature of goods and services
The following is a description of the principle activities within the scope of IFRS 15 from which the Group generates its other revenue.
Products and services

Nature, timing of satisfaction of performance obligations and significant payment terms

Profit commission
from co-insurers

The performance obligation is the provision of insurance intermediary services.

Price comparison

The performance obligation is the provision of insurance intermediary services, at which point theperformance obligation is met. Revenue is therefore recognised at a point in time.

Commission on underlying
products

The performance obligation is the provision of insurance intermediary services, at which point theperformance obligation is met. Revenue is therefore recognised at a point in time. Payment of thecommission is due within 30 days of the period close.

Administration fees

The performance obligation is the change requested being made to the underlying policy, at which point
the performance obligation is met.

Profit commission revenue is calculated as a proportion of the ultimate profitability of individual
underwriting years. Uncertainty over the ultimate profitability of an underwriting year results in therecognition of profit commission revenue being constrained through the use of margin for uncertainty
within the calculation of underwriting year profit. This ensures that at any point in time, in line with therequirements of IFRS 15, there is a high probability that there will be no significant reversal of revenue inany financial period. Further detail on the recognition of profit commission is included in note 5.

Revenue is therefore recognised at a point in time and is collected immediately or in line with direct
debit instalments.
Revenue from law firms

160

The performance obligation is the pursuit of the compensation from the other side’s insurer (OSI) on
behalf of the customer. Revenue is therefore recognised over time using inputs and the expectedvalue method. Inputs including hours incurred and a 12 month realisable rate are used to calculate theexpected value of revenue. Payment is due within 28 days of invoice.

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

8b. Disaggregation of revenue
In the following tables, other revenue is disaggregated by major products/service lines and timing of revenue recognition. The total
revenue disclosed in the table of £542.4 million (2017: £466.9 million) represents total other revenue and profit commission and isdisaggregated into the segments included in note 4.
31 December 2018
UK Insurance£mInternational Car
Insurance£m

Price
Comparison
£m

Other
£m

Total
£m

Major products
Price Comparison*1

–

–

131.7

–

131.7

Instalment income

82.6

2.7

–

–

85.3

Fee and commission revenue

172.4

15.9

–

1.9

190.2

Revenue from law firms

30.5

–

–

–

30.5

Other

10.8

–

–

0.7

11.5

Total other revenue

296.3

18.6

131.7

2.6

449.2

Profit commission

93.2

–

–

–

93.2

Total other revenue and profit commission

389.5

18.6

131.7

2.6

542.4

Point in time

275.3

15.9

131.7

2.6

425.5

Over time

33.4

–

–

–

33.4

Timing of revenue recognition

Revenue outside the scope of IFRS 15

80.8

2.7

–

–

83.5

389.5

18.6

131.7

2.6

542.4

UK Insurance£mInternational Car
Insurance£m

Price
Comparison
£m

Other
£m

Total
£m

31 December 2017

Major products
Price Comparison*1

–

–

123.8

–

123.8

Instalment income

56.6

2.6

–

–

59.2

Fee and commission revenue

156.2

14.1

–

–

170.3

Revenue from law firms

28.8

–

–

–

28.8

Other

8.2

–

–

9.6

17.8

249.8

16.7

123.8

9.6

399.9

Total other revenue
Profit commission

67.0

–

–

–

67.0

Total other revenue and profit commission

316.8

16.7

123.8

9.6

466.9

Point in time

226.1

14.1

123.8

9.6

373.6

Over time

31.8

–

–

–

31.8

Revenue outside the scope of IFRS 15

58.9

2.6

–

–

61.5

316.8

16.7

123.8

9.6

466.9

Timing of revenue recognition*1

Price comparison revenue excludes £19.3 million (31 December 2017: £19.8 million) of income from other Group companies.

Instalment income and profit commission from reinsurers is not within the scope of IFRS 15 Revenue from Contracts with Customers due tothe nature of the income.
Refer to the Strategic Report for further detail on the sources of revenue.

Admiral Group plc · Annual Report and Accounts 2018161

Notes to the Financial Statements continued
For the year ended 31 December 20188.

OTHER REVENUE CONTINUED

8c. Contract balances
The following table provides information about receivables and contract assets from contracts with customers.
31 December
2018£m

31 December
2017£mReceivables, included in “Trade and Other receivables”

32.5

25.1

Contract assets

23.4

20.8

The contract asset relates to the Group’s right to consideration for work undertaken in the Law Companies on behalf of clients which is
ongoing or where the final fee has not yet been billed. The contract asset is transferred to trade receivables once the fee has been billed.
Significant changes in the contract asset balance during the period are as follows:
31 December
2018£mContract asset balance

At 1 January 2018

20.8

Revenue recognised

30.5

Transferred to trade receivables(27.9)

Write-offs–

At 31 December 2018

23.4

The amount of revenue recognised in 2018 from performance obligations satisfied (or partially satisfied) in previous periods is £nil.

8d. Interest Income

Loans and advances to customers

31 December
2018£m

31 December
2017
£m

15.0

1.6

15.0

1.6

Interest receivable on loans and advances to customers is recognised in the Income Statement using the effective interest method, whichcalculates the amortised cost of the financial asset and allocates the interest income over the expected product life.

9.

EXPENSES

9a. Accounting policies(i)

Acquisition costs and operating expenses

Acquisition costs incurred in obtaining new and renewal business are charged to the income statement over the period in which thosepremiums are earned. All other operating expenses are charged to the income statement in the period that they are incurred.

(ii) Employee benefits
Pensions
The Group contributes to defined contribution personal pension plans for its employees. The contributions payable to these schemes arecharged in the accounting period to which they relate.

Employee share schemes
The Group operates a number of equity and cash settled compensation schemes for its employees. The fair value of the employee services
received in exchange for the grant of free shares under the equity settled schemes is recognised as an expense, with a corresponding
increase in equity. For cash settled schemes, the fair value of services received are also recognised as an expense, with a corresponding
increase in liability.
For equity settled schemes, the total charge expensed over the vesting period is determined by reference to the fair value of the freeshares granted as determined at the grant date (excluding the impact of non-market vesting conditions). Non-market conditions suchas profitability targets as well as staff attrition rates are included in assumptions over the number of free shares to vest under theapplicable scheme.

162

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

For cash settled schemes, the total charge expensed over the vesting period is determined by reference to the closing Admiral Group
share price at the end of the period. Prior to the vesting of each scheme, the closing share price at the end of the reporting period is used
as an approximation for the closing share price at the end of the vesting period. As with equity settled schemes, non-market vesting
conditions also impact on the total charge expensed over the vesting period.
At each balance sheet date, the Group revises its assumptions on the number of shares which will vest with the impact of any change in theassumptions recognised through income.
Refer to note 9f for further details on share schemes.

(iii) Leases
Operating leases
Leases which do not transfer to the Group substantially all the risks and benefits incidental to ownership of the leased items are classified
as operating leases. The Group has entered into a number of non-cancellable operating lease arrangements for properties and otherassets. The leases have varying terms, escalation values and renewal rights.
Operating lease payments, including the effects of any lease incentives, are recognised as an expense in the income statement on astraight-line basis over the lease term. Contingent rentals are recognised as an expense in the period in which they are incurred.

9b. Operating expenses and share scheme charges
31 December 2018

Gross
£m

Recoverablefrom co- andreinsurers
£m

Net
£m

Acquisition of insurance contracts*1

135.1(103.8)31.3

Administration and other marketing costs (insurance contracts)

381.6(287.9)93.7

Insurance contract expenses

516.7(391.7)125.0

Administration and other marketing costs (other)

249.2

–

249.2

Share scheme charges

76.9(27.1)

49.8

Total expenses and share scheme charges

842.8(418.8)424.0

31 December 2017

Gross
£m

Recoverablefrom co- andreinsurers
£m

Net
£m

Acquisition of insurance contracts*1

122.0(93.3)

28.7

Administration and other marketing costs (insurance contracts)

353.5(274.5)79.0

Insurance contract expenses

475.5(367.8)

107.7

Administration and other marketing costs (other)

223.6

–

223.6

Share scheme charges

54.4(18.8)

35.6

Total expenses and share scheme charges

753.5(386.6)366.9*1 Acquisition of insurance contracts expense excludes £19.3 million (2017: £19.8 million) of aggregator fees from other Group companies.

The £93.7 million (2017: £79.0 million) administration and marketing costs allocated to insurance contracts is principally made up of salary costs.

Admiral Group plc · Annual Report and Accounts 2018163

Notes to the Financial Statements continued
For the year ended 31 December 2018

9.

EXPENSES CONTINUED

9b. Operating expenses and share scheme charges continued
Analysis of other administration and other marketing costs:
31 December
2018£m

31 December
2017£mExpenses relating to additional products and fees

63.4

58.9

Price comparison operating expenses

144.4

138.2

Loans expenses (including movement on ECL provision)

22.9

–

Other expenses

18.5

26.5

Total

249.2

223.6

Refer to note 13 for a reconciliation between insurance contract expenses and the reported expense ratio.

9c. Staff costs and other expenses
31 December 201831 December 2017

Total
£m

Net
£m

Total
£m

Net
£m

Salaries

268.8

95.7

239.2

85.3

Social security charges

27.2

10.3

22.9

8.7

Pension costs

9.0

3.2

7.0

2.3

Share scheme charges (see note 9f)

76.9

49.8

54.4

35.6

Total staff expenses

381.9

159.0

323.5

131.9

12.0

3.7

10.1

3.0

15.5

4.6

13.8

4.0

–

50.5

–

48.4

14.8

5.3

13.0

4.5

– Fees payable for the audit of the Company’s
annual accounts

–

–

–

–

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

0.5

0.3

0.3

0.3

– Fees payable for audit related assurance
services pursuant to legislation or regulation

0.4

–

0.2

–

Depreciation charge:– Owned assets
Amortisation charge:– Software– Deferred acquisition costs
Operating lease rentals:– Buildings
Auditor’s remuneration (including VAT):£nil (2017: £nil) was payable to the auditor for other services in the year.
Total and net expenses are before and after co- and reinsurance arrangements respectively.
Refer to the Corporate Governance Report for details of the Audit Committee’s policy on fees paid to the Company’s auditor for non-audit
services. Audit fees are 53% (2017: 54%) of total fees and 47% (2017: 46%) of total fees are for non-audit services, which are classed asaudit related assurance services under the FRC rules on non-audit services.
The amortisation of software and deferred acquisition cost assets is charged to expenses in the income statement.

164

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

9d. Staff numbers (including Directors)
Average for the year
2018
Number

2017
NumberDirect customer contact staff

6,845

6,179

Support staff

3,354

3,157

Total

10,1999,336

31 December
2018£m

31 December
2017£mDirectors’ emoluments

1.6

1.4

Amounts receivable under SIP and DFSS share schemes

1.1

0.9

Company contributions to money purchase pension plans

–

–

2.7

2.3

2018
Number

2017
Number1

2

9e. Directors’ remuneration(i)

Directors’ remuneration

Total(ii) Number of Directors

Retirement benefits are accruing to the following number of Directors under:– Money purchase schemes

9f. Staff share schemes
Analysis of share scheme costs (per the Consolidated Income Statement):
31 December 201831 December 2017

Total
£m

Net
£m

Total
£m

Net
£m

SIP charge (i)

18.1

12.3

9.6

6.7

DFSS charge (ii)

58.8

37.5

44.8

28.9

Total share scheme charges

76.9

49.8

54.4

35.6

The total share scheme charges of £76.9 million (2017: £54.4 million) can be analysed between share scheme charges calculated in line withIFRS 2 of £57.3 million (2017: £37.9 million) and other share scheme related costs of £19.6 million (2017: £16.5 million). Net share scheme
charges are presented after allocations to co-insurers and reinsurers in line with contractual arrangements.
The Consolidated Cash Flow Statement also shows the gross charge in the reconciliation between ‘profit after tax’ and ‘cash flows fromoperating activities’. The co-insurance share of the charge is included in the change in trade and other payables line.

(i)

The Approved Share Incentive Plan (the SIP)

Eligible UK based employees qualified for awards under the SIP based upon the performance of the Group in each half-year period. The
maximum award for each year is £3,600 per employee. The awards are made with reference to the Group’s performance against prior year
profit before tax. Employees must remain in employment for the holding period (three years from the date of award) otherwise the sharesare forfeited.
The fair value of shares awarded is the share price at the date of award. Awards under the SIP are entitled to receive dividends, and, hence,no adjustment has been made to this fair value.

Admiral Group plc · Annual Report and Accounts 2018165

Notes to the Financial Statements continued
For the year ended 31 December 2018

9.

EXPENSES CONTINUED

9f. Staff share schemes continued(ii) The Discretionary Free Share Scheme (the DFSS)
Under the DFSS, details of which are contained in the remuneration policy section of the Directors’ Remuneration Report, individuals
receive an award of free shares at no charge. Staff must remain in employment until the vesting date in order to receive shares. The
maximum number of shares that can vest relating to the 2018 scheme is 3,353,076 (2017 scheme: 3,205,433).
For awards in 2015 and onwards (therefore including the shares that vested in 2018 under the 2015 scheme) for the majority of employees,
50% of shares awarded are subject to three performance conditions. These are three-year EPS growth vs. LIBOR, TSR vs. FTSE 350(excluding investment companies), and ROE, weighted equally.
Performance range
Performance measureThresholdMaximum

EPS growth vs. LIBOR

Growth in line with LIBOR

Growth of 10% p.a. in excess of LIBORMedianUpper Quartile

25%

55%

TSR vs. FTSE 350 (excluding investment companies)
ROE

Awards under the DFSS are not eligible for dividends (although a discretionary bonus is currently paid equivalent to the dividend thatwould have been paid on the respective shareholding) and hence the fair value of free shares to be awarded under this scheme has beenrevised downwards (from the share price at the date on which awards were made) to take account of these distributions.

Number of free share awards committed at 31 December 2018
Awardsoutstanding*1

Vesting
date

SIP H116 scheme

523,877

March 2019

SIP H216 scheme

501,785

September 2019

SIP H117 scheme

560,476

March 2020

SIP H217 scheme

506,815

August 2020

SIP H118 scheme

612,651

March 2021

SIP H218 scheme

579,651

August 2021

DFSS 2016 scheme 1st award

199,346

March 2019

DFSS 2016 scheme 2nd award

3,053,904

September 2019

DFSS 2017 scheme 1st award

238,024

March 2020

DFSS 2017 scheme 2nd award

2,967,425

September 2020

DFSS 2018 scheme 1st award

256,217

March 2021

DFSS 2018 scheme 2nd award

3,096,859

September 2021

Total awards committed

13,097,030*1 Being the maximum number of awards committed before accounting for expected staff attrition and vesting conditions.

During the year ended 31 December 2018, awards under the SIP H115 and H215 schemes and the DFSS 2015 schemes vested. The total
number of awards vesting for each scheme is as follows.

Number of free share awards vesting during the year ended 31 December 2018
Original awards

Awards vested

SIP H115 scheme

536,613419,655

SIP H215 scheme

636,612491,511DFSS 2015 scheme 1st award

190,275

124,313DFSS 2015 scheme 2nd award

2,828,913

2,147,684

The difference between the original and vested awards reflects employee attrition (SIP schemes) and both employee attrition and the vestingoutcomes based on performance conditions noted above (DFSS schemes). The vesting percentages for the 2015 DFSS scheme was 87.1%.
The weighted average market share price at the date of exercise for shares exercised during the year was £20.05 (2017: £18.51).

166

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

10. TAXATION
10a. Accounting policy
Income tax on the profit or loss for the periods presented comprises current and deferred tax.

(i)Current tax

Current tax is the expected tax payable on the taxable income for the period, using tax rates that have been enacted or substantively
enacted by the balance sheet date, and includes any adjustment to tax payable in respect of previous periods.
Current tax related to items recognised in other comprehensive income is also recognised in other comprehensive income and not in theincome statement.

(ii) Deferred tax
Deferred tax is provided in full using the balance sheet liability method, providing for temporary differences arising between the carrying
amount of assets and liabilities for accounting purposes and the amounts used for taxation purposes. It is calculated at the tax rates thathave been enacted or substantially enacted by the balance sheet date and that are expected to apply in the period when the liability issettled or the asset is realised.
The principal temporary differences arise from carried forward losses, depreciation of property and equipment and share scheme charges.
The resulting deferred tax is charged or credited in the income statement, except in relation to share scheme charges where the amountof tax benefit credited to the income statement is limited to an equivalent credit calculated on the accounting charge. Any excess isrecognised directly in equity.
Deferred tax assets relating to carried forward losses are recognised only to the extent that it is probable that future taxable profits
will be available against which the assets can be utilised. The probability of the availability of future taxable profits is determined by a
combination of the classification of the status of the businesses holding cumulative tax losses and the business plan profit projections forthat business, subject to appropriate stress testing.

10b. Taxation
31 December
2018£m

31 December
2017
£m

81.4

68.8

Current tax
Corporation tax on profits for the year
Under/(over) provision relating to prior periods

0.2

(3.7)

Current tax charge

81.6

65.1

Current period deferred taxation movement

3.8

3.1

Under/(over) provision relating to prior periods

0.3

3.7

Total tax charge per Consolidated Income Statement

85.7

71.9

31 December
2018£m

31 December
2017£mProfit before tax

476.2

403.5

Corporation tax thereon at effective UK corporation tax rate of 19.0% (2017: 19.25%)

90.5

77.7

Expenses and provisions not deductible for tax purposes

0.7

0.9

Non-taxable income

(6.0)

(5.7)

Impact of change in UK tax rate on deferred tax balances

0.5

0.3

Adjustments relating to prior periods

0.6

(0.8)

Impact of different overseas tax rates

(8.2)

(7.6)

Unrecognised deferred tax

4.7

5.2

Movement on deferred tax asset on US losses

2.9

1.9

Total tax charge for the period as above

85.7

71.9

Deferred tax

Factors affecting the total tax charge are:

The outstanding corporation tax payable as at 31 December 2018 was £49.3 million (2017: £23.8 million).
Admiral Group plc · Annual Report and Accounts 2018167

Notes to the Financial Statements continued
For the year ended 31 December 2018

10. TAXATION CONTINUED
10c. Deferred income tax asset
Analysis of deferred tax asset
Taxtreatmentof shareCapitalschemes allowances£m£m

Carriedforwardlosses£m

Fair value
Other
reserve differences
£m
£m

Total
£m

Balance brought forward at 1 January 2017

5.7

(2.4)

4.9

(0.5)

0.7

8.4

Tax treatment of share scheme charges through income or expense

(2.4)

–

–

–

–

(2.4)

Tax treatment of share scheme charges through reserves

2.8

–

–

–

–

2.8

Capital allowances

–

(2.1)

–

–

–

(2.1)

Carried forward losses

–

–

(2.0)

–

–

(2.0)

Movement in fair value reserve

–

–

–

(4.1)

–

(4.1)

–

–

–

–

(0.3)

(0.3)

Balance carried forward at 31 December 2017

Other difference

6.1

(4.5)

2.9

(4.6)

0.4

0.3

Tax treatment of share scheme charges through income or expense

(2.2)

–

–

–

–

(2.2)

Tax treatment of share scheme charges through reserves

3.3

–

–

–

–

3.3

Capital allowances

–

0.9

–

–

–

0.9

Carried forward losses

–

–

(2.9)

–

–

(2.9)

Movement in fair value reserve

–

–

–

0.7

–

0.7

Other difference

–

–

–

–

0.1

0.1

7.2

(3.6)

–

(3.9)

0.5

0.2

Balance carried forward at 31 December 2018
Positive amounts presented above relate to a deferred tax asset position.

The UK corporation tax rate reduced from 20% to 19% on 1 April 2017. The average effective rate of tax for 2018 is 19.0% (2017: 19.25%).
A further reduction to the main rate of corporation tax to 17% (effective from 1 April 2020) was enacted on 15 September 2016. This will
reduce the Group’s future current tax charge accordingly.
The deferred tax asset 31 December 2018 has been calculated based on the rate at which each timing difference is most likely to reverse.
The deferred tax asset in relation to carried forward losses has been reduced to £nil following the impairment of Admiral Group’s
investment in Compare.
At 31 December 2018 the Group had unused tax losses amounting to £217.5 million (2017: £198.8 million), relating to the Group’s US
businesses Elephant Auto and compare.com, for which no deferred tax asset has been recognised.

11. OTHER ASSETS AND OTHER LIABILITIES
11a. Accounting policy(i)Property and equipment, and depreciation

All property and equipment is stated at cost less accumulated depreciation. Depreciation is calculated using the straight line method towrite off the cost less residual values of the assets over their useful economic lives. These useful economic lives are as follows:
Improvements to short leasehold buildings–

four to ten years

Computer equipment			

–

two to four years

Office equipment				–four years

Furniture and fittings			

–four years

Motor vehicles				–four years

168

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information(ii) Impairment of property and equipment
In the case of property and equipment, carrying values are reviewed at each balance sheet date to determine whether there are any
indications of impairment. If any such indications exist, the asset’s recoverable amount is estimated and compared to the carrying
value. The carrying value is the higher of the fair value of the asset, less costs to sell and the asset’s value in use. Impairment losses arerecognised through the income statement.

(iii) Leased assets
The rental costs relating to assets held under operating leases are charged to the income statement on a straight line basis over the life of
the lease.
Leases under the terms of which the Group assumes substantially all of the risks and rewards of ownership are classed as finance leases.
Assets acquired under finance leases are included in property and equipment at fair value on acquisition and are depreciated in the samemanner as equivalent owned assets. Finance lease and hire purchase obligations are included in creditors and the finance costs are spreadover the periods of the agreements based on the net amount outstanding.

(iv) Intangible assets
Goodwill
All business combinations are accounted for using the acquisition method. Goodwill has been recognised in acquisitions of subsidiaries,
and represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired.
The classification and accounting treatment of acquisitions occurring before 1 January 2004 have not been reconsidered in preparing
the Group’s opening IFRS balance sheet at 1 January 2004 due to the exemption available in IFRS 1 (First time adoption). In respect ofacquisitions prior to 1 January 2004, goodwill is included at the transition date on the basis of its deemed cost, which represents theamount recorded under UK GAAP, which was tested for impairment at the transition date. On transition, amortisation of goodwill hasceased as required by IAS 38.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash generating units (CGUs) according tobusiness segment and is reviewed annually for impairment.
The goodwill held on the balance sheet at 31 December 2018 is allocated solely to the UK Car Insurance segment.

Impairment of goodwill
The annual impairment review involves comparing the carrying amount to the estimated recoverable amount (by allocating the goodwill
to CGUs) and recognising an impairment loss if the recoverable amount is lower. Impairment losses are recognised through the income
statement and are not subsequently reversed.
The recoverable amount is the greater of the fair value of the asset less costs to sell and the value in use of the CGU.
The value in use calculations use cash flow projections based on financial budgets approved by management covering a three year period.
Cash flows beyond this period are considered, but not included in the calculation.
The key assumptions used in the value in use calculations are those regarding growth rates and expected changes in pricing and expenses
incurred during the period. Management estimates growth rates and changes in pricing based on past practices and expected futurechanges in the market.
The headroom above the goodwill carrying value is very significant, and there is no foreseeable event that would eliminate this margin.

Deferred acquisition costs
Acquisition costs comprise all direct and indirect costs arising from the conclusion of insurance contracts. Deferred acquisition costs
represent the proportion of acquisition costs incurred that correspond to the unearned premiums provision at the balance sheet date.
This balance is held as an intangible asset. It is amortised over the term of the contract as premium is earned.

SoftwarePurchased software is recognised as an intangible asset and amortised over its expected useful life (generally the licence term). Internallygenerated software is recognised as an intangible asset, with directly attributable costs incurred in the development stage capitalised.
The internally generated software assets are amortised over the expected useful life of the systems and amortisation commences when
the software is available for use.
The carrying value of software is reviewed every six months for evidence of impairment, with the value being written down if any
impairment exists. Impairment may be reversed if conditions subsequently improve.

Admiral Group plc · Annual Report and Accounts 2018169

Notes to the Financial Statements continued
For the year ended 31 December 2018

11. OTHER ASSETS AND OTHER LIABILITIES CONTINUED
11a. Accounting policy continued(iv) Provisions, Contingent Liabilities and Contingent Assets
Provisions are recognised when a legal or constructive obligation arises as a result of an event that occurred before the balance sheet
date, when a cash-outflow relating to this obligation is probable and when the amount can be estimated reliably.
Where a material obligation exists, but the likelihood of a cash out-flow or the amount is uncertain, or where there is a possible obligation
arising from a past event that is contingent on a future event, a contingent liability is disclosed.
Contingent assets are possible assets that arise from past events, whose existence will be confirmed only by the occurrence or nonoccurrence of future events. Where it is probable that a cash-inflow will arise from a contingent asset, this is disclosed.

11b. Property and equipment
Improvements toshort leaseholdbuildings£mComputerequipment£m

Officeequipment£m

At 1 January 2017

27.6

52.1

Additions

1.1

5.4

Disposals

–

(0.1)

Furniture andfittings
£m

Total
£m

17.0

9.4

106.1

2.6

0.6

9.7

–

(0.1)

(0.2)

Cost

Foreign exchange movement

–

(0.2)

0.1

(0.1)

(0.2)

28.7

57.2

19.7

9.8

115.4

At 1 January 2017

12.4

40.5

14.1

7.1

74.1

Charge for the year

2.5

5.6

1.0

1.0

10.1

Disposals

–

(0.1)

–

–

(0.1)

Foreign exchange movement

–

(0.1)

0.1

–

–

14.9

45.9

15.2

8.1

84.1

15.2

11.6

2.9

2.3

32.0

13.8

11.3

4.5

1.7

31.3

28.7

57.2

19.7

9.8

115.4

At 31 December 2017
Depreciation

At 31 December 2017
Net book amountAt 1 January 2017
Net book amountAt 31 December 2017
Cost
At 1 January 2018
Additions

3.1

4.9

1.9

0.1

10.0

Disposals

(0.7)

(0.1)

(0.2)

(0.2)

(1.2)

Transfers

(1.2)

–

–

–

(1.2)

Foreign exchange movement

(0.1)

0.1

–

0.1

0.1

At 31 December 2018

29.8

62.1

21.4

9.8

123.1

Depreciation
At 1 January 2018

14.9

45.9

15.2

8.1

84.1

Charge for the year

2.8

6.5

1.9

0.8

12.0

Disposals

(0.7)

(0.1)

(0.1)

(0.1)

(1.0)

Foreign exchange movement

(0.2)

–

–

0.1

(0.1)

At 31 December 2018

16.8

52.3

17.0

8.9

95.0

13.0

9.8

4.4

0.9

28.1

Net book amountAt 31 December 2018

The net book value of assets held under finance leases is £nil (2017: £nil).

170

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Strategic Report

Corporate Governance

Financial Statements

Additional Information

11c. Intangible Assets

Goodwill£m

At 1 January 2017

Deferredacquisition
costs
£m

Software*1
£m

Total
£m

62.3

23.4

76.6

162.3

Additions

–

46.0

13.0

59.0

Amortisation charge–(48.4)(13.8)(62.2)

Disposals

–

–

–

–

Foreign exchange movement

–

(0.4)

0.7

0.3

62.3

20.6

76.5

159.4

At 31 December 2017
Additions

–

53.1

13.9

67.0

Amortisation charge–(50.5)(15.5)(66.0)

Disposals

–

–

–

–

Transfers

–

–

1.2

1.2

Foreign exchange movement

–

0.2

0.2

0.4

62.3

23.4

76.3

162.0

At 31 December 2018

*1 Software additions relating to internal development are immaterial in both 2018 and 2017.

Goodwill relates to the acquisition of Group subsidiary EUI Limited (formerly Admiral Insurance Services Limited) in November 1999. It
is allocated solely to the UK Car Insurance segment. As described in the accounting policies, the amortisation of this asset ceased ontransition 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. Refer to the accounting
policy for goodwill for further information.

11d. Trade and other payables
31 December
2018£m

31 December
2017£mTrade payables

37.9

39.8

Amounts owed to co-insurers

153.2

130.7

Amounts owed to reinsurers

1,122.7

1,026.8

Other taxation and social security liabilities

60.4

62.0

Other payables

196.0

140.9

Accruals and deferred income (see below)

231.3

241.4

1,801.5

1,641.6

Total trade and other payables

Of amounts owed to co-insurers and reinsurers, £1,022.7 million (2017: £938.4 million) is held under funds withheld arrangements.
Analysis of accruals and deferred income:
31 December
2018£m

31 December
2017£mPremium receivable in advance of policy inception

127.2

150.3

Accrued expenses

64.8

48.8

Deferred income

39.3

42.3

Total accruals and deferred income as above

231.3

241.4

Admiral Group plc · Annual Report and Accounts 2018171

Notes to the Financial Statements continued
For the year ended 31 December 2018

11. OTHER ASSETS AND OTHER LIABILITIES CONTINUED
11e. Obligations under finance leases
At 31 December 2018, there was £nil (2017: £nil) obligations in respect of finance leases.

11f. Financial commitments
The Group was committed to total minimum obligations under operating leases on land and buildings as follows:
31 December
2018£m

31 December
2017
£m

14.8

12.1

Minimum payments due on operating leases
Within one year
Within two to five years

54.3

40.8

Over five years

116.8

113.7

Total commitments

185.9

166.6

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

11g. Contingent liabilities
Rastreator.com Limited, the Group’s Spanish Price comparison business, is currently undergoing a tax audit in respect of the 2013
and 2014 financial years. The Spanish Tax Authority is disputing the VAT exemption relating to insurance intermediary services which
Rastreator.com has applied to its supplies.
Rastreator.com believes its application of the exemption is justifiable in line with the EU Directive and is also consistent with the way
similar supplies are treated throughout Europe. No formal assessment has been received from the Spanish Tax Authority as at the date ofthese financial statements, however should a formal assessment be received at a future date Rastreator.com will immediately appeal andis confident of a successful outcome.
The potential liability for the financial years subject to audit is approximately €5 million, though if the exemption is also disallowed in
respect of years 2015 to date, the liability could increase up to €18 million. No provision has been made in these financial statements inrelation to this matter.

12. SHARE CAPITALThe Group’s capital includes share capital and the share premium account, other reserves which are comprised of the fair value reserve andforeign exchange reserve, and retained earnings.

12a. Accounting policies(i)Share capital

Shares are classified as equity when there is no obligation to transfer cash or other assets.

(ii) Dividends
Dividends are recorded in the period in which they are declared and paid.

12b. Dividends
Dividends were declared and paid as follows:
31 December
2018£m

31 December
2017£mMarch 2017 (51.5 pence per share, paid June 2017)

–

143.7

August 2017 (56.0 pence per share, paid October 2017)

–

156.6

March 2018 (58.0 pence per share, paid June 2018)

163.3

–

August 2018 (60.0 pence per share, paid October 2018)

169.4

–

Total dividends

332.7

300.3

The dividends declared in March represent the final dividends paid in respect of the 2016 and 2017 financial years. The dividends declaredin August are interim distributions in respect of 2017 and 2018.
A final dividend of 66.0 pence per share (£188 million) has been proposed in respect of the 2018 financial year. Refer to the Chairman’s
Statement and Strategic Report for further detail.

172

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Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

12c. Earnings per share
31 December
2018£mProfit for the financial year after taxation attributable to equity shareholders
Weighted average number of shares – basic
Unadjusted earnings per share – basic
Weighted average number of shares – diluted
Unadjusted earnings per share – diluted

31 December
2017
£m

395.1

334.2

288,197,247

285,164,396

137.1p117.2p288,845,845

285,751,149

136.8p117.0pThe difference between the basic and diluted number of shares at the end of 2018 (being 648,598; 2017: 586,753) relates to awardscommitted, but not yet issued under the Group’s share schemes. Refer to note 9 for further detail.

12d. Share capital
31 December
2018£m

31 December
2017
£m

0.5

0.5

290,502,737 ordinary shares of 0.1 pence

0.3–

287,214,262 ordinary shares of 0.1 pence

–

0.3

0.3

0.3

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

During 2018 3,288,475 (2017: 2,861,992) new ordinary shares of 0.1 pence were issued to the trusts administering the Group’s share schemes.
988,475 (2017: 811,992) of these were issued to the Admiral Group Share Incentive Plan Trust for the purposes of this share scheme to givea closing number at 31 December 2018 of 10,745,389 (31 December 2017: 9,756,914). These shares are entitled to receive dividends.
2,300,000 (2017: 2,050,000) shares were issued to the Admiral Group Employee Benefit Trust for the purposes of the Discretionary Free
Share Scheme to give a closing number at 31 December 2018 of 21,161,948 (31 December 2017: 18,861,948). The Trustees have waived
the right to dividend payments, other than to the extent of 0.001 pence per share, unless and to the extent otherwise directed by theCompany from time to time.
The number of shares in issue at flotation was 258,595,400. There is one class of share with no unusual restrictions.

12e. Objectives, policies and procedures for managing capital
The Group manages its capital to ensure that all entities within the Group are able to continue as going concerns and also to ensure that
regulated entities meet regulatory requirements with an appropriate margin. Excess capital above these levels within subsidiaries is paid
up to the Group holding company in the form of dividends on a regular basis.
The Group’s dividend policy is to make distributions after taking into account capital that is required to be held a) for regulatory purposes;b) to fund expansion activities; and c) as a further buffer against unforeseen events. This policy gives the Directors flexibility in managing
the Group’s capital.
The Group’s regulatory capital requirements are discussed in the Group Financial Review within the Strategic Report.

Admiral Group plc · Annual Report and Accounts 2018173

Notes to the Financial Statements continued
For the year ended 31 December 201812. SHARE CAPITAL CONTINUED
12f. Group related undertakings
The Parent Company’s subsidiaries are as follows:
Class ofshares held%
Ownership

Principal
Activity

Ordinary90

Legal company

Ordinary90

Legal company

Ordinary

100

Insurance Intermediary

Inspop.com (France) Limited

Ordinary

100

Insurance Intermediary

Inspop.com Limited

Ordinary

100

Insurance Intermediary

Rastreator.com Limited

Ordinary75

Insurance Intermediary

EUI Limited

Ordinary

100

Insurance Intermediary

Admiral Insurance Company Limited

Ordinary

100

Insurance company

Admiral Life Limited

Ordinary

100

Dormant*

Admiral Syndicate Limited

Ordinary

100

Dormant*

Admiral Syndicate Management Limited

Ordinary

100

Dormant*

Bell Direct Limited

Ordinary

100

Dormant*

Confused.com Limited

Ordinary

100

Dormant*

Diamond Motor Insurance Services Limited

Ordinary

100

Dormant*

Elephant Insurance Services Limited

Ordinary

100

Dormant*

Admiral Financial Services Limited

Ordinary

100

Financial services company

EUI (France) Limited

Ordinary

100

Insurance Intermediary

Preminen Price Comparison Holdings Limited

Ordinary

50

Insurance Intermediary

Preminen Dragon Price Comparison Limited

Ordinary

50 (indirect)

Insurance Intermediary

Ordinary

100

Insurance company

Comparaseguros Correduría de Seguros, S.L., Sociedad Unipersonal

Ordinary

75 (indirect)

Insurance Intermediary

Admiral Europe Compañía de Seguros, S.A.

Ordinary

100

Insurance company

Ordinary

100

Insurance Intermediary

Subsidiary

Incorporated in England and Wales
Registered office: 9th Floor Brunel House, Fitzalan Road, Cardiff, CF24 0EB
Admiral Law Limited
Registered office: Admiral House, Queensway, Newport, NP20 4AG
BDE Law Limited
Registered office: Ellipse Ground Floor, Padley Road, Swansea, SA1 8AN
Able Insurance Services Limited
Registered office: Greyfriars House, Greyfriars Road, Cardiff, CF10 3AL

Registered office: Tŷ Admiral, David Street, Cardiff, CF10 2EH

Incorporated in Gibraltar
Registered office: 1st Floor, 24 College Lane, Gibraltar, GX11 1AA
Admiral Insurance (Gibraltar) Limited
Incorporated in Spain
Registered office: Paseo Castellana 163 4 Izq, 28046 Madrid

Registered office: Calle Albert Einstein, 10 41092 Sevilla
Admiral Intermediary Services S.A.

174

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Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Class ofshares held%
Ownership

Principal
Activity

Elephant Insurance Company

Ordinary

100

Insurance company

Elephant Insurance Services LLC

Ordinary

100

Insurance Intermediary

Grove General Agency Inc

Ordinary

100

Insurance Intermediary

Platinum General Agency Inc

Ordinary

100

Insurance Intermediarycompare.com Insurance Agency LLC

Ordinary

59.25(indirect)

Insurance Intermediary

Inspop USA LLC

Ordinary

59.25

Insurance Intermediary51.25(indirect)

Insurance intermediary

50 (indirect)

Insurance intermediary

20.25(indirect)

Insurance intermediary

Subsidiary

Incorporated in the United States of America
Registered office: Deep Run 1; Suite 400, 9950 Mayland Drive, Henrico, VA 23233

Registered office: 140 East Shore Drive, Suite 300, Glen Allen, VA 23059

Incorporated in Mexico
Registered office: Varsovia, 36, 5th floor, office 501, Colonia Juárez, Cuauhtemoc,
Ciudad de Mexico
Preminen Mexico Sociedad Anonima de Capital Variable

Incorporated in Turkey
Registered address: Esentepe MAH. Harman1 SK. Harmanci Giz Plaza 5 1
Sisli/ Istanbul
Preminen Online Fiyat Karşılaştırma Hizmetleri Anonim Şirketi
Incorporated in China
Registered office: Room 1806, 15th Floor, Block 16. No.39 East 3rd Ring Middle
Road, Chaoyang District, BeijingLong Yu Science and Technology (Beijing) Co. Ltd

Subsidiaries by virtue of control
The related undertakings below are subsidiaries in accordance with IFRS 10, as Admiral can exercise dominant influence or control over them:
Registered office: Level 37, 25 Canada Square, Canary Wharf, London, England, E14 5LQ
Seren One Limited
*

n/a

0

Special purpose entity

Exempt from audit under S479A of Companies Act 2006.

For further information on how the Group conducts its business across the UK, Europe and the US, refer to the Strategic Report.

Admiral Group plc · Annual Report and Accounts 2018175

Notes to the Financial Statements continued
For the year ended 31 December 201812. SHARE CAPITAL CONTINUED
12g. Related party transactions
Details relating to the remuneration and shareholdings of key management personnel are set out in the Directors’ Remuneration Report.
Key management personnel are able to obtain discounted motor insurance at the same rates as all other Group staff, typically at a
reduction of 15%.
The Board considers that only the Executive Directors of Admiral Group plc are key management personnel. Aggregate compensation for
the Executive Directors is disclosed in the Directors’ Remuneration Report on pages 98 to 107.

12h. Post balance sheet events
As a result of the Group’s preparations for Brexit, on 1 January 2019, as outlined in the Strategic Report, the assets and liabilities of Admiral
Seguros, ConTe and L’Olivier were transferred to a new European intermediary, AIS, and European underwriter, AECS, from EUI Limited andAdmiral Insurance Company Limited and Admiral Insurance (Gibraltar) Limited respectively. The operations of the businesses have notbeen impacted and there is no material impact on the Group’s reported results either in 2018, or as a result of the transition in 2019.

13. RECONCILIATIONS
The following tables reconcile significant key performance indicators and non-GAAP measures included in the Strategic Report to items
included in the financial statements.

13a. Reconciliation of turnover to reported gross premiums written and Other Revenue as per the financial statements
31 December
2018£m

31 December
2017£mGross premiums written after co-insurance per note 5b of financial statements

2,166.7

1,927.7

Premiums underwritten through co-insurance arrangements and true up of 2017
gross written premium

587.4

571.7

2,754.1

2,499.4

Other Revenue

Total premiums written before co-insurance arrangements

449.2

399.9

Admiral Loans interest income and other fee income

15.4

1.6

3,218.7

2,900.9

UK vehicle commission*1

(0.4)

(1.0)

Other*

45.3

38.5

3,263.6

2,938.4

19.3

19.8

3,282.9

2,958.2

2

Turnover as per note 4b of financial statements
Intra-group income elimination*3
Total turnover*1	During 2012 Admiral ceased earning Other Revenue from the sale of non-optional legal protection policies. At the same point, the Group began charging its panel of co- andreinsurers a vehicle commission. The substance of these changes meant that the total premiums written increased by the amount of revenue that was previously earned
from the sale of non-optional legal protection policies. The vehicle commission included within Other Revenue is therefore eliminated from the turnover measure to avoid
double counting.
*2 Other reconciling items represent co-insurer and reinsurer shares of Other Revenue in the Group’s Insurance businesses outside of UK Car Insurance.
*3 Intra-group income elimination relates to price comparison income earned in the Group from other Group companies.

176

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Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

13b. Reconciliation of claims incurred to reported loss ratios, excluding releases on commuted reinsurance

December 2018

UK
Motor
£m

UK
Home
£m

UK
Other
£m

UK
Total
£m

Int.
Car
£m

Int.
Other
£m

Int.
Total
£m

Group
£m

Net insurance claims

189.2

29.3

24.0

242.5

104.1

3.5

107.6

350.1

Deduct claims handling costs(11.3)(0.5)–(11.8)–––(11.8)

Prior year release/strengthening –net original share

111.4

1.4

–

112.8

13.5

–

13.5

126.3

Prior year release/strengthening –commuted share

109.6

–

–

109.6

–

–

–

109.6

Impact of reinsurer caps

–

–

–

–

4.5

–

4.5

4.5

Impact of weather events (Home)

–

(3.5)

–

(3.5)

–

–

–

(3.5)

Impact of subsidence (Home)

–

(2.5)

–

(2.5)

–

–

–

(2.5)

Attritional current period claims

398.9

24.2

24.0

447.1

122.1

3.5

125.6

572.7

Net earned premium

452.5

31.2

40.2

523.9

141.7

6.2

147.9

671.8

Loss ratio – current period attritional

88.1%

77.6%

–

85.3%

86.1%

–

–

85.2%

Loss ratio – current period weather events

–

11.2%

–

–

–

–

–

–

Loss ratio – current period subsidence
events

–

7.9%

–

–

–

–

–

–

Loss ratio – prior year release/strengthening (net original share)(24.6%)(4.4%)–(21.5%)(9.5%)––(18.8%)

Loss ratio – reported

63.5%

92.3%

–

63.8%

76.6%

–

–

66.4%

December 2017

UK
Motor
£m

UK
Home
£m

UK
Other
£m

UK
Total
£m

Int.
Car
£m

Int.
Other
£m

Int.
Total
£m

Group
£m

Net insurance claims

214.2

17.4

18.5

250.1

94.1

2.9

97.0

347.1

Deduct claims handling costs(10.7)(0.4)–(11.1)–––(11.1)

Prior year release/strengthening – net
original share

92.1

0.5

–

92.6

9.5

–

9.5

102.1

Prior year release/strengthening –commuted share

73.8

–

–

73.8

–

–

–

73.8
(0.1)

Impact of reinsurer caps

–

–

–

–

(0.1)

–

(0.1)

Impact of weather events (Home)

–

–

–

–

–

–

–

–

Attritional current period claims

369.4

17.5

18.5

405.4

103.5

2.9

106.4

511.8

Net earned premium

433.2

23.1

35.3

491.6

123.0

4.5

127.5

619.1

Loss ratio – current period attritional

85.3%

75.6%

–

82.5%

84.2%

–

–

82.7%

–

–

–

–

–

–

–

–

Loss ratio – current period weather events
Loss ratio – prior year release/strengthening (net original share)(21.2%)(2.1%)–(18.8%)(7.8%)––(16.5%)

Loss ratio – reported

64.1%

73.5%

–

63.7%

76.4%

–

–

66.2%

Admiral Group plc · Annual Report and Accounts 2018177

Notes to the Financial Statements continued
For the year ended 31 December 2018

13. RECONCILIATIONS CONTINUED
13c. Reconciliation of expenses related to insurance contracts to reported expense ratios

December 2018

UK
Motor
£m

UK
Home
£m

UK
Other
£m

UK
Total
£m

Int.
Car
£m

Int.
Other
£m

Int.
Total
£m

Group
£m

Net insurance expenses

59.7

7.4

5.6

72.7

49.7

2.6

52.3

125.0

Claims handling costs

11.3

0.5

–

11.8

–

–

–

11.8

Intra-group expenses elimination*1

12.3

0.8

–

13.1

6.2

–

6.2

19.3

Impact of reinsurer caps

–

–

–

–

0.2

–

0.2

0.2

Other adjustment*2

–

–

–

–

–

(2.6)

(2.6)

(2.6)

Adjusted net insurance expenses

83.3

8.7

5.6

97.6

56.1

–

56.1

153.7

Net earned premium

452.5

31.2

40.2

523.9

141.7

6.2

147.9

671.8

Expense ratio – reported

18.4%

28.1%

18.6%

39.6%

37.9%

22.9%

UK Motor
£m

UK
Home
£m

UK
Other
£m

UK
Total
£m

Int.
Car
£m

Int.
Other
£m

Int.
Total
£m

Group
£m

107.7

December 2017

Net insurance expenses

47.8

5.8

1.7

55.3

50.8

1.6

52.4

Claims handling costs

10.7

0.4

–

11.1

–

–

–

11.1

Intra-group expenses elimination*1

11.8

0.7

–

12.5

7.3

–

7.3

19.8

Impact of reinsurer caps

–

–

–

–

(3.7)

–

(3.7)

(3.7)

Other adjustment*2

–

–

–

–

–

(1.6)

(1.6)

(1.6)

70.3

6.9

1.7

78.9

54.4

–

54.4

133.3

35.3

491.6

123.0

4.5

16.1%

44.2%

Adjusted net insurance expenses
Net earned premium

433.2

23.1

Expense ratio – reported

16.2%

30.0%

127.5

619.1

42.6%

21.5%

*1 The intra-group expenses elimination amount relates to aggregator fees charged by the Group’s price comparison entities to other Group companies.
*2	Other adjustments relate to additional products underwritten in the Group’s International Car Insurance businesses. The contribution from these products is reported asancillary income and as such the amounts are excluded for the purpose of calculation of expense ratios.

13d. Reconciliation of statutory profit before tax to Group’s share of profit before tax

Reported profit before tax per the Consolidated Income Statement
Non-controlling interest share of profit before tax
Group’s share of profit before tax

178

Admiral Group plc · Annual Report and Accounts 201831 December
2018£m

31 December
2017
£m

476.2

403.5

3.1

1.9

479.3

405.4

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Parent Company Financial Statements
PARENT COMPANY INCOME STATEMENT
Year ended

Administrative expenses

Note

31 December
2018£m

31 December
2017
£m

2

(13.0)(8.4)(13.0)(8.4)

Operating loss
Investment and interest income

3

264.9

310.5

Impairment expense4(32.9)(25.0)

Interest payable5

Profit before tax
Taxation credit
Profit after tax

6(11.3)(11.3)

207.7

265.8

3.7

1.7

211.4

267.5

PARENT COMPANY STATEMENT OF COMPREHENSIVE INCOME
Year ended

Profit for the period

31 December
2018£m

31 December
2017
£m

211.4

267.5

(2.0)

22.3

Other comprehensive income
Items that are or may be reclassified to profit or loss
Movements in fair value reserve
Deferred tax in relation to movement in fair value reserve

0.4

(4.2)

Other comprehensive income for the period, net of income tax

(1.6)

18.1

209.8

285.6

Total comprehensive income for the period

Admiral Group plc · Annual Report and Accounts 2018179

Parent Company Financial Statements continued
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
As at

Note

31 December
2018£m

31 December
2017
£m

4

292.3

301.0

1.2

1.2

5

176.3

232.4

3.7

1.6

Trade and other receivables

7

128.6

0.6

Cash and cash equivalents

5

83.3

6.8

685.4

543.6

0.3

0.3

Share premium account

13.1

13.1

Fair value reserve

16.5

18.1

Retained earnings

30.2

94.6

Total equity

60.1

126.1

275.6

224.0

ASSETS
Investments in group undertakings
Intangible assets
Financial investments
Corporation tax asset

Total assets
EQUITY
Share capital

9

LIABILITIES
Subordinated and other financial liabilities

5

Deferred tax

6

3.6

4.1

Trade and other payables

8

346.1

189.4

Total liabilities

625.3

417.5

Total equity and total liabilities

685.4

543.6

The accompanying notes form part of these financial statements.
These financial statements were approved by the Board of Directors on 6 March 2019 and were signed on its behalf by:

Geraint Jones
Chief Financial Officer
Admiral Group plc

Company Number: 03849958

180

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
Sharecapital£mSharepremium
account
£m

Fair
value
reserve£m

Retained
profitand loss£m

Total
equity£m

At 1 January 2017

0.3

13.1

–

89.5

102.9

Profit for the period

–

–

–

267.5

267.5

Movements in fair value reserve

–

–

22.3

–

22.3

Deferred tax charge in relation to movements in fair value
reserve

–

–

(4.2)

–

(4.2)

Total comprehensive income for the period

–

–

18.1

267.5

285.6

Dividends–––(300.3)(300.3)Issues of share capital

–

–

–

–

–

Share scheme charges

–

–

–

37.9

37.9

Deferred tax on share scheme credit

–

–

–

–

–

Other comprehensive income

Transactions with equity holders

Total transactions with equity holders––(262.4)(262.4)As at 31 December 2017

0.3

13.1

18.1

94.6

126.1

At 1 January 2018

0.3

13.1

18.1

94.6

126.1

Profit for the period

–

–

–

211.4

211.4

Movements in fair value reserve

–

–

(2.0)

–

(2.0)

Deferred tax charge in relation to movements in fair value
reserve

–

–

0.4

–

0.4

Total comprehensive income for the period

–

–

(1.6)

211.4

209.8

Dividends–––(332.6)(332.6)

Issues of share capital

–

–

–

–

–

Share scheme credit

–

–

–

56.7

56.7

Deferred tax on share scheme credit

–

–

–

0.1

0.1

Other comprehensive income

Transactions with equity holders

Total transactions with equity holders
As at 31 December 2018

–

–

–

(275.8)(275.8)

0.3

13.1

16.5

30.2

60.1

Admiral Group plc · Annual Report and Accounts 2018181

Notes to the Parent Company Financial Statements
For the year ended 31 December 2018

1.

ACCOUNTING POLICIES

1.1 Basis of preparation
These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101).
The financial statements are prepared on the historical cost basis except for the revaluation of financial assets classified as fair value
through the profit or loss.
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of International
Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”), but makes amendments where necessary in order to comply with
Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken.

1.2 Changes to accounting policies
Two new accounting standards became effective as of 1 January 2018, IFRS 9 (Financial Instruments) and IFRS 15 (Revenue) which havebeen adopted in these financial statements.

1.2.1

IFRS 9The Company has adopted IFRS 9 as issued by the IASB in July 2014 with a date of transition of 1 January 2018, which has resulted inchanges in the accounting policies for classification and measurement of financial assets. There has been no adjustment to the amounts
previously recognised in the financial statements or to the classification and measurement of financial liabilities.

1.2.2

IFRS 15IFRS 15 (Revenue) introduces a new five-step framework for the recognition of revenue. There is no impact on the adoption of this new
standard on these financial statements due to there being no revenue in the scope of this standard.

1.3 Disclosure exemptions applied under FRS 101
The Company has taken advantage of the following disclosure exemptions under FRS 101:
• FRS 101.8 (d): the requirement of IFRS 7 Financial Instruments: Disclosure to make disclosures about financial instruments;• FRS 101.8 (f): the requirement in paragraph 38 of IAS 1 Presentation of Financial Statements to present comparative information in
respect of:–– paragraph 118(3) of IAS 38 Intangible Assets;• FRS 101.8 (g): the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D and 111 of IAS 1 Presentation of
Financial Statements to produce a cash flow statement, a third balance sheet and to make an explicit and unreserved statement ofcompliance with IFRSs;• FRS 101.8 (h): the requirements of IAS 7 Statements of Cash Flows to produce a cash flow statement;• FRS 101.8 (i): the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to include alist of new IFRSs that have been issued but that have yet to be applied; and• FRS 101.8 (k): the requirements in IAS 24 Related Party Disclosures to disclose related party transactions entered into between two or
more members of a group, provided that any subsidiary which is a party to transaction is wholly owned by such a member.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in thesefinancial statements.

1.4 Going concern
The financial statements have been prepared on a going concern basis. In considering the appropriateness of this assumption, the Board havereviewed the Company’s projections for the next twelve months and beyond, including cash flow forecasts and regulatory capital surpluses.
The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for theforeseeable future. Thus they continue to adopt the going concern basis in preparing the annual financial statements.

182

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

1.5 Critical accounting judgements and key sources of estimation uncertainty
In applying the Group’s accounting policies as described below management has primarily applied judgement in the impairment testingof the Company’s investments in group undertakings. Management has applied judgement in determining whether the carrying value ofthe investment or asset may be supported by the recoverable amount calculation based on the ‘value in use’ of the asset (the net present
value of future cash-flows arising from the asset).
In calculating the net present value of future cash-flows, management has made assumptions over the timing and amount of underlying
profit projections of the relevant undertakings, long term growth rates in those projections and the discount rate applied to theseprojections that is appropriate to reflect the market’s view of the risk of the relevant investment.

1.6 Shares in Group Undertakings
Shares in Group undertakings are valued at cost less any provision for impairment in value.
The requirements of IAS 36 are applied to determine whether it is necessary to recognise any impairment loss with respect to the company’s
investments in subsidiaries. When necessary, the entire carrying amount of the investment is tested for impairment in accordance with IAS 36
Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its
carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss isrecognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

1.7 Employee share schemes
The Company operates a number of share schemes for its employees. For equity settled 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 increase inequity in the Company.

1.8 Taxation
The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences
between the treatment of certain items for taxation 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 fromwhich the future reversal of the underlying timing differences can be deducted.

1.9 Financial assets and liabilities
From 1 January 2018, the Group has applied IFRS 9. Under IFRS 9, classification of and subsequent measurement of financial assets
depend on:• The Group’s business model for managing the asset; and• The cashflow characteristics of the asset.
Based on these factors, the Company classifies its financial assets into one of the three categories below:• Amortised cost: assets held for collection of contractual cash flows where the cash flows represent solely payments of principal andinterest, that are not designated as FVTPL.
• Fair value through other comprehensive income (FVOCI): Financial assets that are held for collection of contractual cash flows and sellingthe assets, where the assets’ cash flows represent solely payments of principal and interest, and that are not designated at FVTPL.
• Fair value through profit or loss (FVTPL): Assets that do not meet the criteria for amortised cost or FVOCI.
In line with the above:• Fixed term deposits are measured at amortised cost with interest income is recognised in the Income Statement.
• Gilts are measured at FVOCI. Unrealised changes in the fair value of these assets are recognised in Other Comprehensive Income (OCI).
• Investments measured at FVTPL are primarily money market funds. Interest income is recognised in the Income statement.
Cash and cash equivalents include cash in hand and deposits held at call with banks. All cash and cash equivalents are measured atamortised cost.
The Company’s financial liabilities comprise subordinated notes which are held at amortised cost using the effective interest method.

Admiral Group plc · Annual Report and Accounts 2018183

Notes to the Parent Company Financial Statements continued
For the year ended 31 December 2018

2.

ADMINISTRATIVE EXPENSES

Included within administrative expenses are re-charges of £2.5 million (2017: £1.6 million) relating to employees within the Group who
perform services on behalf of the Company. No staff are directly employed by the Company.

3.

INVESTMENT AND INTEREST INCOME

Dividend income from subsidiary undertakings
Interest income
Total investment and interest income

4.

31 December
2018£m

31 December
2017
£m

260.0

300.0

4.9

10.5

264.9

310.5

INVESTMENTS IN GROUP UNDERTAKINGS£m

Investments in subsidiary undertakings:
At 1 January 2017

308.3

Additions

17.7

Impairment(25.0)At 31 December 2017

301.0

Additions24.2

Impairment(32.9)At 31 December 2018

292.3

A full list of the Company’s subsidiaries is disclosed in note 12 of the consolidated financial statements.
All investments in group undertakings are considered level 3 in the fair value hierarchy of IFRS 13.
An annual impairment review is performed over the carrying value of the investments in subsidiary undertakings, which involves
comparing the carrying amount to the estimated recoverable amount. The recoverable amount is the greater of the fair value of theasset less costs to sell, and the value in use of the subsidiary, calculated using cash flow projections based on financial budgets approvedby management.
In 2018 a non-cash impairment loss of £32.9 million has been recognised by the parent company in respect of its investment in the Group’s
US price comparison business compare.com. The impairment charge is presented within the “Impairment losses” line of the Parent
Company Income Statement and reduces the value of the investment to its recoverable amount, being its value in use, of £32.8 million.
The impairment charge arises following the review of the carrying value of the Group’s subsidiaries and compare.com’s long term strategy,
combined with additional investments received during 2018 totalling $30 million, $25 million in an agreement with former Admiral GroupCEO Henry Engelhardt and his wife Diane and separately, $5 million by way of a convertible loan instrument from Admiral Group (out of a
total available facility of $10 million).
The impairment charge reflects challenging market conditions for price comparison in the US.
Compare.com remains loss making at this stage in its development. The cash flows supporting the value in use are based on financial
forecasts prepared for a 5 year period.
The key assumptions used in the underlying forecasts and sensitivity analysis are those regarding revenue per sale, conversion rates andrevenue generated through partnerships. The estimates are based on past practice and the experience of management, and the long term
strategy as approved by the Board.

184

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

A pre-tax discount rate of 12% has been used, calculated using a Capital Asset Pricing Model (CAPM) calculation (using a risk free returnplus an appropriate risk premium), given that an asset specific rate is not available from the market. The table below details the impact of
a 1% change in the discount rate and terminal value, and a 5% decrease in the year 5 projected profit (and thereby terminal value) on therecoverable amount.
Sensitivity: Impact on recoverable amount of a:
1% decrease in terminal growth rate£m

1% increase in pre-tax discount rate£m

5% decrease in year 5 profit
£m

(3.1)

(4.4)

(1.7)

compare.com

The Board remains confident in the prospects of the business and continues to support compare.com in the achievement of its goals.
However, given the challenging US price comparison market conditions there remains considerable uncertainty over the timing and levelof the future profitability of the business.

5.

FINANCIAL ASSETS AND LIABILITIESThe Company’s financial instruments can be analysed as follows:
31 December
2018£m

31 December
2017
£m

170.8

173.8

170.8

173.8

–

20.0

–

20.0

5.5

38.6

5.5

38.6

176.3

232.4

128.6

0.6

Investments classified as FVOCI
Gilts
Investments classified at amortised cost
Deposits with credit institutions
Investments classified at FVTPL
Investment funds

Total financial investments
Financial assets held at amortised cost
Trade and other receivables (Note 7)
Cash and cash equivalents

83.3

6.8

Total financial assets

388.2

239.8

Subordinated notes

204.1

204.0

Other borrowings

71.5

20.0

Trade and other payables (Note 8)

346.1

189.4

Total financial liabilities

621.7

413.4

Financial liabilities

The amortised cost carrying amount of deposits and receivables is a reasonable approximation of fair value. The fair value of subordinatednotes (level one valuation) together with their carrying value shown in the Statement of Financial Position as follows:
31 December 201831 December 2017

Carrying
amount
£m

Fair
value
£m

Carrying
amount
£m

Fair
value
£m

204.1

211.3

204.0

229.2

Financial liabilities
Subordinated notes

Interest payable of £11.3 million (2017: £11.3 million) was recognised in relation to the subordinated loan notes.

Admiral Group plc · Annual Report and Accounts 2018185

Notes to the Parent Company Financial Statements continued
For the year ended 31 December 2018

6.

TAXATION

6a. Taxation credit
31 December
2018£m

31 December
2017
£m

(3.7)

(1.6)

Current tax
Corporation tax credit on profits for the year
Change in provision relating to prior periods

–

–

(3.7)

(1.6)

Current period deferred taxation movement

–

(0.1)

Change in provision relating to prior periods

–

–

(3.7)

(1.7)

31 December
2018£m

31 December
2017£mProfit before tax

207.7

265.8

Corporation tax thereon at effective UK corporation tax rate of 19% (2017: 19.25%)

39.5

51.2

Expenses and provisions not deductible for tax purposes

6.2

4.9

Non-taxable income(49.4)(57.8)

Total tax credit for the period as above

(3.7)

(1.7)

Current tax credit
Deferred tax

Total tax credit per Consolidated Income Statement
Factors affecting the total tax credit are:6b. Deferred income tax liability
Analysis of deferred tax liability

Balance brought forward at 1 January 2017

Tax
treatmentof shareschemes£mCapitalallowances£m

Carriedforwardlosses£m

Fair value
reserve£m

Otherdifferences
£m

Total
£m

–

–

–

–

–

–

Tax treatment of share scheme charges throughincome or expense

(0.1)

–

–

–

–

(0.1)

Tax treatment of share scheme charges throughreserves

–

–

–

–

–

–

Movement in fair value reserve

–

–

–

4.2

–

4.2

Balance carried forward at 31 December 2017

(0.1)

–

–

4.2

–

4.1

Tax treatment of share scheme charges throughincome or expense

–

–

–

–

–

–

Tax treatment of share scheme charges throughreserves

(0.1)

–

–

–

(0.1)

–

–

–

(0.4)

–

(0.4)

(0.2)

–

–

3.8

–

3.6

Movement in fair value reserve
Balance carried forward at 31 December 2018

The UK corporation tax rate reduced from 20% to 19% on 1 April 2017. The average effective rate of tax for 2018 is 19% (2017: 19.25%).
A further reduction to the main rate of corporation tax to 17% (effective from 1 April 2020) was enacted on 15 September 2016. This will
reduce the Company’s future current tax charge accordingly.
The deferred tax asset at 31 December 2018 has been calculated based on the rate at which each timing difference is most likely to reverse.

186

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

7.

Strategic Report

Corporate Governance

Financial Statements

Additional Information

TRADE AND OTHER RECEIVABLES

Trade and other receivables

31 December
2018£m

31 December
2017
£m

0.6

0.6

Amounts owed by subsidiary undertakings

128.0

–

Total trade and other receivables

128.6

0.6

31 December
2018£m

31 December
2017
£m

1.6

0.6

Amounts owed to subsidiary undertakings

344.5

188.8

Total trade and other payables

346.1

189.4

Of the above amount, £123.1 million is due in greater than one year (2017: £nil).

8.

TRADE AND OTHER PAYABLES

Trade and other payables

9.

SHARE CAPITAL AND RESERVESCapital within the Company is comprised of share capital and the share premium account, the fair value reserve (which reflects
movements in the fair value of assets classified as available for sale, as reclassified in the period) and retained earnings.

9a. Share capital
31 December
2018£m

31 December
2017
£m

0.5

0.5

0.3

0.3

0.3

0.3

31 December
2018£m

31 December
2017£mMarch 2017 (51.5 pence per share, paid June 2017)

–

143.7

August 2017 (56.0 pence per share, paid October 2017)

–

156.6

Authorised
500,000,000 ordinary shares of 0.1 pence
Issued, called up and fully paid
290,502,737 ordinary shares of 0.1 pence

9b. Dividends
Dividends were declared and paid as follows:

March 2018 (58.0 pence per share, paid June 2018)

163.3

–

August 2018 (60.0 pence per share, paid October 2018)

169.4

–

Total dividends

332.7

300.3

The dividends declared in March represent the final dividends paid in respect of the 2016 and 2017 financial years. The dividends declaredin August are interim distributions in respect of 2017 and 2018.
A final dividend of 66.0 pence per share (£188 million) has been proposed in respect of the 2018 financial year. Refer to the Chairman’s
Statement and Strategic Report for further detail.

Admiral Group plc · Annual Report and Accounts 2018187

Notes to the Parent Company Financial Statements continued
For the year ended 31 December 2018

10. GUARANTEES
During the year, an SPE was set up in order to secure additional funding for the Admiral loans business. The Company acts as guarantor forcertain operational performance conditions of its subsidiary, AFSL, as seller and servicer for the SPE, and indemnifies AFSL in respect of any
amount that would have been payable by AFSL for non-compliance with such performance conditions.

11. POST BALANCE SHEET EVENTS
In January 2019, the operations and net assets of BDE Law Limited were transferred into Admiral Law Limited, with BDE Law Limited
ceasing operations. As at 31 December 2018, both of these companies were 90% owned subsidiaries of the Company. Post transfer, theCompany owns 95% of Admiral Law Limited, which in turn owns 100% of BDE Law Limited. There is no impact to the Group or Company on
financial results in the year and no material impact is anticipated on results going forward as a result of this transfer.

12. CONTINUED APPLICATION OF FINANCIAL REPORTING STANDARD (FRS) 101 – REDUCED DISCLOSURE FRAMEWORKFollowing the first time application of FRS 101 Reduced Disclosure Framework in 2015, the Board considers that it is in the best interestsof the Group for Admiral Group plc to continue to apply the FRS 101 Reduced Disclosure Framework in future periods. A shareholder orshareholders holding in aggregate 5% or more of the total allotted shares in Admiral Group plc may serve objections to the use of thedisclosure exemptions on Admiral Group plc, in writing, to its registered office (Tŷ Admiral, David Street, Cardiff CF10 2EH) no later than
30 June 2019.

188

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Consolidated financial summary (unaudited)
BASIS OF PREPARATION
The figures below are as stated in the Group financial statements preceding this financial summary and issued previously. Only selectedlines from the income statement and balance sheet have been included.

Income statement
2018
£m

2017
£m

2016
£m

2015
£m

2014
£m

2,766.4

2499.42,193.9

1,805.2

1,675.6

Net insurance premium revenue

671.8

619.1

548.8

467.0

464.9

Total premiums
Other Revenue*

460.6

401.1

360.6

319.8

332.5

Profit commission

93.2

67.0

54.3

85.4

71.8

Investment and interest income

36.0

41.7

53.1

32.6

15.4

Net revenue

1,261.6

1,128.9

1,016.8

904.8

884.6

Net insurance claims(350.1)(347.1)(394.6)(226.5)(259.1)Net expenses(424.0)(366.9)(332.4)(298.5)(270.2)

Operating profit

487.5

414.9

289.8

379.8

355.3

Finance costs(11.3)(11.4)(11.4)(11.1)(4.6)

Profit before tax

476.2

403.5

278.4

368.7

350.7

2018
£m

2017
£m

2016
£m

2015
£m

2014
£m

Property and equipment

28.1

31.3

32.0

34.9

32.3

Intangible assets

162.0

159.4

162.3

142.3

107.2

1

*1

Includes net interest income from loans.

Balance sheet

Deferred income tax

0.2

0.3

8.4

20.6

22.9

Reinsurance assets

1,883.5

1,637.6

1,126.4

878.7

829.8

Insurance and other receivables

1,082.0

939.7

784.9

537.1

435.3

Loans and advances to customers
Financial investments
Cash and cash equivalents
Total assets
EquityInsurance contracts
Subordinated and other financial liabilities
Trade and other payables
Current tax liabilities
Total equity and total liabilities

300.2

66.2

2,969.7

2,697.8

2,420.2

2,323.5

2,194.1

376.8

326.8

326.6

265.3

255.9

6,802.5

5,859.1

4,860.8

4,202.4

3,877.5

771.1

655.8

581.7

632.9

580.9

3,736.4

3,313.9

2,749.5

2,295.0

2,097.4

444.2

224.0

224.0

223.9

203.8

1,801.5

1,641.6

1,292.2

1,015.0

965.8

49.3

23.8

13.4

35.6

29.6

6,802.5

5,859.1

4,860.8

4,202.4

3,877.5

Admiral Group plc · Annual Report and Accounts 2018189

Glossary
ALTERNATIVE PERFORMANCE MEASURES
Throughout this report, the Group uses a number of Alternative Performance Measures (APMs); measures that are not required orcommonly reported under International Financial Reporting Standards, the Generally Accepted Accounting Principles (GAAP) under which
the Group prepares its financial statements.
These APMs are used by the Group, alongside GAAP measures, for both internal performance analysis and to help shareholders andother users of the Annual Report and financial statements to better understand the Group’s performance in the period in comparison toprevious periods and the Group’s competitors.
The table below defines and explains the primary APMs used in this report. Financial APMs are usually derived from financial statement
items and are calculated using consistent accounting policies to those applied in the financial statements, unless otherwise stated.
Non financial KPIs incorporate information that cannot be derived from the financial statements but provide further insight into theperformance and financial position of the Group.
APMs may not necessarily be defined in a consistent manner to similar APMs used by the Group’s competitors. They should be considered
as a supplement rather than a substitute for GAAP measures.

TurnoverTurnover is defined as total premiums written (as below), other revenue and income from Admiral loans. It isreconciled to financial statement line items in note 13a to the financial statements.
This measure has been presented by the Group in every Annual Report since it became a listed Group in 2004.
It reflects the size of the revenue generated by the Group and analysis of this measure over time provides aclear indication of the size and growth of the Group.
The measure was developed as a result of the Group’s business model. The core UK Car insurance businesshas historically shared a significant proportion of the risks with Munich Re, a third party reinsurance Group,
through a co-insurance arrangement, with the arrangement subsequently being replicated in some of theGroup’s international insurance operations. Premiums and claims accruing to the external co-insurer are
not reflected in the Group’s income statement and therefore presentation of this metric enables users of
the Annual Report to see the scale of the Group’s insurance operations in a way not possible from taking theincome statement in isolation.

Total Premiums Written

Total premiums written are the total forecast premiums, net of forecast cancellations written in theunderwriting year within the Group, including co-insurance. It is reconciled to financial statement line items innote 13a to the financial statements.
This measure has been presented by the Group in every Annual Report since it became a listed Group in 2004.
It reflects the total premiums written by the Group’s insurance intermediaries and analysis of this measureover time provides a clear indication of the growth in premiums, irrespective of how co-insurance agreements
have changed over time.
The reasons for presenting this measure are consistent with that for the Turnover APM noted above.

Group’s share of Profit
before Tax

Group’s share of profit before tax represents profit before tax, excluding the impact of Non-controlling
Interests. It is reconciled to statutory profit before tax in note 13d to the financial statements.
This measure is useful in presenting the limit of the Group’s exposure to the expenditure incurred in startingup new businesses and demonstrates the ‘test-and-learn’ strategy employed by the Group to expansion into
new territories.
In 2018, Group’s share of Profit before Tax is presented on a ‘-0.75%’ and a ‘0%’ Ogden basis. -0.75% represents
the Group’s share of estimated profit before tax at an Ogden rate of -0.75%, before the impact of the changein actuarial best estimate to an Ogden rate of 0% following Royal Assent of the Civil Liability Bill in 2018.

Underwriting result(profit or loss)

190

For each insurance business an underwriting result is presented showing the segment result prior to theinclusion of profit commission, other income contribution and instalment income. It demonstrates theinsurance result, i.e. premium revenue and investment income less claims incurred and insurance expenses.

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Loss Ratio

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Reported loss ratios are expressed as a percentage of claims incurred divided by net earned premiums.
There are a number of instances within the Annual Report where adjustments are made to this calculation inorder to more clearly present the underlying performance of the Group and operating segments within theGroup. The calculations of these are presented within note 13b to the accounts and explanation is as follows.
UK reported motor loss ratio: Within the UK insurance segment the Group separately presents motor ratios,
i.e. excluding the underwriting of other products that supplement the car insurance policy. The motor ratio
is adjusted to i) exclude the impact of reserve releases on commuted reinsurance contracts and ii) exclude
claims handling costs that are reported within claims costs in the income statement.
International insurance loss ratio: As for the UK motor loss ratio, the international insurance loss ratiospresented exclude the underwriting of other products that supplement the car insurance policy. The motor
ratio is adjusted to exclude the claims element of the impact of reinsurer caps as inclusion of the impact of
the capping of reinsurer claims costs would distort the underlying performance of the business.
Group loss ratios: Group loss ratios are reported on a consistent basis as the UK and international ratios
noted above. Adjustments are made to i) exclude the impact of reserve releases on commuted reinsurance
contracts, ii) exclude claims handling costs that are reported within claims costs in the income statement, iii)
exclude the claims element of the impact of international reinsurer caps and iv) exclude the claims impact of
extreme weather and subsidence on UK Household.

Expense Ratio

Reported expense ratios are expressed as a percentage of net operating expenses divided by net earned
premiums.
There are a number of instances within the Annual Report where adjustments are made to this calculation inorder to more clearly present the underlying performance of the Group and operating segments within theGroup. The calculations of these are presented within note 13c to the accounts and explanation is as follows.
UK reported motor expense ratio: Within the UK insurance segment the Group separately presents motor
ratios, i.e. excluding the underwriting of other products that supplement the car insurance policy. The
motor ratio is adjusted to i) include claims handling costs that are reported within claims costs in the income
statement and ii) include intra-group aggregator fees charged by the UK price comparison business to the UK
insurance business.
International insurance expense ratio: As for the UK motor loss ratio, the international insurance expense
ratios presented exclude the underwriting of other products that supplement the car insurance policy. The
motor ratio is adjusted to i) exclude the expense element of the impact of reinsurer caps as inclusion of
the impact of the capping of reinsurer expenses would distort the underlying performance of the businessand ii) include intra-group aggregator fees charged by the overseas price comparison businesses to theinternational insurance businesses.
Group expense ratios: Group expense ratios are reported on a consistent basis as the UK and internationalratios noted above. Adjustments are made to i) include claims handling costs that are reported withinclaims costs in the income statement, ii) include intra-group aggregator fees charged by the Group’s pricecomparison businesses to the Group’s insurance businesses and iii) exclude the expense element of the
impact of international reinsurer caps..

Combined Ratio

Reported combined ratios are the sum of the loss and expense ratios as defined above. Explanation of thesefigures is noted above and reconciliation of the calculations are provided in notes 13b and 13c.

Return on Equity

Return on equity is calculated as profit after tax for the period attributable to equity holders of the Groupdivided by the average total equity attributable to equity holders of the Group in the year. This average isdetermined by dividing the opening and closing positions for the year by two.
The relevant figures for this calculation can be found within the Consolidated Statement of Changes in Equity.

Group Customers

Group customer numbers reflect the total number of cars, households and vans on cover at the end of theyear, across the Group.
This measure has been presented by the Group in every Annual Report since it became a listed Group in
2004. It reflects the size of the Group’s customer base and analysis of this measure over time provides a clear
indication of the growth. It is also a useful indicator of the growing significance to the Group of the different
lines of business and geographic regions.

Effective Tax Rate

Effective tax rate is defined as the approximate tax rate derived from dividing the Group’s profit before tax by
the tax charge going through the income statement. It is a measure historically presented by the Group andenables users to see how the tax cost incurred by the Group compares over time and to current corporation
tax rates.

Admiral Group plc · Annual Report and Accounts 2018191

Glossary continued
ADDITIONAL TERMINOLOGY
There are many other terms used in this report that are specific to the Group or the markets in which it operates. These are defined as follows:

Accident year

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

Actuarial best estimate

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

ASHE‘Annual Survey of Hours and Earnings’ – a statistical index that is typically used for calculation inflation ofannual payment amounts under Periodic Payment Order (PPO) claims settlements.

Claims reserves

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

Co-insurance

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

Commutation

An agreement between a ceding insurer and the reinsurer that provides for the valuation, payment, andcomplete discharge of all obligations between the parties under a particular reinsurance contract.
The Group typically commutes UK car insurance quota share contracts after 24 months from the start of anunderwriting year where it makes economic sense to do so. Although an individual underwriting year may
be profitable on an ultimate basis, the margin held in the financial statement claims reserves means thatan accounting loss on commutation must be recognised at the point of commutation of the reinsurance
contracts. This loss on commutation unwinds in future periods as the financial statement loss ratios develop
to ultimate.

Insurance market cycle

The tendency for the insurance market to swing between highs and lows of profitability over time, with thepotential to influence premium rates (also known as the “underwriting cycle”).

Net claims

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

Net insurance premium
revenue

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

Ogden discount rate

The discount rate used in calculation of personal injury claims settlements. The rate is set by the
Lord Chancellor.

Periodic Payment Order(PPO)

A compensation award as part of a claims settlement that involves making a series of annual payments to aclaimant over their remaining life to cover the costs of the care they will require.

Premium

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

Profit commission

A clause found in some reinsurance and coinsurance agreements that provides for profit sharing.

Reinsurance

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

Securitisation

A process by which a group of assets, usually loans, is aggregated into a pool, which is used to back theissuance of new securities. A company transfer assets to a special purpose entity (SPE) which then issues
securities backed by the assets.

Special Purpose Entity(SPE)

An entity that is created to accomplish a narrow and well defined objective. There are specific restrictions orlimits around ongoing activities. The Group uses an SPE set up under a securitisation programme.

Ultimate loss ratio

A projected actuarial best estimate loss ratio for a particular accident year or underwriting year.

Underwriting year

The year in which the policy was incepted.

Underwriting year basis

Also referred to as the written basis. Claims incurred are allocated to the calendar year in which the policy
was underwritten. Underwriting year basis results relate to the 2018 underwriting year, are calculated on thewhole account (including co-insurance and reinsurance shares) and include all premiums, claims, expenses
incurred and other revenue (for example instalment income and commission income relating to the saleof products that are ancillary to the main insurance policy) relating to policies incepting in the relevant
underwriting year.

Written/Earned basis

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

192

Admiral Group plc · Annual Report and Accounts 2018

Company Overview

Strategic Report

Corporate Governance

Financial Statements

Additional Information

Directors and advisors
DIRECTORSREGISTRAR

Annette Court

Link Asset Services

Chairman

Chief Executive Officer

The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU

Geraint JonesJOINT CORPORATE BROKERS

Chief Financial Officer

Bank of America Merrill Lynch

Mike Brierley

2 King Edward Street
London EC1A 1HQDavid Stevens, CBE

Non-Executive Director

Karen Green
Non-Executive Director

Justine Roberts, CBE
Non-Executive Director

Owen Clarke

UBS Investment Bank
5 Broadgate
London EC2M 2QSSOLICITORS
Clifford Chance LLP

Non-Executive Director

10 Upper Bank Street
London E14 5JJ

Jean ParkCORPORATE WEBSITE

Non-Executive Director

The Group’s corporate website is at www.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
the contact details for investor relations.

Manning Rountree
Non-Executive Director

Andy Crossley
Non-Executive Director

FINANCIAL CALENDAR

COMPANY SECRETARY

Final 2018 dividend

Mark Waters

9 May 2019 – Ex dividend date
10 May 2019 – Record date
31 May 2019 – Payment dateTŷ AdmiralDavid Street
Cardiff CF10 2EH

Annual General Meeting

AUDITOR

25 April 2019

Deloitte LLP

Interim results

Hill House
1 Little New Street
LondonEC4A 3TR

14 August 2019ACTUARIAL ADVISOR
Lane Clark & Peacock LLP
95 Wigmore Street
London W1U 1DQ

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

The Group does not produce printed copies of interim results forshareholders unless requested. The interim results will be available
on the corporate website from 14 August 2019.

REGISTERED OFFICETŷ AdmiralDavid Street
Cardiff CF10 2EH

Registered officeTŷ AdmiralDavid Street
Cardiff CF10 2EH
www.admiralgroup.co.uk