Admiral Group plc

Köln

www.admiralgroup.co.uk

annual report 2007

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

annual report 2007

D i r e c t o r s a n d ad v i s o r s

A D M IR A L G RO U P p l c

Directors and advisors

Notes

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

Company Secretary
Stuart Clarke

Registered Office
Capital Tower
Greyfriars Road
Cardiff CF10 3AZ

AuditorActuarial advisors

KPMG Audit Plc
Marlborough House
Fitzalan Court
Cardiff CF24 0TE

Ernst & Young
1 More Place
London SE1 2AF

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

Bank of Scotland
Corporate Banking
55 Temple Row
Birmingham B2 5LS

HSBC Business Banking
97 Bute Street
Cardiff CF10 5NA

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

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

Solicitor

Norton Rose
3 More London Riverside
London SE1 2AQADMIRAL GROUP plc 3

Contents
6-7

Chairman’s statement

8-13

Chief Executive’s statement

14-21

Financial review

22-29

Corporate governance

30-35

Remuneration report

36-39

Corporate responsibility

40-41

The Board of Directors

43-94

Financial statements

4 OUR BRANDS

Our brands
The Group’s first brand, set up in 1993 – mainly targeting
those who traditionally pay higher than average premiums,
including drivers under-35 and those living in big cities.
admiral.com
AdmiralDirekt is the Group's second overseas brand andlaunched in Germany in 2007.
admiraldirekt.deBalumba is the Group’s first overseas brand and launchedin Spain in 2006. balumba.es

Bell was set up in 1997 – its main target market being
drivers with zero or low no claims bonus. bell.co.uk

Confused.com is an intelligent, automated car insurance
shopper. Customers input their details once, and receive
quotes from major car insurance websites.
confused.com

Diamond was created for women in response to a needin the market place for insurance specifically for young
women drivers, which is not only good value, but also as
hassle free as possible. diamond.co.uk

Elephant.co.uk is the Group’s main online car insurance
service. Elephant passes on cost savings generated bybeing an online brand to customers in the form of lower
premiums. elephant.co.uk

Gladiator is the Group’s commercial vehicle insurance
broker that was launched in April 1998. The Company acts
on behalf of several of the largest commercial vehicle
insurers in the UK. gladiator.com

Financial highlights
Profit before tax

Full year dividend per share£0. 50

£0.20

43.8p

36.1p

2007

2006

43.8p

36.1p

2007

2006

£0. 10£0. 50100£182.1m£147.3m50

Full year dividend per share£Millions£0. 30

Full year dividend

150

0

£0.40

£0. 30£0.20£0. 10

0

2007

2006

Net revenue

Closing active vehicles
1,500

350
300
250
200

£364.1m£311.0m

100

Closing active vehicles (000s)

400

Net revenue

ADMIRAL GROUP plc 5

0

200

150

£0.40

1,200

900

600

1,491

1,285

2007

2006

48.6p

39.8p

2007

2006

300

50
0

0

2007

2006

Combined ratios

Earnings per share

100

£0.50

80

£0.40

60

£0.30

40

85.4%

87.3%

£0.20

20

£0.10

0

0

2007

2006

6 C H A I R M A N ’ S S TAT E M E N T“A highlight of2007 was ouradmission in
December to the
FTSE 100“

Alastair Lyons CBE

Chairman's statement
I ended my statement last year bysaying that our strategy remained clear
and straightforward – to continue
to grow our share of the UK direct
private motor market, maximising thevalue derived from each customer
relationship, whilst also identifying
profitable opportunities, in particular
our expansion overseas, to exploit
the knowledge, skills and resources
attaching to our core business. As
Henry Engelhardt sets out in detail in
his statement, 2007 was a year in which
the Group made significant progress inthat strategic direction.
In the UK, despite market conditions
remaining challenging, Admiralincreased both underwriting andancillary profits whilst substantiallygrowing the number of vehicles
insured. At the end of the year ourbrands covered 1.49 million vehicles,
16% up on December 2006. The 13%
increase achieved in profit derived
from ancillary products and services
is testament to the success wecontinue to derive from our focus on
maximising the value of each customer
relationship.
An upward trend in pricing does now
seem to have become establishedwith a general increase of 4% over theyear as a whole. Whilst only sufficient
to offset general claims inflation,
this breaks a 5 year pattern of flat oreven slightly falling rates. Against thisbackdrop we were happy to take back
5% of the underwriting risk when it
came available at the end of last year,
increasing the proportion of grosspremiums underwritten by Admiral in2008 from 22½% to 27½%.
We have made significant progress
during 2007 with our international
strategy. Balumba.es, the on-line
Spanish motor insurer that welaunched in October 2006, ended
2007 with 47,000 customers – a great
achievement in little over a year
from a standing start. We followed
this with the launch in October 2007

of AdmiralDirekt.de, our new online German motor insurer based in
Cologne, and we announced at thetime of our half-year results that wewere well advanced with plans tolaunch into Italy during 2008. Our
teams in each country have built on
the learning of their colleagues wholaunched before them and I would
take this opportunity to give them
credit for their enthusiasm, resilience,and consequent achievements. Staying
with the international theme I should
also mention the establishment of our
new customer service centre in Halifax,
Canada where we now employ directly
over 100 staff helping to share the loadof our long opening hours with ourteams in the UK.
During the year we announced that we
had entered discussions with potential
private equity investors regarding thesale of a minority interest in our pricecomparison business, Confused.com.
Having, however, understood in detailthe implications of such an investment
for the flexibility of Confused’s
ongoing management, the Board
determined that taking such a stepwould materially constrain our ability
to maximise Confused’s contribution
to the Group in the medium to longterm. We, therefore, determined that it
was in our shareholders’ best interests
to terminate the discussions and retain
a 100% interest in Confused. We willcontinue our strategy of maintaining
Confused’s strong market position in
car insurance price comparison anddeveloping its potential to extend
into price comparison within otherproduct areas. 2007 was another very
successful year for Confused, profits
growing by 59% to £37million. As wehave said previously, there is growing
competition in this sector and wewill continue to work hard to defend
our leadership position in this rapidly
expanding market.
In a strongly competitive market weare pleased to be able to announce a
24% increase in Group pre-tax profitsto £182million off an 11% growth intotal written premiums. Taking into
account the increased solvency capitalrequired by the higher underwriting

retained in 2008, this allows us tolift our dividends for the year by 22%
to 43.8p per share (23.2p final: 20.6p
interim).
We have maintained our approach of
considering dividends in two parts.
The first element, being the normal
dividend, is based on a 45% pay-out
ratio. The second element - the special
dividend - derives from our principleof returning to shareholders available
surpluses, calculated as the Group’s
net assets less its required solvency;
cover against any specific expansion
plans, being at this year-end £5m in
respect of overseas; and a prudent
margin - currently £25m - against
contingencies. Special dividends since
flotation in September 2004 amountto £146.6m, this being in addition to£149.5m normal dividends over thesame period.
A highlight of 2007 was our admissionin December to the FTSE 100, an
achievement of which the executive
team can be justifiably proud in slightly
over three years since flotation. Over
this period, taking dividends and shareappreciation together, we achieved a335% total return for shareholders.
Alignment of the interests of ourstaff and our shareholders is one of
our core principles. Our Free Share
Schemes are designed to strengthenthat alignment over time. We aredelighted that strong out-performanceagainst our plan during 2007 resulted ineligible employees once again realising
the maximum award of £3,000 freeshares under our Approved Scheme.
The 2007 financial year marked theend of the first 3-year period for the
Discretionary Free Share Scheme. A
54.8% outperformance of growth inearnings per share over and above therisk-free return qualified the scheme tovest the maximum share entitlement
under the individual awards. Following
the 2007 awards there are now
1,645 employees participating in the
Discretionary Free Share Scheme, itself
consistent with our philosophy ofachievement through teamwork.

As at the end of the year we employed
2,500 staff, 90% of whom live and workin South Wales. This makes Admiral asignificant part of the local community
and we encourage our staff to be
associated with the local projects thatare important to both them and theirfamilies. During 2007 we provided
financial support to 110 such projects. In
addition Admiral sponsored a numberof high profile local events within
South Wales - the Admiral Cardiff Big
Weekend and the Swansea Waterfront
Winterland, of both of which Admiral
was the main sponsor in 2007, together
attracted over 365,000 visitors. Moredetails of which will be found in thereport on corporate responsibility.
This report also describes the steps
we take to minimise the impact of ouroperations on the environment.
May I end by thanking everyone who
has contributed so much to achieve
the successes that I have been able tooutline above – first and foremost our
staff who make Admiral the Company
it is: our executive management teamwhose quality of leadership justifies
our being placed for 8 consecutive
years amongst The Sunday Times Top
100 Companies to Work For in the UK:
and our Non-executive Directors fortheir commitment and wise counsel.

Alastair Lyons
Chairman

Chairman’s Statement 06 - 07

ADMIRAL GROUP plc 7

8 C H I E F E X E C U T I V E ’ S S TAT E M E N T

Chief Executive’s statement““

We had a bumper year
in absolute terms AND
we made great strides
towards the creation ofan even better future
Henry Engelhardt

2007 was a good year for
the Admiral Group.
I should quit right there!
But I won’t. Why was it a good year?
Well, the Group made more money
than ever before. A lot more. We
made more money by serving morecustomers than ever before, which
resulted in a larger turnover than everbefore. All these new records wereset within the context of a challenging,highly competitive environment.
But those items don’t tell the wholestory. As compelling as they may
be, they only account for part of
the reason why I think the year was
successful. For me, the reason it wassuch a good year is that we did all
the good things already mentioned
while simultaneously making large
investments of time and money in
our future. These investments could
easily have retarded our 2007 trading
performance. But they didn’t. We had
a bumper year in absolute terms AND
we made great strides towards thecreation of an even better future.
The list of achievements:· Profit before tax up 24% to £182m;· Number of customers up 16% to 1.5m;· Net revenue up 17% to £364m;· Turnover* up 16% to £825m;· Confused record pre-tax profit of 		£37m on 13m quotes;· Combined ratio improved to 85%
from 87%;· Top 10 in the FT Best Companies To

Work For; 57th in The Sunday Times
Best Companies To Work For in theUK;· Invested in Balumba in Spain where
we ended the year with 47,000
customers and £16.6m turnover;· Invested in AdmiralDirekt.de, our new
operation in Germany that launchedon October 16 and had 9,000
customers on January 1, 2008;· Began investing in an operation in
Italy which is planned to launch in2008.

2,0332004

Confused profit

150
UK Market Combined Ratio

140

105%

105%

101%

102%

101%

114%
104%

123%

119%

118%

111%
102%

90

99%

110
100

96%

120

122%

130

110%

So the market is moving, keeping up
with claims inflation, but will we seea definitive improvement
in results?
36,727
It looks like the market has foundthe corner and is, well, considering
turning. But it hasn’t quite turned yet.
It is somewhat reminiscent of what
23,080happenedin 1997-98-99 (showing myage). In 1997 the market moved up,
maybe a bit faster than claims costs
but in 1998 the market failed to follow
through on those increases, leading to
8,823
a combined ratio in excess of 120%.
Only in 1999 did the market start
to move in earnest. 1997 – 98 wassomething of a false dawn, which we
2005
2006
2007
might see again in the 2007 – 08 years.

117%

We put 4% on our rates during the year
against a claims inflation factor
above 3%.

This philosophy manifests itself in ouradvantage over the market in bothclaims ratio and loss ratio in the UK.
Our UK loss ratio for the year was
66.7% and our expense ratio was 16.7%
for a combined ratio of 83.4%. On a
comparable basis Deloitte predicts thatthe market loss ratio will be 79% andthe expense ratio will be 28%, resulting
in a combined ratio, including releases,of 107%.

105%

It is just possible that in 2007, on a
written basis, premium inflation forthe market will have outpaced claims
inflation for the first time since 2000.
But, when all the results are tallied, I
think that this move will be modest,
and, as an earned basis lags rate
movements, it won’t fully flow throughto the market’s results until 2008.

As we are fond of saying: Admiral’sdifferent. We actually are not keen
to subsidise consumers. We’re very
happy to offer a precise rate for every
risk and give a great service to every
customer, but we believe we should
do these things without making aloss ourselves. The sustainable way
to offer consumers lower rates is tooperate more efficiently than thecompetition.

108%

The UK car insurance market cycle isturning with sloth-like speed. Haveyou ever seen a sloth up close? Theirmuscle control is quite incredible.
You try moving that slowly! (See
http://animals.nationalgeographic.
com/animals/mammals/three-toedsloth.html) Sloths are an appropriate
metaphor for the UK car insurance
market today. The market is moving.
But slooooowwwwllllyyyy.

104%

UK Car Insurance:
Sloth-like

119%

Only in a few years time, when Spain,
Germany, Italy, etc. are running at full
throttle, will we really appreciate how
good 2007 was. Here’s a closer lookat our results and the UK car insurance
market.

According to Deloitte, the UK market
average pure year combined ratio for2006 (latest data available) was 113%,
again confirming the UK’s status asone of (if not the) most competitive
car insurance markets in the world; amarket where companies are willing to
subsidise consumers. This is the true
power of a free market. For those thatthink regulation is the key to lower
prices, just look at the UK. Strange as
it might seem, collectively UK Insurers
seem happy to subsidise consumers, notonce in a while, but for years on end.

117%

the financial review below

80
70

60
50
40

30
20
10

0

19
85
19
86
19
87
19
88
19
89
19
90
19
9
19 1
92
19
9
19 3
94
19
95
19
96
19
97
19
98
19
9
20 9
00
20
0
20 1
02
20
0
20 3
04
20
0
20 5
06

· Turnover is defined and reconciled in

Chief Executive’s Statement 08 – 13

ADMIRAL GROUP plc 9

Sources - 1985 - 1991 ML Research 1991 - 2004 Deloitte analysis of UK motor 2005 - 2006 Deloitte analysis of UK Private motor

1 0 C H I E F E X E C U T I V E ’ S S TAT E M E N T

In addition to a combined ratio morethan 20 points better than the market
average, we also grew the business. Our
UK turnover increased by 14% (£708m
to £808m) and the number of vehicles
we insure rose 13% (1.28m to 1.44m).

" The UK car insurance
market cycle is turningwith sloth-like speed "Our conservative reserving philosophy
meant we released £29.5m from prioryears into this year’s profit. We build
claims reserves because history tells usthat this is an area that changes quite
quickly. It has not been unusual tosee changes in the claims environment
result in additional costs to all youropen claims, some of which are fouror more years old. So there is a method
to our madness, we reserve in case theworld changes and then release if it doesnot. From what I know at the moment,
I do not see any reason to believe that
this pattern will not continue.
The biggest development in the market
in 2007 has been the rapid growth ofprice comparison websites as a leading
channel of distribution in the industry.
With the growth in the number of
price comparison sites during the year
and with more sites planned to launch
in 2008, I can only see this growthtrend accelerating.
The important point of this change indistribution is that small insurers canget exposure to consumers equal tothat of big insurers. Previously smaller
insurers wouldn’t have the muscle toget equal exposure. The big insurers,
who could spend a lot of money
advertising and/or be on lots of broker
sites, could dominate the market by thevery fact that they were always visible
to consumers. Now small insurers,
without spending a penny of marketingmoney, can get equal time. For car
insurance this is revolutionary stuff.
This means that the market is pinned
to the lowest quote for any given risk.
That is, a single firm could undercut

the entire market or, for any given
risk, one firm could undercut the rest.
Either way, this chain is going to move
only as quickly as the slowest link.
Typically the UK cycle is around sevenyears (1985 cyclical worst point, to 1991
worst point, to 1998 worst point).
On an earned basis it looks like 2007
or 2008 will be the worst point inthis cycle, which is 9 or 10 years on
from the previous worst point of 1998.
Think sloths. And if the 2007 rate rises
prove to be a false dawn, think slowmoving sloths!

Changing Distribution:
The Growth of Price
Comparison
However, when one bemoans theeffect of price comparison sites on themarket keep in mind that the leader in
car insurance price comparison is ourown Confused.com.
Confused had it rather cosy for anumber of years, amassing a market
share of some 65%. But we predictedback in March 2006 that this market
would be a competition magnet andwe’ve only been surprised at how
long it took for the competition tomaterialise. But materialise it has!
At last count there were more thanhalf a dozen price comparison sites
actively touting for business. Not
surprisingly, consumers have been
seduced by the ease in which they can
now get countless quotes. Overall
ad spend in the market, which had
been on the decline in 2006 began
to rise again in 2007 and continues
to rise, setting new records along theway. Price comparison sites accounted
for approximately 35% of the car
insurance tv and press spend in 2007.
However, this figure grew throughout
the year and in January 2008 it wasBalumba’s combined ratio totalled
232%, with a loss ratio of 141% andan expense ratio of 91%. The ratio ofexpenses to premium written during
the year was 50%, a very credible
figure. Balumba’s result was helped bycontribution from ancillary products.
150

36,727UK Market Combined Ratio

140

35,000

102%

123%

119%

118%

114%
104%

99%

102%

111%

122%
110%

117%
105%

80

20,00070

60

15,00050

8,823

10,000

40

30
322
2003

20

2,033
2004

10

2005

2006

Confused profit

Given the development of the pricecomparison sector, it is not surprisingthat Confused’s market share declined
during 2007. However, this decline has
been into a growing market and as aresult its quote and sale volumes haveheld up rather well. We accept thatsome erosion of share is unavoidable
in the short term but, as we’ve said
previously, we will spend money todefend our market-leading position.

Beyond the UK: Spain,
Germany and Italy2007 was a dramatic year in thedevelopment of the Group’s businessbeyond the UK. Balumba in Spain,
which launched at the end of
October 2006, grew quickly. A year
after Balumba’s start, AdmiralDirekt.
de successfully launched in Germany
and during the year we began
implementation of our plan to launch
in Italy during 2008.
Balumba in Spain ended the year with
47,000 policyholders and a turnoverof £16.6m. It posted a loss of just
£0.7m in its first full year of trading.

0

2007

19
85
19
86
19
87
19
88
19
89
19
90
19
9
19 1
92
19
9
19 3
94
19
95
19
96
19
97
19
98
19
9
20 9
00
20
0
20 1
0
20 2
0
20 3
0
2 4

5,000
0

96%

90

108%

25,000

104%

110
100

23,080119%

120

30,000

117%

130

101%

40,000101%

67%. Advertising as a stand-alone car
insurance brand to generate direct
quotes has become awfully expensive,
as it is almost impossible for a single
brand to better the proposition ofmultiple quotes put forward by pricecomparison sites.

Chief Executive’s Statement 08 - 13

ADMIRAL GROUP plc 11

Sources - 1985 - 1991 ML Research 1991 - 2004 Deloitte analysis of UK motor 2005 - 2006 Deloitte analysis of UK Pri

As you can imagine, there is still
a lot of work to do on Balumba,
particularly in the pricing and claims
areas, although high loss ratios are notunusual in a Company’s first year of
trading. The key question surrounding
Balumba beginning the year was: could
it market to consumers efficiently?
It appears that the answer to thatquestion is a resounding ‘yes’ as we
gave over 396,000 quotes in the year.
The launch in Germany, some 50 weeks
after the launch in Spain, was verysatisfying. Most of the German market
renews its car insurance on January
1. In addition, consumers have to give
their insurers one month notice if they
are planning to switch. So the window
for attracting new business is about
8 weeks long, from early Octoberthrough early December.
It was imperative that we launch theoperation in October to get someexperience in the ‘season’.

1 2 C H I E F E X E C U T I V E ’ S S TAT E M E N T

Once again, the key test was marketing.
And, once again, we were pleased by
the results. AdmiralDirekt.de made9,000 sales with income of £1.7m, allwith a policy start date of January 1,
2008. Lo and behold, the first claim
occurred the morning of January 2,
2008, when one of our customers hit aboar at 5:30 a.m. I suspect this will bea first claim not soon forgotten!
Project Chianti, otherwise known as
The Italian Job, is moving forward atpace with an anticipated launch laterin 2008. The operation will be basedin Rome.

Gladiator grows and we
begin to take calls in
CanadaOther notable accomplishments
during the year include the growthin customer numbers of Gladiator
Commercial and the creation of a callcentre in Halifax, Nova Scotia primarily
to handle evening calls from the UK.
Gladiator is our commercial vehicle
intermediary and it turned in a
profit before tax of £2m. However,Gladiator increased its customer basesignificantly during the year and now
boasts over 62,000 customers up from
43,000 last year (+44%), which bodes
well for the future
A combination of a strong service
ethic and a four-hour time difference
led us to open a call centre in eastern
Canada. We now have almost 100
agents on the phones, taking overfrom the UK in the early evening (midafternoon there).

Almost the end of thereportI’m proud to say that it was anothervery good year for return on capital.
This is the benefit of our model,
where we have reinsurers put up thecapital pro-rata for their share of
the underwriting, but we get profit
commissions from them when we
make profits and we keep the revenue
from everything else we do, like
Confused, for ourselves. Although
we do sacrifice some profit to get
this reinsurance support it gives us alayer of protection against losses andserves to make us capital efficient. A
good measure of this is our return on
capital, which in 2007 was 58% (2006:57%). Another important indicator is
our return on income - 57% in 2007, up
from 53% in 2006.
Finally, the best possible tribute toour staff: the first lot of free shares
distributed since our 2004 float willvest in 2008. We want all our staff
to feel like they own part of theCompany and the best way to do thatis to give them part of the Company toown. We are very pleased that those
who qualified in 2005 and earned
free shares will take control of thoseshares later this year. Our staff give a
lot of themselves to the organisationand it is great to share the fruits of ourcommunal efforts with every person in
the Company.

Last point of note, at the end of 2007
we joined the FTSE 100. We are theonly Welsh Company in this elite club.
In fact, we are only the second Welsh
Company in history to be in the 100,
the first one having been a member for
9 months back in 1992-93. (I hope thatby the time you read this we’re still amember!) Our rapid rise into the FTSE
100 is a tribute to all the staff acrossour six sites in five countries who arebuilding a great business by working
hard every day to give customers great
service.
This is a very exciting time for theAdmiral Group and we’re looking
forward to another great year in 2008.

Henry Engelhardt
Chief Executive Officer

Chief Executive’s Statement 08 – 13

ADMIRAL GROUP plc 13

14 FINANCIAL REVIEW

Financial review
Key financial highlights

Group profit before tax again grew strongly in 2007 – moving up 24% to £182.1m from £147.3m lastyear. Earnings per share grew 22% to 48.6p from 39.8p.
2007
£000
Underwriting profit

37,50228,351

Profit commissions

20,44819,926

Ancillary and other net income

93,363

79,262

Confused.com profit

36,72723,080Share scheme, pre-launch and other charges(5,942)(3,277)

182,098

147,342

Profit before tax

825.0
638.4

Underwriting£37.5m

11%

21%

708.2

2007
£182.1m

548.0

Profit commission£20.4m

2005

2006

2007

Ancillary and other£87.4mProfit commission£19.9mUnderwriting£28.3m

13%

19%
20%

2006
£147.3m

16%

52%

48%
2004

2006
£000

Confused.com£36.7mAncillary and other£75.9mConfused.com£23.0mGroup underwriting profits grew significantly in 2007 (by around one third) – this despite a very
slowly turning pricing environment in the UK motor market and the inclusion of a first full year’s
result for Balumba.es (the Group’s Spanish motor insurer).
In UK motor, the Group reduced its share of the underwriting to 22.5% (from 25.0%) in a year
when this cycle possibly hit its worst point. The number customers grew significantly once again:
2007

2006

000s

000s

UK private vehicle count

1,382

1,240

Spanish private vehicles

47

2

Gladiator Commercial vehicles

62

43

1,491

1,285

Total vehicle countWithin the overall increase of 16%, UK vehicles insured grew by 11½%, and Gladiator grew by 47%.
Balumba increased its customer base to end the year at 47,000 (having ended 2006, two months
after launch with around 2,200)
October 2007 saw the successful launch of AdmiralDirekt.de – the Group’s German car insurer,
based in Cologne. In the relatively short period before the end of the year, AdmiralDirekt sold
9,000 policies, generating around £1.7m in premium and ancillary income. Cover for these risks
started 1 January 2008.
A more detailed split of Group profit, including geographical analysis follows below. Eachelement is discussed in the following notes.

ADMIRAL GROUP plc 15

2007

2006

EUROPE
£000

TOTAL
£000

UK
GROUP
£000

EUROPE
£000

TOTAL
£000

Underwriting profit

39,976(2,474)37,50228,541(190)

28,351

Profit commissions

20,448-20,44819,926-

19,926

Ancillary and other net
income91,517

1,846

93,36379,18676

79,262

Confused.com profit

36,727-36,72723,080-23,080Share scheme, pre-launchand other charges(4,534)(1,408)(5,942)(2,782)(495)(3,277)

Profit before tax

184,134(2,036)

182,098

147,951(609)

147,342

Financial Review 14 - 21

UK
GROUP
£000

Europe figures include the results of Balumba in Spain, and set up and pre-launch costs relating
to AdmiralDirekt (Germany) and the Italian business.
Turnover, comprising total premiums written (including premium underwritten by co-insurers),
gross other income and net investment return (as a measure of the combined size of the Group’sbusinesses) continued to grow strongly:
2007
UK
GROUP
£000

EUROPE£000

Total premium written

617,023

Other revenue

174,641

Net investment return
Turnovervehicle

2006

TOTAL
£000

UK
GROUP
£000

EUROPE
£000

TOTAL
£000

14,228631,251

566,048560

566,608

2,237

176,878

131,536

85

131,621

16,662

133

16,795

9,925

-

9,925

808,326

16,598824,924

707,509645

708,154

1000
900

£69

£69

800

825.0

700

£m

600

638.4

21%

708.2

1

2007
£182.1m

548.0

500

400

Underwriting£37.5m

427.3

300

200

48%

100

0
2006

2007

2003

2004

2005

2006

2007

TurnoverA reconciliation of turnover to figures appearing in the income statement is shown at the end of
this review.
Overall growth of 16% was made up of an 11% increase in total premium, a 34% rise in otherrevenue (predominantly ancillary income and Confused.com revenue) and a 69% increase ininvestment return after a disappointing investment year in 2006. Net revenue in the income
statement increased by 17% to £364m.
Balumba (providing all the European figures above) contributed 2% of total Group turnover.

Ancillary and other£87.4m16 FINANCIAL REVIEW

Underwriting
Underwriting arrangements
During 2007 the Group retained 22.5% (2006: 25%) of UK motor underwriting on a net basis. 60%of the total is underwritten by Great Lakes Reinsurance (UK) Plc (a subsidiary of Munich Re) undera long term co-insurance arrangement. The remaining 17.5% is ceded to two reinsurers – Swiss Re,
10.0% and Partner Re, 7.5%.
The nature of the co-insurance arrangement is such that 60% of all motor premium and claims
for the 2007 year accrues directly to Great Lakes and does not appear in the Group’s income
statement. Similarly, Great Lakes reimburses the Group for its proportional share of expenses.
The Group also retains 35% of the risks generated by Balumba in Spain and AdmiralDirekt inGermany, with 65% being reinsured.
In 2008, the share of the UK motor underwriting retained increases to 27.5% as Great Lakes’ sharedeclines by the 5% set out in the revised co-insurance arrangement.
Underwriting results
Total premiums increased by around 11% to £631m from £567m – Balumba accounted for around£14m of this total (having written less than £1m in 2006). The total number of vehicles insured(excluding Gladiator) rose by around 15% to 1.43m from 1.24m. Balumba grew its customer countfrom around 2,000 to 47,000 at the end of the year.
Vehicle growth exceeded premium growth due in part to lower average premiums in Spain andalso in the UK due to mix effects. As noted above, German motor risks sold in the latter part of2007 do not incept until 2008 and are not included in the premium or results.
Premium rate rises of around 4% have been implemented in the UK and data suggests similar
increases have been seen across the market.
Net insurance premium revenue fell marginally to £142m - due to the decrease in the proportionof UK premium retained.
The overall loss ratio improved to 68% - four points down from the 72% reported in 2006. The
UK motor ratio improved significantly to 67% from 72%. Balumba’s reported loss ratio in its firstfull year of trading is 141%.
Positive development of prior year reserves continued, and the 2007 result includes releases ofalmost £30m (up from £21m last year) – improving the loss ratio by around 21 percentage points.
The pure year loss ratio (including Balumba) declined to 88% from 86% in 2006.
The UK expense ratio was 16.7%, up 1 percentage point on the previous year primarily as aresult of lower average premiums resulting from changes in the mix of the portfolio. When theBalumba figures are included, the Group expense ratio totals 17.7%.
The expense ratio is reconciled to the figures included in the income statement in note 9 below,
whilst the underwriting result is reconciled later in this review.
As a consequence, the Group’s combined ratio improved by two points to 85% (87% in 2006).
Taken together with the increase in premiums, this resulted in a 32% rise in underwriting profits,
to £37.5m from £28.4m.
Part VII transfer
During November 2007, the Group completed the transfer of the remaining liabilities ofSyndicate 2004 (through which the Group underwrote UK private motor insurance from 2000
to 2002) into one of its active insurers - Admiral Insurance Company Limited. Whilst thetransfer has a number of advantages in terms of simplifying Group structure and administrativerequirements, the transfer has not had a material financial impact on the results in 2007.

ADMIRAL GROUP plc 17

Profit commission
Financial Review 14 - 21

The Group earns profit commission through its co-insurance and reinsurance arrangements.
The amount receivable is dependent on the volume and profitability of the insurance business,measured by reference to loss and expense ratios.
Around £20.4m was recognised in 2007, which is £0.5m higher than 2006, although as reported
last year, the 2006 total included £2.0m relating to earlier year contracts (£0.5m in 2007).
The reinsurance contracts entered into with Munich Re in Spain and Germany also have profit
commission clauses, though these require the underwriting results to move into cumulative
profitability before any commission will be earned.

Ancillary and other net income
2007

2006

UK
GROUP
£000

EUROPE
£000

TOTAL
£000

UK
GROUP
£000

EUROPE
£000

TOTAL
£000

Ancillary profit

75,836

1,767

77,603

66,94676

67,022

Interest income

7,745

32

7,777

4,539

-

4,539

Instalment income

5,936

47

5,983

5,676

-

5,676

Gladiator Commercial profit

2,000

-

2,000

2,025

-

2,025

91,517

1,846

93,36379,18676

79,262

Ancillary profit & instalment income
This is primarily made up of commissions and fees earned on sales of insurance products andservices complementing the motor policy, but which are underwritten by external parties. It
continues to be a major component of Group profit.
Net ancillary contribution increased by 16% in 2007 to £78m from £67m, broadly in line withthe growth in vehicles insured. Gross UK ancillary income per average active vehicle was £69
for both years, with no notable change in the component elements. Balumba has also beensuccessful in selling ancillary products, with income per policy sold of around £45.
UK ancillary income per vehicle

80

900

70
60

1000

£62

£66

£68

£69

£69

800
700

50
£m

600

40

400

30

638.4
548.0

500
427.3

300

20

200

10

100

0

0
2003

2004

2005

2006

2007

2003
Turnover

Gladiator Commercial
Gladiator made a contribution to profit of £2m in 2007, consistent with 2006. In a highly
competitive market, Gladiator grew market share by increasing its customer base by 44% to62,000. This was partly as a result of new distribution through price comparison sites, and partly
the result of improved conversion from a larger and more comprehensive panel.
Gladiator offered 230,000 quotes in 2007, up 68% on last year. Increased investment in new
business growth meant that Gladiator’s net margin reduced to 27% from 34% in 2006.

2004

2005

18 FINANCIAL REVIEW

Confused.com

Confused.com profit

2007
£000

2006
£000

36,72723,080Confused enjoyed another year of significant growth in 2007. Increased media activity (alongwith the return of large numbers of previous visitors to the site) led to an increase in the total
number of insurance quotes provided by Confused of 43%, to 13.0m from 9.1m in 2006. Revenue
increased by 81% to £69.2m from £38.5m.
Operating profit rose 59% to £36.7m from £23.1m in 2006.
Confused also increased its share of the home and travel insurance markets by improving market
coverage and panel depth, and revenue growth has also been achieved in a number of othergeneral insurance areas including van and motorbike insurance. Home insurance quotes increasedby almost 80% to 0.9m from 0.5m, whilst Confused also gave 0.5m travel insurance quotes (upsubstantially from just over 0.1m last year).
As noted in the Chief Executive’s statement, Confused faced a significant increase in the levelof competition in the motor insurance price comparison market during 2007. In spite of this,Confused maintained its position as market leader. Advertising spend by the main competitors inthis market has grown substantially over the past year and continues to grow into 2008.

International operations
Balumba has completed its first full year of trading and has progressed well. Management
are pleased with the development of the business, which has grown ahead of plan and is well
positioned to continue to grow market share and move towards profitability. The European
figures above show Balumba made a loss of around £0.7m in the year (the net effect of theunderwriting loss, offset by ancillary profits).
AdmiralDirekt launched successfully in Cologne, Germany during October, just under one year
after Balumba. The German market brings new challenges, not least the large proportion of
motor policies that incept 1 January. AdmiralDirekt sold around 9,000 policies in its short periodof trading, managing to commence operating in time to target the January renewals. The businesswill continue to develop its infrastructure over the coming months, building towards the next
peak period in Q4 2008.
The Group’s Italian motor insurer is expected to launch later in the year. The business, basedin Rome, is making made good progress towards launch in all the key areas (management team,premises, IT system, pricing and marketing).

Earnings per share (EPS)
Earnings per share rose 22% to 48.6p from 39.8p in 2006. The difference in the increase compared
to pre-tax profit growth (which was 23.5%) is due to the issue of new share capital in the year to
the trustees of the Group’s share schemes.

Taxation
The taxation charge reported in the income statement is £54.7m (2006: £43.6m) representing
30.0% of pre-tax profit (2006: 29.6%).
Refer to note 13 to the financial statements for further detail on taxation.

ADMIRAL GROUP plc 19

The Group invests its insurance funds in three AAA-rated sterling liquidity funds, which have
performed very consistently in 2007. Against a background of extreme volatility in other asset
classes during the year, the three funds delivered a net return of 5.6%, with the variance between
the highest and lowest fund’s performance in the year being just 0.1%.
The funds target a 7-day LIBID return with capital security and low volatility and they continue toachieve this.
Of the total Group cash and investments of £491m at the end of the year (2006: £449m), £336m(2006: £258m) was held in these money market funds.
Total investment return and interest income was £24.6m up substantially from the £14.5m earned
last year. This increase is due in part to the higher level of cash and investments held, but moreto the increase in investment return rates.

Dividends
The Directors propose a final dividend for 2007 of 23.2p per share, which is made up of 11.6p per
share normal element, plus 11.6p per share special distribution based on the Group’s resources atthe end of the year.
The total distribution for 2007 will be 43.8p per share – up 21% on the 36.1p declared in 2006.

Financial Review 14 - 21

Investments and cash

20 FINANCIAL REVIEW

Reconciliation of turnover
2007
£000

2006
£000

Insurance premium revenue

233,075

188,288

Change in gross unearned premium provision

27,8268,090

Group premiums written

260,901

196,378

Add: co-insurer’s share of premium written

370,350

370,230

Total premiums written

631,251566,608

Other revenue

176,878

131,621

Net investment return

16,795

9,925

824,924

708,154

2007
£000

2006
£000

Net insurance premium revenue

142,236

144,955

Net insurance claims(99,795)(107,145)

TurnoverReconciliation of underwriting profit

Net expenses related to insurance contracts(21,734)(19,384)

Investment return (see note 8)

16,795

9,925

Underwriting profit

37,50228,351ADMIRAL GROUP plc 21

2007
£000

2006
£000

Net insurance claims

99,795

107,145

Deduct: claims handling costs(3,471)(3,538)Adjusted net insurance claims

96,324

103,607

Net premium revenue

142,236

144,955

Loss ratio

67.7%

71.5%

2007
£000

2006
£000

182,098

147,342

Net insurance premium revenue

142,236

144,955

Other revenue

176,878

131,621319,114276,576

57%

53%

Reconciliation of alternative operating ratios

Profit before tax
Income:Return on income

Financial Review 14 - 21

Reconciliation of loss ratios reported

2 2 C O R P O R AT E G O V E R N A N C E

Corporate governance
The Combined Code on Corporate GovernanceThis report explains key features of the Group’s governance structure, how it applies theprinciples set out in the revised Combined Code on Corporate Governance (the ‘Code’), and theextent to which the Company has complied with the provisions of the Code.
The Board complied with the Combined Code in all respects during 2007 except for Code D.1.1,
which requires that the Senior Independent Director should attend meetings with a range ofshareholders. The Company has a comprehensive programme of meetings and dialogue withinstitutional investors. The views of investors expressed through this dialogue are communicatedto the Board as a whole through the investor relations report. All Directors can, therefore,
develop an understanding of issues or concerns of major shareholders should any be raised.
Feedback from shareholders suggests that these arrangements for communication between
the Company and its shareholders continue to be viewed by them as effective. The Senior
Independent Director is always available to meet with individual shareholders on request toensure the Board is aware of any shareholder concerns that cannot be resolved through theroutine mechanisms for investor communications.

The Admiral Group Board
The Board is the principal decision making forum for the Group providing leadership either
directly or through its Committees of Directors and delegated authority. It is responsible toshareholders for setting and achieving its strategic objectives and for its financial and operational
performance. The Board has adopted a formal schedule of matters specifically reserved to it
including corporate strategy, approval of budgets and financial results, policies in relation to risk
management, health and safety and environmental matters, new Board appointments, proposals
for dividend payments and the approval of major transactions. This schedule is reviewed on anannual basis and was last reviewed on 30 January 2008.
The Board met on eight occasions in 2007. In addition the Board held a strategy day and visited
its operations in Germany. Agendas and papers are circulated to the Board in a timely manner in
preparation for Board and Committee meetings. These papers are supplemented by information
specifically requested by the Directors from time to time. All Directors are, therefore, able tobring independent judgement to bear on issues such as strategy, performance, and resources.
Additional meetings are called when required and there is frequent contact between meetings,
where necessary, to progress the Company’s business.
During the year the Board carried out an evaluation of itself and its Committees. An external
consultant facilitated the evaluation process. The process consisted of the completion of aquestionnaire followed by one-to-one discussions between each Director and the facilitator. A
final detailed report was discussed at a separate meeting in January 2008 at which the Chairman
presented the findings and the Board had an open discussion resulting in a number of agreed
recommendations. The evaluation concluded that the Board and its Committees performed wellduring the year and are effective in meeting their objectives and fulfilling their obligations. The
main recommendations were related to the focus of Board meeting discussions and improving
the process by which Non-executive Directors can arrange to spend time informally with senior
management within the Group.
The Chief Executive, to whom they report, appraises the performance of the individual Executive
Directors annually. The Chairman, taking into account the views of the other Directors, conducts
the performance appraisal of the Chief Executive. The performance of the Chairman is reviewed
by the Non-executive Directors, led by the Senior Independent Non-executive Director (John
Sussens), taking into account the views of the Executive Directors.

ADMIRAL GROUP plc 23

The number of full Board meetings and Committee meetings attended by each Director during
2007 is provided in the table below.
ScheduledBoard
meetings

Audit
Committee
meetings

Nominations
Committee
meetings

Remuneration
Committee
meetings

Total meetings held

8

4

2

5

Alastair Lyons (Chairman)

8

Henry Engelhardt(Chief Executive)

8

David Stevens(Chief Operating Officer)

8

Kevin Chidwick(Finance Director)

8

Manfred Aldag

6

Martin Jackson

84Keith James

8

4

Margaret Johnson

74Lucy Kellaway

8John Sussens

8

2

5
2
5
2
5

The roles of the Chairman and Chief Executive
The Board has approved a statement of the division of responsibilities between the Chairman
and the Chief Executive. The Chairman is primarily responsible for the workings of the Boardand is not involved in the day-to-day aspects of the business. Save for matters reserved for
decision by the Board, the Chief Executive, with the support of the other Executive Directors,
is responsible for the running of the business, carrying out the agreed strategy adopted by the
Board and implementing specific Board decisions relating to the operation of the Group. The
statement of division of responsibilities and matters reserved for decision by the Board werereviewed in January 2008.

Board balance and independence
The Board currently comprises ten Directors, the Chairman (who was independent on
appointment), three Executive Directors, five independent Non-executive Directors and one
Non-executive Director who is employed by a significant shareholder and is not, therefore,
considered independent. The Board has accepted the Nominations Committee’s assessment of
the independence of the five Non-executive Directors and is not aware of any relationships orcircumstances which are likely to affect, or could appear to affect, the judgement of any of them.
Independent Non-executive Directors are currently appointed for fixed periods of three years,
subject to election by shareholders.

Corporate governance 22 - 29

John Sussens gave individual feedback to the Chairman and was able to confirm that theperformance of the Chairman continues to be effective, and that the Chairman continues todemonstrate commitment to his role.

2 4 C O R P O R AT E G O V E R N A N C E

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

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

Relations with shareholders
The Investor Relations team has day-to-day primary responsibility for managing communications
with institutional shareholders through a combination of briefings to analysts and institutional
shareholders, both at the half-year and full year results. Site visits and individual discussions
with the Executive Directors are also arranged throughout the year with individual shareholders.
Regular dialogue with shareholders helps to ensure that the Company’s strategy is understoodand that any issues are addressed in a constructive way.
In fulfilment of the Chairman’s obligations under the new Combined Code, the Chairman would
give feedback to the Board on issues raised with him by major shareholders, although to datethere have been no such issues.

ADMIRAL GROUP plc 25

The Chairmen of the Audit, Remuneration and Nominations Committees attend the Company’s
Annual General Meeting along with other Directors, and are available to answer shareholders’questions on the activities of the Committees they chair.
The Group maintains a corporate website (www.admiralgroup.co.uk) containing a wide range of
information of interest to institutional and private investors.

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

The Audit Committee
Constitution and membership
The membership at the year-end was Martin Jackson (Chairman), Keith James, and Margaret
Johnson. The Company Secretary acts as Secretary to the Committee. Appointments to theCommittee are for a period of up to three years, which may be extended for two further threeyear periods, provided the Director remains independent. The Committee meets at least threetimes per year and has an agenda linked to events in the Company’s financial calendar.
The Board considers that the members of the Committee have the appropriate competence
and experience to carry out their duties and further considers that Martin Jackson (Committee
Chairman) has the appropriate recent and relevant financial experience having held the positionof Group Finance Director of Friends Provident Plc between 2001 and 2003 and being a Fellow of
the Institute of Chartered Accountants, which imposes requirements for Continuing Professional
Development. Ongoing training is provided to all members, and this is intended to cover relevant
developments in financial reporting, company law and the various regulatory frameworks. The
Terms of Reference of the Audit Committee include all matters suggested by the Code.
Other individuals such as the Finance Director, Chief Operating Officer, Chief Executive, Chairmanof the Board, the Heads of Risk, Compliance and Internal Audit and representatives from within
the Company may be invited to attend all or part of any meeting as and when appropriate. The
external auditors will be invited to attend meetings of the Committee on a regular basis.
Summary of key activities during 2007
During the year the Committee reviewed the following:· Annual report and interim results;· Reports from the Group’s internal audit department on the effectiveness of the Group’s risk
management procedures, details of key audit findings and actions taken by management;· Effectiveness of the Group’s system of internal control;

Corporate governance 22 - 29

This is supplemented by monthly feedback to the Board on meetings between management andinvestors. External analyst reports are circulated to all the Directors.

2 6 C O R P O R AT E G O V E R N A N C E· Reports from the external auditors on their audit, proposed audit scope, fees and auditor
independence;· Performance of the internal audit department through self assessment (the internal audit
department is subject to external assessment once every five years);· The Group’s ‘whistleblowing’ procedures.

The Committee adopted a policy on non-audit services that, amongst other things, requires that
the Committee approve all proposals for expenditure of over £30,000 on non-audit services.
The policy was last reviewed on 28 November 2007. The Group’s auditors, KPMG Audit plc,
provide some non-audit services, the majority of which comprise compliance services on thevarious taxation issues within the Group, and which are not considered by the Committee tocompromise their independence as auditors. In addition, the Committee reviewed the fees withrespect to VAT services in relation to the Group’s Gibraltan insurance Company and agreed thatthe work carried out did not compromise the auditor’s independence. The level of non-audit fees
is reviewed at each Committee meeting and details are included in note 10 of the Report andAccounts.
The Head of Internal Audit is invited to all Committee meetings and provides a range ofpresentations and papers to the Committee, through which the Committee monitors theeffectiveness of the Group’s internal controls. Committee members receive copies of allinternal audit reports and are given the opportunity to raise questions on the content andrecommendations contained within the reports. The Committee approves the internal audit
programme at the start of each calendar year and monitors the progress made in achieving theplan.
During the year, the Committee received a presentation from the Group’s external actuaries, Ernst& Young, on reserving methodologies used in assessing the Group’s claims reserves.
The Committee also approves the annual compliance review plan and receives copies of thesereports. The Group’s Company Secretary, who has responsibility for the Compliance and Risk
management functions, provides the Committee with a quarterly Compliance Officer’s reportsummarising the activities in this area.
The Committee has a policy that provision of external audit services be tendered every five
years. This was last carried out in 2006 when the decision was made to retain the services of theincumbent external auditors. At the same time the external audit partner was rotated.

The Nominations Committee
The membership at the year-end was Keith James (Chairman), Lucy Kellaway and Alastair Lyons.
The Company Secretary acts as Secretary to the Committee. The Committee normally invites
the Chief Executive to attend meetings.
The Committee has formal terms of reference, which were last reviewed on 22 November 2007.
The Committee met on two occasions during 2007.
The Committee leads the process for making appointments to the Board or where the appointee
is likely to become a Board member. The Committee ensures there is a formal, rigorous andtransparent procedure for the appointment of new Directors to the Board through a fullevaluation of the skills, knowledge and experience of Directors. The Committee also ensuresplans are in place for orderly succession for appointments to the Board, and reviews the plans forother senior management positions. Responsibility for making senior management appointments
rests with the Chief Executive.

During 2007, the Committee advised the Executive team on the expectations for succession
planning. Planning for the most senior management positions was formerly in place but below
this, succession planning within the Group was not well documented. The People Services
Manager has started a process of documenting and improving the approach taken by the Groupto assess and monitor succession planning throughout the Group.
The Committee reviewed the current Board size, structure, and composition and confirmed thatno further changes were required and that the leadership of the organisation was such that theCompany could continue to compete effectively in the marketplace in which it operates.

The Remuneration Committee
The membership at the year-end was John Sussens (Chairman), Martin Jackson and Margaret
Johnson. The Company Secretary acts as Secretary to the Committee. The Committee invites
the Chief Executive and Chairman to attend the meetings where it deems appropriate.
The Committee has formal terms of reference, which were last reviewed on 22 November 2007.
The Committee met five times during 2007.
During the year the Committee carried out the following tasks:-· Reviewed the Group’s overall remuneration policy and strategy;· Recommended for approval individual remuneration packages for Executive Directors, andCompany Secretary;· Reviewed the rules and performance measures of the Group share schemes and recommended
for approval the grant, award, allocation or issue of shares under such schemes.

A separate remuneration report is included within the Report and Accounts.
The Committee did not use the services of any external consultants during the year but did
receive reports produced by various external agencies to enable it to make judgements on thelevels of remuneration for the Directors and to review the remuneration of the Group’s senior
executives.

Internal control and risk management
The Board is ultimately responsible for the Group’s system of internal control and, through the
Audit Committee, has reviewed the effectiveness of these systems. The systems of internal
control over business, operational, financial and compliance risks are designed to manage rather
than eliminate the risk of failure to achieve business objectives and can only provide reasonable
and not absolute assurance against material misstatement or loss.
The Board is of the view that there is an ongoing process for identifying, evaluating and managing
the Group’s internal controls; that it has been in place for the year ended 31 December 2007; andthat, up to the date of approval of the annual report and accounts, it is regularly reviewed by the
Board and accords with the internal control guidance for Directors provided in the Code.
A key element of the control system is that the Board meets regularly with a formal schedule ofmatters reserved to it for decision and has put in place an organisational structure with clearly
defined lines of responsibility.

Corporate governance 22 - 29

ADMIRAL GROUP plc 27

2 8 C O R P O R AT E G O V E R N A N C E

In order to ensure these responsibilities are properly discharged, the Board has delegated the taskof supervising risk management and internal control to the Risk Management Committee (RMC).
There are several key elements to the risk management environment throughout the Group.
These include the setting of risk management policy at Board level, enforcement of that policyby the Chief Executive, delivery of the policy by the RMC via the Group’s systems of internal
control and risk management, and the overall assurance provided by the Audit Committee thatthe systems operate effectively.
The Board recognises that the day-to-day responsibility for implementing these policies must lie
with the management team, whose operational decisions must take into account risk and how
this can effectively be controlled. The Company Secretary and Risk Officer take responsibility
for ensuring management are aware of their risk management obligations, providing them withsupport and advice, and ensuring that the risk management strategy is properly communicated.
The head of each business unit or business area is required, with the support of the Risk Manager,
to undertake a full assessment process to identify and quantify the risks that their departments
face or pose to the Group and the adequacy of the controls in place to mitigate or reduce thoserisks. Reports are produced showing the most significant risks identified and the controls inplace. Internal Audit and the Compliance function use the risk registers to plan their programmeof audits to ensure that the controls described are actually in place.
The RMC receives reports setting out key performance and risk indicators and considers possible
control issues brought to their attention by early warning mechanisms that are embedded
within the operational units. The RMC and the Audit Committee also receive regular reports
from Internal Audit, which include recommendations for improvement in the control andoperational environment. The Audit Committee’s role in this area is primarily confined to a highlevel review of the arrangements for internal control although at its discretion the Committee
may well request more detailed information on specific issues should they arise. The Board’s
agenda includes a regular item for consideration of risk and control and receives reports thereon
from the RMC and the Audit Committee. The emphasis is on obtaining the relevant degree of
assurance and not merely reporting by exception. At its March 2008 meeting, the Board carriedout the annual assessment for the 2007 year by considering documentation from the Audit
Committee, taking account of events since 31 December 2007.
The Audit Committee’s ability to provide the appropriate assurance to the Board depends on theprovision of periodic and independent confirmation, primarily by Internal Audit, that the controls
established by management are operating effectively. The Audit Committee reviews the wider
aspects of internal control and risk management, providing a high level challenge to the steps
being taken to implement the risk management strategy.
The Board confirms that there were no significant issues arising during the year under review.
The Risk Management Committee
The Committee’s members include the three Executive Directors, the Group Company Secretary(who chairs the meetings), the Deputy Compliance Officer, the Risk Manager and senior
management representatives.
One of the Committee’s principal responsibilities is to ensure that the risk management policy
approved by the Board is implemented throughout the Group.

The Committee has formal terms of reference and is required to manage regulatory issues, assess
and monitoring reinsurance protection, and ensure that a risk management strategy is effectively
employed by the Group. The Committee meets around 8 times a year and each Committee
member receives an agenda and papers in a timely manner allowing the Committee to makeinformed decisions and actions.
The Committee develops policies to ensure compliance with regulation and ensures thatappropriate action is taken by the management team to implement compliant systems andprocedures.
Internal Audit
The Internal Audit function assists management by providing them with timely, independent
assurance that the controls established are operating effectively. This includes regular reviews ofinternal control systems and business processes, including compliance systems and procedures,and identification of control weakness and recommendations to management on improvements.

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

Corporate governance 22 - 29

ADMIRAL GROUP plc 29

3 0 R E M U N E R AT I O N R E P O R T

Remuneration report
Scope of report
The remuneration report summarises the Group’s remuneration policy and particularly its
application with respect to the Directors. The report also describes how the Group applies theprinciples of good corporate governance in relation to Directors’ remuneration in accordancewith the Combined Code and Directors Remuneration Report Regulations 2002.
Remuneration Committee
The Committee is appointed by the Board and comprises only Non-executive Directors. The
Committee is chaired by John Sussens, the Senior Independent Non-executive Director, with theother members being Martin Jackson and Margaret Johnson. The Chairman and Chief Executive
are invited to meetings where the Committee considers it appropriate to obtain their advice on
the matters under review. During the year ended 31 December 2007, the Committee met on
five separate occasions. Its remit includes recommending the remuneration of the Chairman,
the Executive Directors, and the Company Secretary; review of the remuneration of senior
management; review of the awards made under the performance related incentive schemes.
The Committee’s terms of reference, which are reviewed at least annually and approved by the
Board, are available on the Group’s corporate website and are summarised in the Corporate
Governance Report.
The members of the Committee do not have any personal financial interests or any conflicts
from cross-directorships that relate to the business of the Committee. The members do nothave any day-to-day involvement in the running of the Group.
During the year the Committee did not purchase any consultancy services but the Company
Secretary circulates market survey results as appropriate.
Remuneration policy
The Group is committed to the primary objective of maximising shareholder value over time.
The Committee reviews the framework and remuneration packages of the Executive Directors
and the most senior managers. The main principles underlying the remuneration policy are:· 	Competitive – The Group pays below-median salaries but with attractive incentives which

provide opportunity for highly competitive total reward packages for superior performance.
· 	Performance linked – A significant part of Executive Directors’ and senior managers’ reward isdetermined by the Group’s earnings growth. Failure to achieve threshold levels of growth in
the Group’s earnings results in reduced or no payout under the Group’s Long-term incentiveplan.
· 	Shareholder aligned – A considerable part of the reward is related to the growth in earnings
versus LIBOR. Executive Directors have agreed to retain a minimum shareholding equal toat least 100% of base salary which can be built up over a period of five years from the date of
appointment.
· 	Transparent – All aspects of the remuneration structure are clear to employees and openly
communicated.
· 	Death in Service scheme, paying three times salary available to all employees following
completion of their probationary period.
· 	Group Personal Pension Plan, matching employee contributions up to a maximum 6% of basesalary with a total annual cap of £4,800. Available to all employees with one year’s service.
· 	Private Medical Cover, available to approximately 100 management level staff.
· 	Permanent Health Insurance policy covering the same staff who are eligible for Private
Medical Cover.

ADMIRAL GROUP plc 31

and David Stevens have declined to be included in the plan). The maximum annual award
under the SIP is £3,000 per employee. Shares awarded under the SIP are forfeited if theemployee leaves within three years of the award. Awards are made twice a year, based on
the results of each half-year. During 2005, 2006 and 2007 the Group’s results have meantthat qualifying staff have received maximum awards in each year.
· 	Discretionary Free Share Scheme (DFSS). Awards under the DFSS are distributed on a wider
basis than most plans of this type. The Committee believes that as the DFSS develops andawards begin to vest in 2008, it will have the effect of reducing staff attrition and creating adefinite alignment of the interests of staff and shareholders.
Of the Group’s current Executive Directors, only Kevin Chidwick (Finance Director) participatesin this scheme.

	The performance criterion in determining how many shares vest under the DFSS is the growthin earnings per share (EPS) in excess of a risk free return, defined as average 3-month LIBOR,
over a three-year period. The Committee feels that this is a good indicator of long-term
shareholder return with which to align staff incentivisation. The Committee recommends
for approval by the Board awards to the Finance Director and other employees under the
DFSS. The EPS targets are such that for full vesting of shares to occur, the average EPS
growth over the three-year performance period would have to be approximately 16% perannum (assuming LIBOR averages 5% over the period). Only 10% of shares vest for matching
LIBOR over the three-year period. The plan allows for a maximum award of £400,000 or
600% of basic salary if lower.

The Committee is conscious of the maximum allowable awards under both share schemes andcontrols are in place to ensure that neither scheme is issued shares in excess of 5% of the Group's
issued share capital over the 10 year period from 1 January 2005.
The Committee determines the fees for the Chairman of the Board after consultation with the
Executive Directors and review of market data. The fees of the Chairman were not subject toreview in 2007. The Chairman waives 25% of his fee.
Non-executive Directors’ remuneration is set by the Chairman and Executive Directors andapproved by the Board as a whole. A summary of their contracts and remuneration is shown
below.
Executive Directors are allowed, or though none currently do, to accept appointments as Nonexecutive Directors of companies with prior approval of the Chairman. Approval will only begiven where the appointment does not present a conflict of interest with the Group’s activities
and the wider exposure gained will be beneficial to the development of the individual. Where
fees are payable in respect of each appointment these will be retained by the Company.
Executive Directors’ remuneration
Two of the three Executive Directors (Henry Engelhardt and David Stevens) are founding Directors.
They and the Committee continue to hold the view that the significant shareholdings held bythem provide a sufficient alignment of their interest in the performance of the Group with theinterests of other shareholders.
In light of this, their remuneration packages consist of below-median base salary (comparedto market rates by the Committee) and benefits such as private medical cover, permanent
health insurance and death in service cover. The Group does not contribute to any pension
arrangements on behalf of these Executive Directors, and they have not, nor is it intended
that they will participate in any Group share schemes. Their remuneration was reviewed in
September 2007. Henry Engelhardt was awarded a rise of 5.2% taking his salary to £305,000 andDavid Stevens awarded a rise of 6% taking his salary to £265,000
The Committee aims to ensure that the remuneration of the Finance Director is fair and in
total, in-line with market rates, and is designed to provide rewards for achieving increases inshareholder value.

Remuneration report 30 - 35

· 	Approved Free Share Incentive Plan (SIP). The SIP is available to all staff (Henry Engelhardt

3 2 R E M U N E R AT I O N R E P O R T

In addition to benefits such as private medical cover, permanent health insurance, death inservice cover and eligibility to the Group’s Personal Pension Plan, there are two main elements to
the Finance Director’s remuneration package:· Basic annual salary· Awards under the DFSS.
It is the Committee’s general strategy to pay salaries at or slightly below median levels together
with awards under the DFSS bringing the total remuneration to competitive levels for superior
performance. With effect from 1 October 2007 Kevin Chidwick’s base salary was increasedto £240,000, an increase of 20%. Kevin Chidwick received an award of 23,000 free shares on
18 April 2007 with a value at the date of the award of £241,500. The awards are the maximum
number of shares that could vest after a three-year period and are subject to performance
criteria as described above.
Directors’ service contracts
The following table summarises the notice periods relating to the service contracts of the
Executive Directors serving at 31 December 2007.
Notice – Director(months)

Notice – Company(months)

Kevin Chidwick

12

12Henry Engelhardt

1212David Stevens

12

12

There is no provision in the Executive Directors’ contracts for compensation to be payable onearly termination of their contract over and above the notice period element.
The Company has entered into letters of appointment with its Non-executive Directors.
Summary details of terms and notice periods are included below.
Term and notice
Alastair Lyons

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

Manfred Aldag

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

Martin Jackson

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

Keith James

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

Margaret Johnson

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

Lucy Kellaway

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

John Sussens

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

Given the short notice periods applicable, mitigation issues are unlikely to arise.
Non-executive Directors’ remuneration
The remuneration of the Chairman is decided by the Remuneration Committee and that of theNon-executive Directors by the full Board. The Non-executive Directors do not participate inmeetings when Non-executive Director fees are discussed.

ADMIRAL GROUP plc 33

The following tables set out Non-executive fees and expected time commitments.

SeniorIndependent
Director

Audit

Remuneration

Nominations

Member

3

1

1

18

Chairman

4-5

2-3

2-4

As required

Other

Board

1-3

Fees payable (£’000) with respect to Board and Committee membership are as follows:

Audit

Remuneration

Nominations

SeniorIndependent
Director

Board

Member

3

1

1

30

Chairman

5

3

3

120

Other

5

Total Shareholder Return (TSR)
The following graph sets out a comparison of Total Shareholder Return for Admiral Groupplc shares with that of the FTSE 350 Index, of which the Company is a constituent. The graphmeasures the period from the commencement of conditional trading on 23 September 2004
up to 31 December 2007. TSR is defined as the percentage change over the period, assuming
reinvestment of income.
The Directors consider this to be the most appropriate index against which the Company should
be compared.

440
440
400
400
360
360
320
320
280
280
240
240
200
200

160

160

120

120

80

80
S e p - 0 4 Dec-04
D e c - 0 4 Mar-05
M a r - 0 5 Jun-05
J u n - 05 S
e p - 0 5 Dec-05
D e c - 0 5 Mar-06
Ma r -0 6
J u n - 0 6 Sep-06
S e p - 0 6 Dec-06
D e c - 0 6 Mar-07
M a r - 0 7 Jun-07
J u n - 0 7 Sep-07
S e p - 0 7 Dec-07
D ec -07
Sep-04
Sep-05
Jun-06

Source: Datastream

AAdmirald m ir a l GGroupr o u p PL
plcC

FFTSE
T SE 350
350

Remuneration report 30 - 35

Expected time commitment (in days) for the Board and Committees:3 4 R E M U N E R AT I O N R E P O R T

Directors’ shareholdings - Audited
Directors’ interests in the ordinary shares of the Company are set out below:
Ordinary shares of 0.1p
31 December
2007

31 December
2006

1,796

213

Henry Engelhardt **40,466,720

40,466,720

David Stevens ***10,084,000

19,768,000

Alastair Lyons

615,600

615,600

Manfred Aldag--

Martin Jackson--

44,50044,500Margaret Johnson--

Lucy Kellaway--

John Sussens

8,000

8,000

Executive Directors
Kevin Chidwick*

Non-executive Directors

Keith James* Kevin Chidwick holds 546 shares (2006: 213) within the Group’s SIP details of which are shown below** Include amounts held by family members and in trusts settled by family members*** David Stevens and his wife transferred 9,884,000 shares to The Waterloo Foundation, a charitable foundation they
established in February 2007

Directors’ remuneration - Audited
Remuneration for the year ended 31 December 2007 was as follows:Basesalaryand fees

BonusesandotherBenefits

2007
Total

2006
Total

Executive Directors(£000)(£000)(£000)(£000)(£000)

Kevin Chidwick *

210

34

3

247

75

Henry Engelhardt

298

-

-

298

285

David Stevens

254

-

-

254

250

90

-

-

90

75

Manfred Aldag

6

-

-

6

6

Martin Jackson

36

-

-

36

30

Keith James ***

46

-

-

46

38

Margaret Johnson

34

-

-

34

11

Lucy Kellaway

31

-

-

31

10

John Sussens

38

-

-

38

35

1,043

34

3

1,080

815

Chairman and Non-executive
Directors
Alastair Lyons **Totals* £34,000 of other payments to Kevin Chidwick relate to relocation expenses		** Alastair Lyons waives 25% of his annual fee which is currently £120,000*** Keith James also received £5,000 for chairing the Board of Admiral Insurance Company Limited and £5,000 for chairing
the Board of Inspop.com Limited

ADMIRAL GROUP plc 35

The table below sets out the awards made to Directors under the DFSS and SIP, including thedates of the awards, the value at the time of the award and vesting date.
Awards to Kevin Chidwick under the DFSS and SIP------------Number of shares-----------Vested At end
during
of
year
year

Price
at
award
(£)

Value ataward(£)

Date of
award

Final
vestingdate

Type

At startof yearAwardedduringyear

DFSS

28,103--

28,103£4.37£122,810

31/10/05

31/10/08

DFSS

21,186--21,186£6.136£130,000

18/04/06

18/04/09

DFSS

18,480--18,480£6.764£125,000

04/09/06

04/09/09

DFSS-

23,000- 23,000£10.50£241,500

18/04/07

18/04/10

SIP

213

-

-

213

£6.764£1,44006/09/06

06/09/09

SIP

-

151

-

151

£10.284£1,552

09/03/07

09/03/10

SIP

-

182

-

182

£8.264£1,50404/09/07

04/09/10

For details of Directors’ responsibilities, please refer to the biographies section.
This report was approved by the Board of Directors on 3 March 2008 and is signed on its behalfby the Committee Chairman:

John Sussens
Remuneration Committee Chairman

Remuneration report 30 - 35

Awards made under the Discretionary Free Share Scheme (DFSS) and Free Share Incentive
Plan (SIP)3 6 C O R P O R AT E R E S P O N S I B I L I T Y

Corporate responsibility
The Admiral Group is committed to dealing fairly and with a high level of integrity with all
its stakeholders. The corporate responsibility report sets out our approach and the way wemeasure our success in dealing with each group of stakeholders:Customers
The Group has always regarded its customers as central to the success of the business. As at 31
December 2007 the Group insured 1.5m vehicles, up 16% from 1.3m the year before. We focus
on open communication with our customers providing high standards of service at all points
in the customer cycle from new business, customer service, renewals, claims and complaints.
The Group's commitment to quality is demonstrated through its Quality Measures Programme.
Everyone in the organisation has a part to play in ensuring a high standard of quality. Every
department in the Group has a unique set of quality measures to gauge performance.. The
measures are updated each year to challenge staff to make continual improvements. The
programme is reported every month in the internal Company magazine and awards are presented
each year for the best departments. The annual measures bonus provides a financial incentive
for staff to drive incremental change throughout the business and was paid out in full for the2007 year.
As well as this programme, quality representatives throughout the Group monitor the service theCompany provides through the thousands of comment forms it receives back from customers
every month. By listening to customer comments, Admiral can improve the quality of service it
provides.
The Group’s Compliance department is now working on a Treating Customers Fairly management
information pack pulling together specific measures that will demonstrate that we areconsistently treating our customers fairly.

Employees
We believe the happier our staff are, the better they will do their job. This means that weconstantly work to improve our staff’s working environment. We also try to make sure that theworking day for our staff is as fun and rewarding as we can make it.
It is important for employees to understand the Company’s goals and objectives. We work tocommunicate this in as many ways as possible. As an example, we encourage staff to attend
our Annual Staff General Meeting (SGM). The SGM is arranged to enable staff to hear theviews of the executive directors and some of the non-executive directors on a wide range ofsubjects including the performance of the Group and the market within which we operate; theexperiences of non-executive directors within and outside of the Group; and the Group’s shareplans. We believe that employing well-informed staff will improve motivation and make Admirala better place to work.
The best measures of our staff’s assessment of their working environment are the surveys
that they have completed. Following independent measurement by the organisations involved
Admiral has received the following awards:

Corporate responsibility 36 - 39

ADMIRAL GROUP plc 37

Staff celebrate the opening of new Swansea office

The Sunday Times 100 Best Companies to Work For – Admiral has been included in all eight
years of the publication and was ranked 57th overall in the last list published.
Position

2001

2002

2003

2004

2005

2006

2007

2008

32

42

46

60

20

20

21

57

The Financial Times 50 Best Workplaces in the UK – we have been included in all five years of
the publication, which has not yet been published for 2008.
Position

2003

2004

2005

2006

2007

7

16

17

8

Top 10** Individual positions within the top 10 were not provided in 2007.
The Group also carries out its own annual internal web-based survey both to collect employees’
views on what it is like working for Admiral and to address areas where issues are raised. In 2007,
85% of staff completed the survey (2006, 85%). Overall, the results continued to show that 91%
of employees feel proud to be associated with Admiral, 82% feel that morale is high in theirdepartment and 89% feel that morale is high throughout the Company as a whole.
The survey results are split down by department and each manager is expected to share thesurvey results with their team, explore issues and concerns, and then make recommendations toaddress them.

3 8 C O R P O R AT E R E S P O N S I B I L I T Y

Community
Admiral has adopted a charitable giving policy, which supports the local communities in which its
employees live and work. During 2007, 110 local organisations were helped with a total donationof £25,000.
Financial support is an important part of our commitment to our local communities and ourcustomers. We contribute both as a Company and as individuals through a variety of schemes.

Admiral sponsored Champion Child of Courage Award

Custard pie throwing for charity

Environment
The Group’s impact on the environment stems from its use of resources to run its offices in
Cardiff and Swansea and its communications with customers. In addition, the Group now has
operations in Spain, Germany and will launch in Italy later in 2008. It also operates a call centre
in Halifax, Canada, which employs over 100 staff. The Group does not own the properties that it
occupies and is, therefore, reliant upon the cooperation of the managing agents of the properties
to make changes that could reduce the consumption of energy and water. The figures quoted
for energy use do not yet include overseas properties but travel to and from these businesses
is included within the figures quoted in the table below. In 2008 reporting will be included bycountry.
The Group Company Secretary is responsible for the Group’s approach to its impact upon theenvironment and during 2007 steps were taken to ensure that systems were put in place tocollect the information necessary to report fully on the Group’s UK operations.

· 	Raising and maintaining staff awareness of, and ensuring that employees are actively engaged
in, activities to reduce the impact of the Group’s operations on the environment.

·

Measuring, monitoring and reporting on the key aspects of the Group’s environmental 		
performance and regularly reviewing progress to reduce the amount of resources consumed
per employee.

·

Reporting key environmental performance indicators, taking into account the ABI’s 		
Guidelines on Responsible Investment Disclosure and guidance provided by the Department
for Environment, Food and Rural Affairs (Defra).

Impact Area

Usage

Consumption measure
2007

Energy (‘000 Kwh)

6,997

381 Kwh/m2

CO2 (tonnes)

4,033

1.71 tonnes per employee

Water (m3)

14,836

6.28 per employee

Total waste
Waste to landfill
Waste recycled

239,139 KG
128,278 KG
110,861 KG

46% recycled

TravelCar miles
Rail miles
Air Miles

279,920
213,357
1,120,537

118 miles per employee
90 miles per employee
474 miles per employee

Waste management:* The figures above are for the Group’s UK operations.

EnergyThe main source of the Group’s carbon emissions is the consumption of electricity and gas for its
three UK offices . The Cardiff head office is the older and least efficient , built in the 1960’s andhousing just over 1,200 people. The Swansea office, housing 1,100 staff was built in 2006 and istherefore a much more efficient building. The third office is also located in Cardiff housing 130
staff.
During the last quarter of 2007 electricity supply to the Cardiff office was switched to ‘Green
electricity’ which is defined in the The Renewables Obligation Order 2002 as the following typesof electricity (in order of importance in 2006-07): landfill gas, On-shore wind, small Hydro <20
MW DNC, Co-firing of biomass with fossil fuel, Biomass, Off-shore wind, Sewage gas, Microhydro, Biomass and waste using advanced conversion technology, Photovoltaics and Wave power.
During the year the Group started purchasing re-cycled paper for all internal use and isinvestigating sources of recycled paper for communications with customers.
Environmental risks
The Group has reviewed the risks facing its business operations as a result of climate change.
The volume of motor insurance claims for any given portfolio of business is to a large degree
dependent upon weather conditions. The risk associated with climate change is the potentialchange to claims frequency through the impact of more extreme weather patterns. It is virtually
impossible to model the potential impact of climate change on claims frequency as the actual
climate change induced outcome for the UK is unknown. However, the Group does assess thepotential costs associated with a number of disaster scenarios such as a major storm in the South
East, major flood on the East Coast, and a complete flooding of the Thames in the London
area. The Group maintains sufficient reinsurance cover to provide protection in the event ofcatastrophes of this nature.

Corporate responsibility 36 - 39

ADMIRAL GROUP plc 39

40 BOARD OF DIRECTORSThe Admiral Group plc BoardKEY
A - Audit Committee member
R - Remuneration Committee member
N - Nominations Committee member

Alastair Lyons CBE (54)
Chairman (N)Kevin Chidwick (44)Finance Director

Alastair was appointed Chairman of the Company
in July 2000. He is also Executive Chairman ofPartners for Finance Limited, and Non-executive
Chairman of Buy-as-you-View Holdings Limited,and of Higham Dunnett Shaw plc.

Kevin is responsible for finance, information
technology, facilities and investments. He
joined Admiral in 2005, becoming a Director in
September 2006.

He has previously been Chief Executive of the
National Provident Institution and the National& Provincial Building Society, Managing Directorof the Insurance Division of Abbey National plc,
and Director of Corporate Projects at National
Westminster Bank plc. Alastair has also been a
Non-executive Director of the Department forTransport and of the Department for Work andPensions.
A Fellow of the Institute of Chartered
Accountants, he was awarded the CBE in the2001 Birthday Honours for services to social
security.

Henry Engelhardt (50)
Chief Executive Officer
Henry is a founder Director of Admiral and was
recruited by the Brockbank Group in 1991 to set
up the Admiral business.
He was part of the management team that led
the MBO in 1999. Prior to joining Admiral, he
was Marketing and Sales Manager for Churchill
Insurance.
He has substantial experience in direct response
financial services in the United Kingdom, UnitedStates and France. He has an MBA from Insead.

Directors (names from left to right)
Manfred Aldag
Stuart Clarke (Company Secretary)
Margaret Johnson
Keith James
Kevin Chidwick
Alastair Lyons
Henry Engelhardt
Lucy Kellaway
David Stevens
Martin JacksonJohn Sussens

Prior to Admiral, Kevin has been in UK financial
services for over 20 years. He has held a numberof senior roles in other insurance organisations
including, most recently, Finance Director ofEngage Mutual Assurance and Cigna UK.
He is a fellow of the Chartered Institute ofCertified Accountants and has an MBA from
London Business School.

David Stevens (46)
Chief Operating Officer
David is a founder Director of Admiral. Initially
the Marketing Director, he was appointed
Director responsible for pricing in 1996 andclaims and pricing in 1999. He was appointed as
Chief Operating Officer in 2004.
He joined Admiral in 1991 from McKinsey & Co.
where he worked in the Financial Interest Group,
London office. Prior to working for McKinsey &Co, he worked for Cadbury Schweppes in the
United Kingdom and the United States.
David has an MBA from Insead.

Manfred Aldag (57)
Non-executive Director (N)Margaret Johnson (49)Non-executive Director (A,R)

Lucy Kellaway (48)Non-executive Director (N)Manfred was appointed a Non-executive
Director of the Company in 2003 as arepresentative of Munich Re. He graduatedfrom University of Essen and has a degree in
Economics/Business Management (DiplomKaufmann).

Margaret was appointed Non-executive Director of
the Company in September 2006. She is currently
Group CEO of the international advertising agency
Leagas Delaney and has been with that Company forthe past 12 years.

Lucy joined the board as a Non-executive
Director in September 2006. She is the
management columnist on the Financial Times
and author of various books. In 20 years on
the FT she has been oil correspondent, a Lex
columnist and Brussels correspondent.

He has worked for Munich Re since September
1981 and is currently the Senior Executive
Manager responsible for United Kingdom /Ireland.

						
						
Martin Jackson (59)Non-executive Director (A, R)

Martin was appointed Non-executive Director
and Chairman of the Audit Committee in August
2004.
He was the Group Finance Director of Friends
Provident plc between 2001 and 2003 andFriends’ Provident Life Office between 1999
and 2001. Prior to that he was the Group
Finance Director at London & Manchester
Group plc from 1992 to 1998, up to the dateof its acquisition by Friends’ Provident Life
Office. Martin is also a Non-executive Directorof IG Holdings plc, Homeserve GB Limited andRothesay Life Limited

He is a Fellow of the Institute of Chartered
Accountants.

Margaret joined the Group's Audit and Remuneration
Committees on appointment to the Board.

Lucy also joined the Nominations Committee on
appointment to the Board.

Keith James OBE (63)Non-executive Director (A, N)

John Sussens (62)Non-executive Director (R)Keith was appointed a Non-executive Director
in December 2002. He is Chairman of theNominations Committee and is also the
Independent Chairman of Admiral Insurance
Company Limited and Inspop.com Limited.

John was appointed the Senior IndependentNon-executive Director in August 2004, and is
Chairman of the Remuneration Committee. He
is also a Non-executive Director of Cookson
plc, Phoenix IT Group Plc, and Anglo & Overseas
Trust Plc.

He is also a Non-executive Director of Julian
Hodge Bank Limited and is Non-executive
Chairman of Atlantic Venture Capital Limited
and International Greetings plc.
He is a solicitor and was the Chairman ofEversheds LLP from June 1995 to April 2004. He
was a Non-executive Director of Bank of Walesplc between 1988 and 2001 and AXA Insurance
Company Limited between 1992 and 2000. Keith
was awarded an OBE in 2005 for services tobusiness and the community in Wales.

He was the Group Managing Director of Misys
plc between 1998 and May 2004 having been on
the Board of the Company since 1989. Prior tojoining Misys, he was Manufacturing Director at
JC Bamford Excavators Limited. He was a Nonexecutive Director at Chubb plc between 2001
and 2003.

The Board of Directors 40 - 41

ADMIRAL GROUP plc 41

ADMIRAL GROUP plc 43

44-47

Directors’ report

48-49

Independent auditor’s report

50

Consolidated income statement

51

Consolidated balance sheet

52

Consolidated statement of recognised
income and expense

53

Consolidated cash flow statement

54-88

Notes to the financial statements

89

Consolidated financial summary

91-94

Admiral Group plc Parent Company
financial statements

Financial statements 43 - 94

Financial statements

4 4 F I N A N C I A L S TAT E M E N T S

Directors’ report
The Directors present their Annual Report andthe audited financial statements for the year
ended 31 December 2007.

Business review
The Company is the holding Company for theAdmiral Group of companies. The Group’s
principal activity continues to be the selling
and administration of private motor insurance
and related products.
The information that fulfils the requirementsof the Business review, as required by Section
234 ZZB of the Companies Act 1985, andwhich should be treated as forming part ofthis report by reference are included in thefollowing sections of the annual report:· Chairman’s statement.
· Chief Executive’s statement.
· Financial review.
· Principle risks and uncertainties as containedin note 18· Corporate responsibility report.

Group results and dividends

The profit for the year, after tax but before
dividends, amounted to £127.4m (2006:£103.7m).
The Directors declared and paid dividends of£116.0m during 2007 (2006: £70.1m) – refer tonote 14 for further details.
The Directors are proposing a final dividend of£60.9m (23.2p per share), payable on 7th May
2008.

Share capital
Other than the holdings of the Directors as
disclosed in the remuneration report, so far as
the Directors are aware, or have been notified
pursuant to section 198 of the Companies Act
1985, the following shareholders have interests
in 3% or more of the ordinary share capital of
the Company at 4 March 2008:

Number of shares%

Munich Re

39,579,400

15.07%

Newton Investment
Managers

15,032,472

5.72%

Fidelity

13,465,622

5.13%BlackRock Inc

13,019,317

4.96%

Capital Group

12,766.870

4.86%

Jupiter AssetManagement

12,361,744

4.71%

Legal & General
Group Plc

7,950,924

3.03%

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

Directors and their interests
The present Directors of the Company are
shown on the inside cover of this report,
whilst Directors’ interests in the sharecapital of the Company are set out in the
remuneration report.

Charitable and political
donations
During the year the Group donated £87,000(2006: £38,000) to various local and national
charities. The Group has never madepolitical donations. Refer to the corporate
responsibility report for further detail.

ADMIRAL GROUP plc 45

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

Creditor payment policy
It is the policy of the Group to pay allpurchase invoices by their due date, andappropriate quality measures are in place tomonitor and encourage this. At the end of theyear outstanding invoices represented 15 days
purchases (2006: 18).

Additional information forshareholders
Where not provided previously in thisDirectors' Report, the following provides
the additional information required forshareholders as a result of the implementationof the Takeovers Directive into UK law.
At 31 December 2007, the Company's issued
share capital comprised a single class of sharesreferred to as ordinary shares. Details of theshare capital and shares issued during the year
can be found in note 25.
On a show of hands at a general meeting of
the Company every holder of shares present
in person and entitled to vote shall have one
vote and on a poll, every member present inperson or by proxy and entitled to vote shallhave one vote for every ordinary share held.
The notice of the general meeting specifies
deadlines for exercising voting rights either
by proxy notice or present in person or byproxy in relation to resolutions to be passed at
general meeting. All proxy votes are counted
and the numbers for, against or withheld in
relation to each resolution are announced at
the annual general meeting and published on
the Company's website after the meeting.
There are no restrictions on the transfer ofordinary shares in the Company other than:· certain restrictions may from time to time
be imposed by laws and regulations (forexample, insider trading laws) and:· pursuant to the Listing Rules of the
Financial Services Authority whereby certain
employees of the Company require theapproval of the Company to deal in 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 of officeor employment (whether through resignation,
purported redundancy or otherwise) that
occurs because of a takeover bid.
There are a number of agreements that alteror terminate upon a change of control of theCompany following a takeover bid, such ascommercial contracts. None is considered
to be significant in terms of their impact on
the business of the Group as a whole except
for the long-term co-insurance agreementin place with Great Lakes Resinsurance (UK)Plc. Details relating to this agreement arecontained in the Financial Review.

Power to issue shares
At the last annual general meeting, held on 16
May 2007, authority was given to the Directors
to allot unissued relevant securities in the
Company up to a maximum of an amountequivalent to one third of the shares in issue.
This authority expires on the date of theannual general meeting to be held on 29 April
2008 and the Directors will seek to renew thisauthority for the following year.
A further special resolution passed at thatmeeting granted authority to the Directors toallot equity securities in the Company for cash,without regard to the pre-emption provisionsof the Companies Act 1985. This authority
also expires on the date of the annual general
meeting to be held on 29 April 2008 and the
Directors will seek to renew this authority forthe following year.

Financial statements 43 - 94

Employee policies
Detailed information on the Group’s
employment practices is set out in the
Corporate responsibility report.

4 6 F I N A N C I A L S TAT E M E N T S

Appointments of Directors

Directors’ responsibilities

The Company’s Articles of Association (“theArticles”) give the Directors power to appoint
and replace Directors. Under the terms ofreference of the Nominations Committee, any
appointment must be recommended by the
Nominations Committee for approval by the
Board of Directors. The Articles also require
Directors to retire and submit themselves forelection at the first annual general meeting
following appointment and all Directors whoheld office at the time of the two preceding
annual general meeting, to submit themselves
for re-election.

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

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

Power of the Directors
The Directors are responsible for managing
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.

Annual General Meeting
It is proposed that the next AGM be held at
Cardiff City Hall, Cathays Park, Cardiff
CF10 3ND on Tuesday 29 April 2008 at 2.00pm,
notice of which will be sent to shareholders
with the Annual Report.

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 International Financial ReportingStandards (IFRS) as adopted by the EU andapplicable law and have elected to prepare
the Parent Company financial statements inaccordance with UK Accounting Standards
and applicable law (UK Generally Accepted
Accounting Practice).
The Group financial statements are requiredby law and IFRS as adopted by the EU topresent fairly the financial position andperformance of the Group; the Companies
Act 1985 provides in relation to such financial
statements that references in the relevant
part of that Act to financial statements giving
a true and fair view are references to theirachieving a fair presentation.
The Parent Company financial statements are
required by law to give a true and fair view ofthe state of affairs of the Parent Company.
In preparing each of the Group and Parent
Company financial statements, the Directors
are required to:· select suitable accounting policies and thenapply them consistently· make judgements and estimates that arereasonable and prudent· for the Group financial statements, state

whether they have been prepared inaccordance with IFRS as adopted by the EU· for the Parent Company financial statements,

state whether applicable UK AccountingStandards have been followed, subject to any
material departures disclosed and explained in
the Parent Company financial statements; and· prepare the financial statements on thegoing concern basis unless it is inappropriate
to presume that the Group and the Parent
Company will continue in businessADMIRAL GROUP plc 47

Under applicable law and regulations, theDirectors are also responsible for preparinga Directors’ report, Directors’ remuneration
report and Corporate governance statementthat comply with that law and thoseregulations.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in the UK
governing the preparation and disseminationof financial statements may differ fromlegislation in other jurisdictions.

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

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

By order of the Board,

Stuart Clarke
Company Secretary
3 March 2008

Financial statements 43 - 94

The Directors are responsible for keeping
proper accounting records that disclosewith reasonable accuracy at any time thefinancial position of the Parent Company
and enable them to ensure that its financial
statements comply with the Companies Act
1985. They have general responsibility fortaking such steps as are reasonably open tothem to safeguard the assets of the Groupand to prevent and detect fraud and otherirregularities.

4 8 F I N A N C I A L S TAT E M E N T S

Independent auditor’s reportto the members of Admiral Group plc

We have audited the Group and Parent
Company financial statements (the ‘’financial
statements’’) of Admiral Group plc for the year
ended 31 December 2007 which comprise theGroup Income Statement, the Parent Company
Profit and Loss Account, the Group andParent Company Balance Sheets, the Group
Cash Flow Statement, the Group Statementof Recognised Income and Expenses and therelated notes. These financial statements havebeen prepared under the accounting policies
set out therein. We have also audited theinformation in the Directors’ Remuneration
Report that is described as having been
audited.
This report is made solely to the Company’s
members, as a body, in accordance withsection 235 of the Companies Act 1985. Our
audit work has been undertaken so that wemight state to the Company’s members thosematters we are required to state to them inan auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone
other than the Company and the Company’s
members as a body, for our audit work, for thisreport, or for the opinions we have formed.

Respective responsibilities of
Directors and auditors
The Directors’ responsibilities for preparing
the Annual Report and the Group financial
statements in accordance with applicablelaw and International Financial ReportingStandards (IFRSs) as adopted by the EU, andfor preparing the Parent Company financial
statements and the Directors’ Remuneration
Report in accordance with applicable law
and UK Accounting Standards (UK Generally
Accepted Accounting Practice) are set out in
the Statement of Directors’ Responsibilities inthe Directors' Report.
Our responsibility is to audit the financial
statements and the part of the Directors’
Remuneration Report to be audited inaccordance with relevant legal and regulatory
requirements and International Standards on
Auditing (UK and Ireland).

We report to you our opinion as to whether
the financial statements give a true and fairview and whether the financial statements
and the part of the Directors’ Remuneration
Report to be audited have been properly
prepared in accordance with the Companies
Act 1985 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
We also report to you whether in our opinion
the information given in the Directors’ Report
is consistent with the financial statements.
The information given in the Directors’ Report
includes that specific information presented
in the Chairman’s statements, the Chief
Executive’s statement and the financial review
that is cross referred from the business review
section of the Directors’ Report.
In addition we report to you if, in our opinion,
the Company has not kept proper accounting
records, if we have not received all theinformation and explanations we require forour audit, or if information specified by law
regarding Directors’ remuneration and othertransactions is not disclosed.
We review whether the Corporate
Governance Statement reflects the Company’s
compliance with the nine provisions of the2003 Combined Code specified for our review
by the Listing Rules of the Financial Services
Authority, and we report if it does not. We
are not required to consider whether the
Board’s statements on internal control cover
all risks and controls, or form an opinion on
the effectiveness of the Group’s corporate
governance procedures or its risk and control
procedures.

ADMIRAL GROUP plc 49

Basis of audit opinion
We conducted our audit in accordance with
International Standards on Auditing (UK and
Ireland) issued by the Auditing Practices Board.
An audit includes examination, on a test basis,of evidence relevant to the amounts anddisclosures in the financial statements and thepart of the Directors’ Remuneration Report
to be audited. It also includes an assessmentof the significant estimates and judgments
made by the Directors in the preparationof the financial statements, and of whether
the accounting policies are appropriate to
the Group’s and Company’s circumstances,consistently applied and adequately disclosed.
We planned and performed our audit so as toobtain all the information and explanations
which we considered necessary in orderto provide us with sufficient evidence togive reasonable assurance that the financial
statements and the part of the Directors’
Remuneration Report to be audited arefree from material misstatement, whether
caused by fraud or other irregularity or error.
In forming our opinion we also evaluatedthe overall adequacy of the presentationof information in the financial statements
and the part of the Directors’ Remuneration
Report to be audited.

OpinionIn our opinion:· the Group financial statements give a true andfair view, in accordance with IFRSs as adopted
by the EU, of the state of the Group’s affairs
as at 31 December 2007 and of its profit for
the year then ended;· the Group financial statements have been

properly prepared in accordance with the 		Companies Act 1985 and Article 4 of the IAS
Regulation;· the Parent Company financial statements givea true and fair view, in accordance with UK
Generally Accepted Accounting Practice, ofthe state of the Parent Company’s affairs as at
31 December 2007 and of its profit for theyear then ended;· the Parent Company financial statements andthe part of the Directors’ Remuneration
Report to be audited have been properly
prepared in accordance with the Companies
Act 1985; and· the information given in the Directors’ Report
is consistent with the financial statements.

KPMG Audit Plc
Chartered Accountants
Registered Auditor
Cardiff
3 March 2008

Financial statements 43 - 94

We read the other information containedin the Annual Report and consider whether
it is consistent with the audited financial
statements. We consider the implications
for our report if we become aware of
any apparent misstatements or materialinconsistencies with the financial statements.
Our responsibilities do not extend to any
other information.

5 0 F I N A N C I A L S TAT E M E N T S

Consolidated income statement
Year ended:
31 December
2007

31 December
2006

£000

£000

Insurance premium revenue

233,075

188,288

Insurance premium ceded to reinsurers(90,839)(43,333)

Note:

Net insurance premium revenue

5142,236

144,955

Other revenue

6

176,878

131,621

Profit commission

7

20,44819,926

Investment and interest income

8

24,572

14,464

Net revenue

364,134

310,966

Insurance claims and claims handling expenses(172,611)(136,472)

Insurance claims and claims handling expenses
recovered from reinsurers

72,81629,327

Net insurance claims(99,795)(107,145)

9(78,986)(54,528)9, 25(2,971)(933)

Total expenses(181,752)(162,606)

Operating profit

182,382

148,360

Expenses
Share scheme charges

Finance charges

12

(284)

(1,018)

Profit before tax

10

182,098

147,342

Taxation expense

13(54,682)(43,620)

127,416

103,722

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

15

48.6p

39.8p

Diluted

15

48.6p

39.8p

Dividends declared (total)

14

116,016

70,104

Dividends declared (per share)

14

44.6p

27.0p

ADMIRAL GROUP plc 51

Consolidated balance sheet
31 December
2007

31 December
2006

Note

£000

£000

Property, plant and equipment

16

7,708

7,448

Intangible assets

17

69,06366,757

Financial assets

18

481,848395,938

Reinsurance assets

19

131,668

74,689Deferred income tax

24

1,629

-

Trade and other receivables

20, 1822,633

16,931

Cash and cash equivalents

21, 18

155,773

191,242

870,322753,005

ASSETS

Total assets

EQUITY
Share capital

25

263

261

Share premium account26

13,145

13,145Retained earnings

26

223,828

205,682

Other reserves

26

396

(33)

237,632

219,055

Total equity attributable to equity holders of theCompany

LIABILITIESInsurance contracts

19

363,060

294,425

Deferred income tax

24

-

981

22, 18239,593

215,137

Current tax liabilities

30,037

23,407

Total liabilities

632,690533,950

Total equity and total liabilities

870,322753,005

Trade and other payables

These financial statements were approved by the Board of Directors on 3 March 2008 and weresigned on its behalf by:

Kevin Chidwick
Director

Financial statements 43 - 94

As at:

5 2 F I N A N C I A L S TAT E M E N T S

Consolidated statement of recognised income and expense
31 December
2007

31 December
2006

£000

£000

Exchange differences on translation of foreign operations

429

(50)

Net income / (expense) recognised directly in equity

429

(50)

Profit for the period

127,416

103,722

Total recognised income and expense for the period

127,845

103,672ADMIRAL GROUP plc 53

31
December
2007

31
December
2006

£000

£000

127,416

103,722- Depreciation

3,227

2,489

- Amortisation of software

725

446

- Unrealised gains on investments(1,123)

(624)

5,560

2,667

6

151

Change in gross insurance contract liabilities

68,63540,295

Change in reinsurance assets(56,979)(20,523)

Change in trade and other receivables, including frompolicyholders(14,772)(23,150)

Change in trade and other payables, including tax andsocial security

25,50633,652

Interest expense

284

1,018

Taxation expense

54,682

43,620Cash flows from operating activities, before movements
in investments

213,167

183,763

Net cash flow into investments held at fair value(76,849)(1,073)

Cash flows from operating activities, net of movements ininvestments

136,318

182,690

Interest payments(284)(1,018)

Taxation payments(49,477)(40,931)

Net cash flow from operating activities

86,557140,741

Purchases of property, plant and equipment and software(5,390)(6,046)

Net cash used in investing activities(5,390)(6,046)-(22,000)

Note
Profit after tax
Adjustments for non-cash items:- Share scheme charge

25

Loss on disposal of property, plant and equipment andsoftwareCash flows from investing activities:

Cash flows from financing activities:
Repayments of borrowings
Capital element of new finance leases

457

1,519

Repayment of finance lease liabilities(1,506)(2,970)Equity dividends paid

(116,016)(70,104)

Net cash used in financing activities(117,065)(93,555)

Net (increase) / decrease in cash and cash equivalents(35,898)

41,140Cash and cash equivalents at start of period

191,242

150,152

Effects of changes in foreign exchange rates

429

(50)

155,773

191,242

Cash and cash equivalents at end of period

21

Financial statements 43 - 94

Consolidated cash flow statement

5 4 F I N A N C I A L S TAT E M E N T S

Notes to the financial
statements
1. General information and basisof preparation
Admiral Group plc is a Company incorporated
in England and Wales. Its registered office is
at Capital Tower, Greyfriars Road, Cardiff CF10
3AZ and its shares are listed on the London
Stock Exchange.
The financial statements comprise theresults and balances of the Company andits subsidiaries (together referred to as theGroup) for the year ended 31 December 2007
and comparative figures for the year ended 31
December 2006. The financial statements of
the Company’s subsidiaries are consolidated in
the Group financial statements. The Company
controls 100% of the voting share capital of allits subsidiaries. The Parent Company financial
statements present information about theCompany as a separate entity and not about
its Group. In accordance with International
Accounting Standard (IAS) 24, transactions
or balances between Group companies thathave been eliminated on consolidation are notreported as related party transactions.
The consolidated financial statements havebeen prepared and approved by the Directors
in accordance with International Financial
Reporting Standards (IFRS) as adopted by
the European Union (EU). The Company
has elected to prepare its Parent Company
financial statements in accordance with UK
Generally Accepted Accounting Practice(GAAP).
The Group has applied all adopted IFRS andinterpretations endorsed by the EU at 31
December 2007, including all amendments toextant standards that are not effective until
later accounting periods, except for thoselisted below:· IFRS 8 (Operating Segments); and· IFRIC 11 (IFRS 2: Group and Treasury Share
Transactions’)

IFRS 8 becomes effective for the period
commencing 1 January 2009, whilst IFRIC 11 will
become effective for the period commencing
1 January 2008. The application of either
the standard or the interpretation would nothave had a material impact on these financial
statements.

There are a number of standards, amendments
to standards and interpretations that were
issued by 31 December 2007 but have yet to
be endorsed by the EU. Of these, only theamendment to IAS 1 (Presentation of financial
statements: a revised presentation) is expected
to have any impact on the Group’s financial
statements. This amendment introduces a
number of changes to the primary financial
statements, but does not change therecognition, measurement or disclosure oftransactions or events that are required byother IFRS.
The following IFRS have been adopted andapplied by the Group for the first time inthese financial statements:· IFRS 7 (Financial instruments: Disclosure); and· Amendment to IAS 1 (Capital disclosures)
The accounting policies set out below
have, unless otherwise stated, been appliedconsistently to all periods presented in theseGroup financial statements.
The financial statements are prepared on thehistorical cost basis, except for the revaluationof financial assets classified as at fair value
through profit or loss.
Subsidiaries are entities controlled by theGroup. Control exists when the Group has
the power, directly or indirectly, to govern thefinancial and operating policies of an entity
so as to obtain benefits from its activities.
In assessing control, potential voting rightsthat are currently exercisable or convertible
are taken into account. The financial
statements of subsidiaries are included in the
consolidated financial statements from thedate that control commences until the datethat control ceases.
The preparation of financial statements
in conformity with adopted IFRS requires
management to make judgements, estimatesand assumptions that affect the application ofpolicies and reported amounts of assets andliabilities, income and expenses. The estimatesand associated assumptions are based on
historical experience and various other factorsthat are believed to be reasonable under thecircumstances, the results of which form thebasis of making the judgements about carrying
values of assets and liabilities that are notreadily apparent from other sources.

ADMIRAL GROUP plc 55

2. Critical accounting
judgements and estimates
Judgements:
In applying the Group’s accounting policies as
described in note 3, management has primarily
applied judgement in the classification of theGroups contracts with reinsurers as quota
share reinsurance contracts. A contract isrequired to transfer significant insurance riskin order to be classified as such. Management
reviews all terms and conditions of thecontract, and if necessary obtains the opinionof an independent expert at the negotiation
stage in order to be able to make thesejudgements.
Estimation techniques used in calculationof claims provisions:
Estimation techniques are used in thecalculation of the provisions for claims
outstanding, which represents a projection of
the ultimate cost of settling claims that haveoccurred prior to the balance sheet date andremain unsettled at the balance sheet date.
The key area where these techniques are used
relates to the ultimate cost of reported claims.
A secondary area relates to the emergenceof claims that occurred prior to the balance
sheet date, but had not been reported at thatdate.
The estimates of the ultimate cost of reported
claims are based on the setting of claim
provisions on a case-by-case basis, for all but
the simplest of claims.
The sum of these provisions are comparedwith projected ultimate costs using a variety
of different projection techniques (including
incurred and paid chain ladder and an average
cost of claim approach) to allow an actuarialassessment of their likely accuracy. They
include allowance for unreported claims.
The most significant sensitivity in the use of
the projection techniques arises from any
future step change in claims costs, which
would cause future claim cost inflation todeviate from historic trends. This is most
likely to arise from a change in the regulatory
or judicial regime that leads to an increase
in awards or legal costs for bodily injury
claims that is significantly above or below thehistorical trend.
The claims provisions are subject toindependent review by the Group’s actuarial
advisors.

3. Significant accounting
policiesa) Revenue recognition
Premiums, ancillary income and profit
commission:
Premiums relating to insurance contracts arerecognised as revenue proportionally over theperiod of cover.
Income earned on the sale of ancillary
products and income from policies paidby instalments is credited to the income
statement over the period matching theGroup’s obligations to provide services.
Where the Group has no remaining
contractual obligations, the income isrecognised immediately. An allowance ismade for expected cancellations where thecustomer may be entitled to a refund ofancillary amounts charged.
Under some of the co-insurance andreinsurance contracts under which motor
premiums are shared or ceded, profit
commission may be earned on a particular
year of account, which is usually subject toperformance criteria such as loss ratios andexpense ratios. The commission is dependent
on the ultimate outcome of any year, withincome being recognised based on loss andexpense ratios used in the preparation of thefinancial statements.
Income is allocated to profit commission
in the income statement when the right toconsideration is achieved, and is capable ofreliable measurement.
Revenue from Gladiator Commercial andConfused.com:
Commission from these activities is credited
to income on the sale of the underlying
insurance policy.

Financial statements 43 - 94

The estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in theyear in which the estimate is reviewed if thisrevision affects only that year, or in the yearof the revision and future years if the revisionaffects both current and future years.

5 6 F I N A N C I A L S TAT E M E N T S

Investment income:Investment income from financial assets
comprises interest income and net gains (bothrealised and unrealised) on financial assets
classified as fair value through profit and loss.

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

b) Segment reporting
The Group’s primary format for segment
reporting is business segments. There is nosecondary segment. A business segment isdefined as a group of assets and operations
engaged in providing products and services
that are subject to risks and returns that are
different from other business segments.

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

For the Group, the risks and returns of its
insurance broking activities, namely Gladiator
Commercial and Confused.com, are clearly
distinguishable from its motor insurance
segment. This is reflected in the Group’s
management and organisation structure andinternal financial reporting systems.
Management classify the private motor
insurance underwriting and private motor
insurance ancillary income results as one
business segment (private motor insurance).
This is because although the results are
distinguishable between underwriting andnon-underwriting, the activities carried out ingenerating the income are not independent ofeach other and are carried on as one business.
This mirrors the approach in management
reporting.
c) Foreign currency translation
Functional and presentation currency
Items included in the financial statementsof each of the Group’s entities are measured
using the currency of the primary economic
environment in which the entity operates(‘the functional currency’). The consolidated
financial statements are presented inthousands of pounds sterling, which is theGroup’s presentation currency.
Transactions and balances
Foreign currency transactions are translated
into the functional currency using theexchange rates prevailing at the dates of thetransactions. Foreign exchange gains andlosses resulting from the settlement of suchtransactions, and from the translation at year
end exchange rates of monetary assets andliabilities denominated in foreign currencies
are recognised in the income statement.
Translation differences on non-monetary(i) Assets and liabilities for each balance
sheet presented are translated at theclosing rate at the date of that balance
sheet;(ii) Income and expenses for each income
statement are translated at averageexchange rates (unless this average is not areasonable approximation of the cumulative
effect of the rates prevailing on thetransaction dates, in which case income
and expenses are translated at the date of
the transaction); and(iii) All resulting exchange differences arerecognised as a separate component ofequity.
d) Insurance contracts and reinsurance 		
assetsPremium:
The proportion of premium receivable on
in-force policies relating to unexpired risks isreported in insurance contract liabilities andreinsurance assets as the unearned premiumprovision – gross and reinsurers’ sharerespectively.
Claims:Claims and claims handling expenses arecharged as incurred, based on the estimateddirect and indirect costs of settling all
liabilities arising on events occurring up to thebalance sheet date.
The provision for claims outstanding
comprises provisions for the estimated costof settling all claims incurred but unpaid atthe balance sheet date, whether reported ornot. Anticipated reinsurance recoveries aredisclosed separately as assets.
Whilst the Directors consider that thegross provisions for claims and the related

reinsurance recoveries are fairly stated on thebasis of the information currently available tothem, the ultimate liability will vary as a resultof subsequent information and events andmay result in significant adjustments to theamounts provided.
Adjustments to the amounts of claims
provisions established in prior years arereflected in the income statement for theperiod in which the adjustments are made anddisclosed 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 to meet
future claims and related expenses.
Co-insurance:
The Group has entered into certain coinsurance contracts under which insurance
risks are shared on a proportional basis, withthe co-insurer taking a specific percentage ofeach premium written and being responsible
for the same proportion of each claim. As
the contractual liability is several and notjoint, neither the premiums nor claims relating
to the co-insurance are included in theincome statement. Under the terms of these
agreements the co-insurers reimburse theGroup for the same proportionate share of
the costs of acquiring the business.
Reinsurance assets:
Contracts entered into by the Group
with reinsurers under which the Group iscompensated for losses on the insurance
contracts issued by the Group are classified
as reinsurance contracts. A contract is only
accounted for as an insurance or reinsurance
contract where there is significant insurance
risk transfer between the insured and theinsurer.
The benefits to which the Group is entitledunder these contracts are held as reinsurance
assets.
The Group assesses its reinsurance assets
for impairment on a regular basis, and indetail 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.

e) Intangible assets
Goodwill:
All business combinations are accounted forusing the purchase method. Goodwill has
been recognised in acquisitions of subsidiaries,
and represents the difference between thecost of the acquisition and the fair value ofthe net identifiable assets acquired.
The classification and accounting treatmentof acquisitions occurring before 1 January
2004 have not been reconsidered in preparing
the Group’s opening IFRS balance sheet at 1
January 2004 due to the exemption available
in IFRS 1 (First time adoption).
In respect of acquisitions prior to 1 January
2004, goodwill is included at the transition
date on the basis of its deemed cost, which
represents the amount recorded under UK
GAAP, which was tested for impairment at thetransition date. On transition, amortisation of
goodwill has ceased as required by IFRS.
Goodwill is stated at cost less any
accumulated impairment losses. Goodwill
is allocated to cash generating units (CGU’s)
according to business segment and is reviewed
annually for impairment.
The Goodwill held on the balance sheet at
31 December 2007 is allocated solely to theprivate motor insurance segment.
Impairment of goodwill:
The annual impairment review involves
comparing the carrying amount to theestimated recoverable amount (by allocating
the goodwill to CGU’s) and recognising an
impairment loss if the recoverable amountis lower. Impairment losses are recognised
through the income statement and are notsubsequently reversed.
The recoverable amount is the greater of the
net realisable value and the value in use of the
CGU.
The value in use calculations use cash flow
projections based on financial budgets
approved by management covering a threeyear period. Cash flows beyond this period
are considered, but not included in thecalculation. The discount rate applied tothe cashflow projections in the value in use
calculations is 10.3%, based on the Group’s
weighted average cost of capital.
The key assumptions used in the value in use
calculations are those regarding growth rates

Financial statements 43 - 94

ADMIRAL GROUP plc 57

5 8 F I N A N C I A L S TAT E M E N T S

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.

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

Deferred acquisition costs:
Acquisition costs comprise all direct andindirect costs arising from the conclusion of
insurance contracts. Deferred acquisition
costs represent the proportion of acquisition
costs incurred that corresponds to theunearned premiums provision at the balance
sheet date. This balance is held as anintangible asset. It is amortised over the termof the contract as premium is earned.

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

Software:Purchased software is recognised as anintangible asset and amortised over its
expected useful life (generally between two
and four years). The carrying value is reviewed
every six months for evidence of impairment,with the value being written down if any
impairment exists. Impairment may bereversed if conditions subsequently improve.
f) Property, plant and equipment anddepreciation
All property, plant and equipment is statedat cost less accumulated depreciation.
Depreciation is calculated using the straightline method to write off the cost lessresidual values of the assets over their useful
economic lives. These useful economic lives
are as follows:
Motor vehicles

4 years

Fixtures, fittings andequipment

4 years

Computer equipment

2 to 4 years

Improvements to shortleasehold properties

4 years

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

h) Financial assets – investments andreceivables
Financial assets are classified according to the
purpose for which they were acquired. The
Group's investments in money market liquidity
funds are designated as financial assets atfair value through profit or loss (FVTPL) at
inception.
This designation is permitted under IAS 39, as
the investments in money market funds aremanaged as a group of assets and internal
performance evaluation of this group is
conducted on a fair value basis.
Financial assets at FVTPL are stated atfair value, with any resultant gain or loss
recognised through the income statement.
Receivables are stated at their historic cost
(discounted if material) unless they are
impaired. Impairment losses are recognised
through the income statement.
i) Cash and cash equivalents
Cash and cash equivalents includes cash in
hand, deposits held at call with banks, andother short-term deposits with original
maturities of three months or less.
j) Share capital
Shares are classified as equity when there isno obligation to transfer cash or other assets.
k) Loans and borrowings
Interest bearing loans and borrowings
are recognised initially at fair value lessattributable transaction costs. Subsequent toinitial recognition, interest bearing loans andborrowings are stated at amortised cost with

ADMIRAL GROUP plc 59l) Employee benefits
Pensions:
The Group contributes to a number of defined
contribution personal pension plans for its
employees. The contributions payable tothese schemes are charged in the accounting
period to which they relate.

temporary differences arising between the
carrying amount of assets and liabilities foraccounting purposes, and the amounts used
for taxation purposes. It is calculated at the
tax rates that are expected to apply in the
period when the liability is settled or the asset
is realised.
A deferred tax asset is recognised only to theextent that it is probable that future taxable
profits will be available against which the asset
can be utilised.

Employee share schemes:
The Group operates a number of equity
settled compensation schemes for its
employees. For schemes commencing 1
January 2004 and after, the fair value of theemployee services received in exchange
for the grant of free shares under theschemes is recognised as an expense, with acorresponding increase in equity.

The principal temporary differences arise
from depreciation of property and equipment,
share scheme charges and the tax treatmentof Lloyd’s profits. The resulting deferred tax ischarged or credited in the income statement,
except in relation to share scheme charges
where the amount of tax benefit credited
to the income statement is limited to an
equivalent credit calculated on the accounting
charge. Any excess is recognised directly inequity.

The total charge expensed over the vesting
period is determined by reference to the fairvalue of the free shares granted as determinedat the grant date (excluding the impact of
non-market vesting conditions). Non-market
conditions such as profitability targets aswell as staff attrition rates are included inassumptions over the number of free shares tovest under the applicable scheme.

n) Government grants
Government grants are recognised in thefinancial statements in the period where
it becomes reasonably certain that theconditions attaching to the grant will be met,
and that the grant will be received.

At each balance sheet date, the Group revises
its assumptions on the number of shares to be
granted with the impact of any change in theassumptions recognised through income.
Refer to note 25 for further details on shareschemes.
m) Taxation
Income tax on the profit or loss for theperiods presented comprises current anddeferred tax.
Current tax:
Current tax is the expected tax payable on
the taxable income for the period, using tax
rates that have been enacted or substantively
enacted by the balance sheet date, andincludes any adjustment to tax payable inrespect of previous periods.
Deferred tax:
Deferred tax is provided in full using thebalance sheet liability method, providing forGrants relating to assets are deducted fromthe carrying amount of the asset. The grant istherefore recognised as income over the lifeof the depreciable asset by way of a reduced
depreciation charge.
Grants relating to income are shown as adeduction in the reported expense.

Financial statements 43 - 94

any difference between cost and redemption
value being recognised in the income
statement over the life of the borrowings onan effective interest basis.

6 0 F I N A N C I A L S TAT E M E N T S

4. Segment reporting
Revenue and results for the year ended 31 December 2007, split by business segment are shown
below. Consolidation adjustments represent the elimination of inter-segment trading, specificallyinterest charged on inter-company loans.
As noted above, the Directors consider there to be two business segments. These are private
motor insurance and insurance broking (Confused.com and Gladiator Commercial). No
geographical business split has been presented as the results of the Group’s European operations
are not material to the 2007 figures.
31 December 2007
Private motor
insurance

Insurance
broking

Consolidation
adjustment

Group

£000

£000

£000

£000

Net revenue

286,451

77,683-364,134

Profit after tax

99,644

27,772-

127,416

Depreciation

3,011

216

-

3,227

Amortisation

9,174

-

-

9,174

Other segment items :The segment assets and liabilities at 31 December 2007 and capital expenditure for the year are as
follows. Consolidation adjustments represent the elimination of inter-company balances.

31 December 2007
Private motor
insurance

Insurance
broking

Consolidation
adjustment

Group

£000

£000

£000

£000

Total assets excluding deferred
tax balances

842,742

27,722(1,771) 868,693

Total liabilities excluding current
and deferred tax balances

597,647

6,778(1,771) 602,654

Intangible assets

11,480--

11,480

Plant, property and equipment

3,099

394

-

3,493

Capital expenditure:

Revenue and results for the corresponding business segments for the year ended 31 December
2006 are reported below.

ADMIRAL GROUP plc 61

Private motor
insurance

Insurance
broking

Consolidation
adjustment

Group

£000

£000

£000

£000

Net revenue

266,168

45,069(271)

310,966

Profit after tax

85,69918,023-

103,722

Depreciation

2,366

123

-

2,489

Amortisation

6,508

-

-

6,508

Other segment items:

The segment assets and liabilities at 31 December 2006 and capital expenditure for the year are
as follows.

31 December 2006
Private motor
insurance

Insurance
broking

Consolidation
adjustment

Group

£000

£000

£000

£000

Total assets

736,160

18,780(1,935) 753,005

Total liabilities excluding current
and deferred tax balances

506,426

5,071(1,935) 509,562

Intangible assets

6,764

-

-

6,764

Plant, property and equipment

5,088

364

-

5,452

Capital expenditure:

Financial statements 43 - 94

31 December 2006

6 2 F I N A N C I A L S TAT E M E N T S

5. Net insurance premium revenue
31 December
2007

31 December
2006

£000

£000

Total motor insurance premiums before co-insurance

631,251566,608

Group gross premiums written after co-insurance

260,901

196,378

Outwards reinsurance premiums(119,049)(57,731)

Net insurance premiums written

141,852

138,647

Change in gross unearned premium provision(27,826)(8,090)Change in reinsurers’ share of unearned premium provision

28,21014,398Net insurance premium revenue

142,236

144,955

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

6. Other revenue
31 December
2007

31 December
2006

£000

£000

Ancillary revenue

94,216

81,527

Revenue from Confused.com

69,15938,517Instalment income earned

5,983

5,676

Revenue from Gladiator Commercial

7,520

5,901

176,878

131,621

Total other revenue

Ancillary revenue primarily constitutes commission from sales of insurance products thatcomplement the motor policy, but which are underwritten by external parties.

ADMIRAL GROUP plc 63

Total profit commission

31 December
2007

31 December
2006

£000

£000

20,44819,92631 December
2007

31 December
2006

£000

£000

8. Investment and interest income

Net investment return

16,7959,925Interest receivable

7,777

4,539

Total investment and interest income

24,572

14,464

9. Expenses and share scheme charges
31 December 2007

31 December 2006

Insurance
contracts

Other

Total

Insurance
contracts

Other

Total

£000

£000

£000

£000

£000

£000

Acquisition of insurance
contracts

8,420

-

8,420

7,375

-

7,375

Administration and othermarketing costs

13,31457,25270,566

12,00935,14447,153

Expenses

21,73457,252

78,986

19,38435,14454,528

-

2,971

2,971

-

933

933

21,73460,223

81,957

19,38436,07755,461

Share scheme charges
Total expenses and sharescheme charges

Financial statements 43 - 94

7. Profit commission

6 4 F I N A N C I A L S TAT E M E N T S

Analysis of other administration and other marketing costs:
31 December
2007

31 December
2006

£000

£000

Ancillary sales expenses

16,613

14,505

Confused.com operating expenses

32,432

15,437Gladiator Commercial operating expenses

5,520

3,876

Central overheads

2,687

1,326

Total

57,25235,144The £13,314,000 (2006: £12,009,000) administration and marketing costs allocated to insurance
contracts is principally made up of salary costs.
The gross amount of expenses, before recoveries from co-insurers and reinsurers is £167,773,000(2006: £122,343,000). This amount can be reconciled to the total expenses and share scheme
charges above of £81,957,000 (2006: £55,461,000) as follows:
31 December
2007

31 December
2006

£000

£000

Gross expenses

167,773

122,343

Co-insurer share of expenses(66,430)(59,075)

Expenses, net of co-insurer share

101,343

63,268Adjustment for deferral of acquisition costs(3,687)(1,044)

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

97,65662,224

Reinsurer share of expenses (earned basis)(15,699)(6,763)

Total expenses and share scheme charges

81,95755,461ADMIRAL GROUP plc 65

31 December
2007

31 December
2006

£000

£000

Insurance contract expenses from above

21,734

19,384

Add: claims handling expenses

3,471

3,538

Adjusted expenses

25,20522,922

Net insurance premium revenue

142,236

144,955

17.7%

15.8%

Reported expense ratio

Financial statements 43 - 94

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

6 6 F I N A N C I A L S TAT E M E N T S

10. Staff costs and other expenses
Included in profit, before co-insurance arrangements are the following:
31 December
2007

31 December
2006

£000

£000

45,022

36,083Social security charges

6,231

3,337

Pension costs

588

517

Share scheme charges (see note 25)

5,560

2,667

Total staff expenses

57,40142,604- Owned assets

2,127

1,009

- Leased assets

1,100

1,480

725

446

8,449

6,062

3,018

3,292

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

25

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

169

154- Fees payable for other services

85

60

Loss on disposal of property, plant and equipment

6151

Net foreign exchange gains

171-

Tax services

85

45

Other services-

15

Total as above

85

60

Salaries

Depreciation charge:

Amortisation charge:- Software- Deferred acquisition costs
Operating lease rentals:- Buildings
Auditor’s remuneration:

Analysis of fees paid to the auditor for other services:

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

ADMIRAL GROUP plc 67

11. Staff numbers (including Directors)
2007
Number

2006
NumberDirect customer contact staff

1,839

1,593

Support staff

525

404

2,364

1,997

31 December
2007

31 December
2006

£000

£000

-

166

Finance lease interest

243

481

Letter of credit charges

41

221

Other interest payable-

150

Total finance charges

284

1,018

31 December
2007

31 December
2006

£000

£000

56,19445,430

(87)

(648)

56,10744,782(1,422)(1,249)(3)

87

54,682

43,620Total

12. Finance charges

Term loan interest

13.

Taxation

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

Financial statements 43 - 94

Average for the year

6 8 F I N A N C I A L S TAT E M E N T S

Factors affecting the tax charge are:
31 December
2007

31 December
2006

£000

£000

Profit before taxation

182,098

147,342

Corporation tax thereon at 30%

54,62944,203Adjustments in respect of prior year insurance technicalprovisions-

17

Expenses and provisions not deductible for tax purposes

178

114

Other differences

(36)

(153)

Adjustments relating to prior periods

(89)

(561)

54,682

43,62031 December
2007

31 December
2006

£000

£000

March 2006 (14.9p per share, paid May 2006)-

38,667

September 2006 (12.1p per share, paid October 2006)-

31,437

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

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

53,604-

Total dividends

116,016

70,104

Tax charge for the period as above

14. Dividends
Dividends were declared and paid as follows:

The dividends declared in March represent the final dividends paid in respect of the 2006 and2005 financial years. Dividends declared in September are interim distributions in respect of2007 and 2006.
A final dividend of 23.2p per share has been proposed in respect of the 2007 financial year.
Refer to the Chairman’s statement and financial review for further detail.

ADMIRAL GROUP plc 69

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

31 December
2007

31 December
2006

127,416

103,722

261,981,843

260,632,740

48.6p

39.8p

262,291,843

260,906,740

48.6p

39.8p

The difference between the basic and diluted number of shares at the end of 2007 (being
310,000) relates to awards committed, but not yet issued under the Group’s share schemes.
Refer to note 25 for further detail.

Financial statements 43 - 94

15. Earnings per share7 0 F I N A N C I A L S TAT E M E N T S

16. Property, plant and equipment
Improvements
to short
leasehold Computerbuildings equipment

Officeequipment

Furnitureandfittings

Motorvehicles

Total

£000

£000

£000

£000

£000

£000

At 1 January 2006

680

9,534

2,623

1,372

12

14,221

Additions

1,655

1,672

1,684

441

-

5,452

Disposals

(2)

(15)

(138)

(1)

-

(156)

2,333

11,191

4,169

1,812

12

19,517

At 1 January 2006

428

5,603

2,320

1,230

4

9,585

Charge for the year

220

1,750

396

120

3

2,489

-

(5)

-

-

-

(5)

At 31 December 2006

648

7,348

2,716

1,350

7

12,069Net book amountAt 1 January 2006

252

3,931

303

142

8

4,636

Net book amountAt 31 December 2006

1,685

3,843

1,453

462

5

7,448

Cost

At 31 December 2006
Depreciation

Disposals

Cost
2,333

11,191

4,169

1,812

12

19,517

Additions

At 1 January 2007

413

2,129

781

170

-

3,493

Disposals

-

(6)

-

(3)

-

(9)

2,746

13,314

4,950

1,979

12

23,001

At 1 January 2007

648

7,348

2,716

1,350

7

12,069Charge for the year

577

1,858

611

178

3

3,227

-

(2)

-

(1)

-

(3)

1,225

9,204

3,327

1,527

10

15,293

1,521

4,110

1,623

452

2

7,708

At 31 December 2007
Depreciation

Disposals
At 31 December 2007
Net book amountAt 31 December 2007

ADMIRAL GROUP plc 71

31 December
2007

31 December
2006

£000

£000

2,149

2,996

Goodwill

Deferredacquisition
costs

Software

Total

£000

£000

£000

£000

62,354

3,328

808

66,490Additions

-

6,179

596

6,775

Amortisation charge-(6,062)(446)(6,508)At 31 December 2006

62,354

3,445

958

66,757

Additions

-

9,584

1,896

11,480

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

At 31 December 2007

62,354

4,580

2,129

69,063

Computer equipment

17. Intangible assets

Carrying amount:
At 1 January 2006

Financial statements 43 - 94

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

7 2 F I N A N C I A L S TAT E M E N T S

18. Financial instruments
The Group’s financial instruments can be analysed as follows:
31 December
2007

31 December
2006

Financial assets and liabilities

£000

£000

Investments held at fair value

335,608

257,634

Receivables – amounts owed by policyholders

146,240

138,304

Total financial assets per consolidatedbalance sheet

481,848395,938

Trade and other receivables

22,633

16,931

Cash and cash equivalents

155,773

191,242

Financial liabilities:

660,254604,111

Trade and other payables

239,593

215,137

All receivables from policyholders are due within 12 months of the balance sheet date.
All investments held at fair value are invested in AAA-rated money market liquidity funds. These
funds (spread across three very large providers) target a 7day LIBID return with capital security
and low volatility and continue to achieve these goals.
Objectives, policies and procedures for managing financial assets and liabilities
The Group’s activities expose it primarily to the significant financial risks of credit risk, liquidity
risk, interest rate risk and foreign exchange risk. The Board of Directors has delegated the taskof supervising risk management and internal control to the Risk Management Committee (RMC).
There is also an Investment Committee that makes recommendations to the Board on theGroup’s investment strategy.
There are several key elements to the risk management environment throughout the Group.
These are detailed in full in the corporate governance statement. Specific considerations for therisks arising from financial assets and liabilities are detailed below.
Interest rate risk
The Group considers interest rate risk to be the risk that unfavourable movements in interest
rates could adversely impact on the capital values of financial assets and liabilities. This relates
primarily to investments held at fair value.
The Group has a policy of investing in AAA-rated money market liquidity funds, which invest ina mixture of very short dated fixed and variable rate securities, such as certificates of deposits,
floating rate notes and other commercial paper.
The funds are not permitted to have an average maturity greater than 60 days and hence are notsubject to large movements in yield and value resulting from changes in market interest rates (aslonger duration fixed income portfolios experience). Returns are likely to closely track the 7 day
LIBID benchmark and hence while the Group’s investment return will vary according to market
interest rates, the capital value of the investment funds will not be impacted by rate movements.
The interest rate risk arising is therefore considered to be minimal.
Although the Group had no financial liabilities at 31 December 2007 or 31 December 2006, it
currently holds a facility of £30m which allows it to draw down interest bearing borrowings on

ADMIRAL GROUP plc 73

demand. Any such borrowings would be subject to variable interest rate changes, at LIBOR plus a
margin. However the Group has not held any drawn down amounts on this facility since 2005.

Amounts recoverable from reinsurers expose the Group to credit risk. To mitigate this risk, theGroup only conducts business with companies of specified financial strength ratings. In addition,
management also contract with certain reinsurers on a funds withheld basis, which substantiallyreduces credit risk.
The other principal form of credit risk is in respect of amounts due from policyholders due tothe potential for default on credit card payments. The impact of this is mitigated by the large
customer base and low average level of balance recoverable. There is also mitigation by theoperation of numerous high and low level controls in this area, including payment on policy
acceptance as opposed to inception and automated cancellation procedures for policies indefault.
The fair value of receivables from policyholders represents the maximum exposure to credit
risk. The Group does not use credit derivatives or similar instruments to mitigate exposure. The
amount of bad debt expense relating to policyholder debt charged to the income statement in2006 and 2007 is insignificant.
There are no specific concentrations of credit risk with respect to investment counterparties dueto the structure of the liquidity funds which invest in a wide range of very short duration, highquality securities.
There were no significant financial assets that were past due at the close of either 2007 or 2006.
Foreign exchange risks
Foreign exchange risks arise from unfavourable movements in foreign exchange rates that could
adversely impact the valuation of overseas assets.
The Group may be exposed to foreign exchange risk through its expanding operations in Europe.
However, given the relative size of the European operations, the risks are relatively small. Assets
held to fund insurance liabilities are held in the currency of the liabilities.
A sensitivity analysis based on fluctuations in foreign exchange risk has not been presented onmateriality grounds.

Financial statements 43 - 94

Credit risk
The Group defines credit risk as the risk of loss if another party fails to perform its obligations or
fails to perform them in a timely fashion.

7 4 F I N A N C I A L S TAT E M E N T S

Liquidity risk
Liquidity risk is defined as the risk that the Group does not have sufficient, available, financial
resources to enable it to meet its obligations as they fall due, or can only secure them atexcessive cost.
The Group has traditionally been strongly cash generative due to the large proportion of profit
arising from non-underwriting activity. Further, as noted above, insurance funds are invested inmoney market liquidity funds with same day liquidity features, meaning that the vast majorityof the Group cash and investments are immediately available. The current uncertainty in credit
markets is not likely to impact this. Liquidity risk is therefore considered to be insignificant.
Fair value
The carrying value of all of the Group’s financial assets equate to fair value. For money market
funds, cash at bank and deposits, the fair value approximates to the book value due to theirshort maturity.
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 Excess
capital above these levels within subsidiaries is paid up to the Group holding Company in theform of dividends on a regular basis.
At Group level, capital is managed in conjunction with dividend policy. As noted in the financial
review, the policy is to make distributions after taking into account capital that is required to beheld for regulatory purposes, for expansion activities and also holding a general capital buffer£25m (2006: £25m). This policy gives the Directors flexibility in managing the capital requirementsof the Group.
The Group’s capital is all in equity form, with no debt.
External capital requirements
The Group’s business is subject to regulatory and solvency requirements in two main jurisdictions:
Admiral Insurance (Gibraltar) Limited is the only subsidiary incorporated outside the UK. It is an
insurance Company registered in Gibraltar and is regulated by the Commissioner of Insurance of
the Gibraltar Financial Services Commission (FSC).
All other subsidiaries as detailed in Note 29 are incorporated in the UK and most are subject tothe regulatory regime of the Financial Services Authority (FSA).
Both the FSA and the FSC impose specific solvency requirements for capital resources onregulated subsidiary companies. All companies have comfortably exceeded agreed solvency
targets at all times during the years ended 31 December 2006 and 2007.

ADMIRAL GROUP plc 75

19. Reinsurance assets and insurance contract liabilities

Insurance risk primarily involves uncertainty over the occurrence, amount and timing of claims
arising on insurance contracts issued. The key risk is that the frequency and / or value of theclaims arising exceeds expectation and the value of insurance liabilities established.
The Board of Directors is responsible for the management of insurance risk, although as
mentioned in note 18, it has delegated the task of supervising risk management to the RMC.
The Board implements certain policies in order to mitigate and control the level of insurance risk
accepted by the Group. These include underwriting partnership arrangements, pricing policies
and claims management and administration policies.
A number of the key elements of these policies and procedures are detailed below:i) Co-insurance and reinsurance:
As noted in the underwriting structure section of the financial review above, the Group passes
out a significant amount of the motor insurance business written to external underwriters. In
2007, 60% of the risk was shared under a co-insurance contract, under which the primary risk isborne by the co-insurer.
A further 17.5% was ceded under quota share reinsurance contracts.
As well as these proportional arrangements, an excess of loss reinsurance programme is alsopurchased to protect the Group against very large individual claims and catastrophe losses.
ii) Data driven pricing:
The Group’s underwriting philosophy is focused on a sophisticated data-driven approach topricing and underwriting and on exploiting the competitive advantages direct insurers enjoy overtraditional insurers through:· Collating and analysing more comprehensive data from customers;· Tight control over the pricing guidelines in order to target profitable business sectors; and· Fast and flexible responsiveness to data analysis and market trends.
The Group is committed to establishing premium rates that appropriately price the underwriting
risk and exposure. Rates are set utilising a larger than average number of underwriting criteria.
The Directors believe that there is a strong link between the increase in depth of data that theGroup has been able to collate over time and the lower than average historic reported loss ratios
enjoyed by the Group.

Financial statements 43 - 94

A) Objectives. policies and procedures for the management of insurance risk:
The Group is involved in issuing motor insurance contracts that transfer risk from policyholders
to the Group and its underwriting partners.

7 6 F I N A N C I A L S TAT E M E N T Siii) Effective claims management:
The Group adopts various claims management strategies designed to ensure that claims are paid
at an appropriate level and to minimise the expenses associated with claims management. These
include:· An effective, computerised workflow system (which along with the appropriate level of 		
resources employed helps reduce the scope for error and avoids significant backlogs);· Use of an outbound telephone team to contact third parties aiming to minimise the potential
claims costs and to ensure that more third parties utilise the Group approved repairers;· Use of sophisticated and innovative methods to check for fraudulent claims.

Concentration of insurance risk:
The Directors do not believe there are significant concentrations of insurance risk. This is because,
although the Group only writes one line of insurance business, the risks are spread across a large
number of people and a wide regional base.
B) Sensitivity of recognised amounts to changes in assumptions:
The following table sets out the impact on equity at 31 December 2007 that would result from a
1 per cent change in the loss ratios used for each underwriting year for which material amounts
remain outstanding.
Underwriting year
2003

2004

2005

2006

2007

Loss ratio

56.0%

62.5%

74.0%

86.0%

89.0%

Impact of 1% change (£000s)

1,214

1,552

2,017

1,822

529

Total

7,134

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

ADMIRAL GROUP plc 77

31 December
2007

31 December
2006

£000

£000

Claims outstanding

242,576

202,421

Unearned premium provision

120,484

92,004

Total gross insurance liabilities

363,060

294,425

Claims outstanding

76,05547,710

Unearned premium provision

55,613

26,979Total reinsurers’ share of insurance liabilities

131,668

74,689Claims outstanding

166,521

154,711

Unearned premium provision

64,87165,025

Total insurance liabilities – net

231,392

219,736

Gross:

Recoverable from reinsurers:

Net:

Financial statements 43 - 94

C) Analysis of recognised amounts:

7 8 F I N A N C I A L S TAT E M E N T SD) Analysis of re-estimation of claims provisions:
The following tables set out the cumulative impact, to 31 December 2007, of the retrospective
re-estimation of claims provisions initially established at the end of the financial years stated.
Figures are shown gross and net of reinsurance. These tables present data on an accident year
basis.
Financial year ended 31 December
Gross amounts:

2003
£000

2004
£000

2005
£000

2006
£000

2007
£000

Gross claims provision as
originally estimated115,169

142,968

170,216

202,421242,576

One year later

111,599

137,075

162,205

192,283-

Two years later

105,748

127,613

149,317--Three years later

100,880

119,625---

Four years later

97,850----Five years later

-

-

-

-

-

As re-estimated at
31 December 2007

97,850

119,625

149,317

192,283-

Gross cumulative overprovision(17,319)(23,343)(20,899)(10,138)-

Provision re-estimated as of:

ADMIRAL GROUP plc 79

Net amounts:

2003
£000

2004
£000

2005
£000

2006
£000

2007
£000

Net claims provision as originallyestimated

75,54998,120128,631

154,711

166,521

One year later

72,57993,910122,423

146,435-

Two years later

67,726

87,761111,964--

Three years later

63,95482,004---

Four years later

61,620----Five years later

-

-

-

-

-

As re-estimated at
31 December 2007

61,62082,004

111,964

146,435-

Net cumulative overprovision(13,929)(16,116)(16,667)(8,276)-

Provision re-estimated as of:E) Analysis of net claims provision releases:
The following table analyses the impact of movements in prior year claims provisions, in termsof their net value, and their impact on the reported loss ratio. This data is presented on anunderwriting year basis.
Financial year ended 31 December
Underwriting year:

2003
£000

2004
£000

2005
£000

2006
£000

2007
£000

2000

5,176

1,480

370

1,110

740

2001

7,938

2,967

5,043

1,879

1,483

2002

2,975

3,229

5,166

2,260

1,292

2003

-

1,513

4,622

5,084

3,235

2004

-

-

2,076

7,948

7,589

2005

-

-

-

2,623

12,545

2006

-

-

-

-

2,588

Total net release

16,0899,189

17,277

20,90429,472

Net premium revenue

79,327

107,501

139,454

144,955

142,236

Release as % of net premium revenue

20.3%

8.5%

12.4%

14.4%

20.7%

Financial statements 43 - 94

Financial year ended 31 December

8 0 F I N A N C I A L S TAT E M E N T SF) Reconciliation of movement in net claims provision:
31 December
2007

31 December
2006

£000

£000

Net claims provision at start of period

154,711

128,631

Net claims incurred

96,324

103,607

Net claims paid

(84,514)(77,527)

Net claims provision at end of period

166,521

154,71131 December
2007

31 December
2006

£000

£000

Net unearned premium provision at start of period

65,02571,333

Written in the period

141,851

138,647

Earned in the period(142,005)(144,955)

64,87165,02531 December
2007

31 December
2006

£000

£000

Trade receivables

20,747

14,982

Prepayments and accrued income

1,886

1,949

Total trade and other receivables

22,633

16,931G) Reconciliation of movement in net unearned premium provision:

Net unearned premium provision at end of period

20. Trade and other receivables

ADMIRAL GROUP plc 81

31 December
2007

31 December
2006

£000

£000

Cash at bank and in hand

150,902

164,989

Cash on short term deposit

4,871

26,253

155,773

191,242

Total cash and cash equivalents

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

22.

Trade and other payables
31 December
2007

31 December
2006

£000

£000

Trade payables

5,960

4,601

Amounts owed to co-insurers and reinsurers

134,659

124,238

Finance leases due within 12 months

345

1,337

Finance leases due after 12 months

461

Other taxation and social security liabilities

8,557

4,742

Other payables

15,545

13,708

Accruals and deferred income (see below)

74,52366,450Total trade and other payables

239,593

215,137

31 December
2007

31 December
2006

£000

£000

Premium receivable in advance of policy inception

38,477

31,772

Accrued expenses

26,94825,456

Deferred income

9,098

9,222

Total accruals and deferred income as above

74,52366,450Analysis of accruals and deferred income:Financial statements 43 - 94

21. Cash and cash equivalents

8 2 F I N A N C I A L S TAT E M E N T S

23. Obligations under finance leases
Analysis of finance lease liabilities:
At 31 December 2007
Minimum
lease
payments

Interest£000
Less than one year

At 31 December 2006

Principal

Minimum
lease
payments

Interest

Principal

£000

£000

£000

£000

£000

360

15

345

1,383

46

1,337

Between one and five
years

4

-

4

63

2

61

More than five years

-

-

-

-

-

-

364

15

349

1,446

48

1,398

The average term of leases outstanding is two years. All leases are on a fixed repayment basis
and no arrangements have been entered into for contingent rental payments.
The fair value of the Group’s lease obligations approximates to their carrying amount.

24. Deferred income tax (asset) / liability
31 December
2007

31 December
2006

£000

£000

981

3,550

Movement in period(2,610)(2,569)Carried forward at end of period(1,629)981

31 December
2007

31 December
2006

£000

£000

541

1,936

(2,091)(853)

Capital allowances

126

149

Other differences

(205)

(251)

Deferred tax (asset) / liability at end of period(1,629)981

Brought forward at start of period

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

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

ADMIRAL GROUP plc 83

Amounts credited to income or expense:

31 December
2007

31 December
2006

£000

£000

1,395

1,880

Tax treatment of share scheme charges

53

(239)

Capital allowances

23

(541)

Other differences

(46)

62

Net deferred tax credited to income

1,425

1,162

Tax treatment of Lloyd’s Syndicates

The closing deferred tax balance reflects the change in UK corporation tax rate from 30% to 28%
which becomes effective on 1 April 2008. The change in rate does not have a significant impact
on the value of the asset.

25. Share capital
31 December
2007

31 December
2006

£000

£000

500

500

262,721,426 ordinary shares of 0.1p

263-

261,186,599 ordinary shares of 0.1p

-

261

263

261

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

During 2007, 1,534,827 new ordinary shares of 0.1p were issued to the trusts administering theGroup’s share schemes.
570,827 of these were issued to the Admiral Group Share Incentive Plan Trust for the purposes ofthis share scheme. These shares are entitled to receive dividends.
964,000 were issued to the Admiral Group Employee Benefit Trust for the purposes of theDiscretionary Free Share Scheme. The Trustees have waived the right to dividend payments,
other than to the extent of 0.001p per share, unless and to the extent otherwise directed by theCompany from time to time.

Financial statements 43 - 94

The amount of deferred tax income / (expense) recognised in the income statement for each of
the temporary differences reported above is:8 4 F I N A N C I A L S TAT E M E N T S

Staff share schemes:
Analysis of share scheme costs (per income statement):
31 December
2007

31 December
2006

£000

£000

SIP charge (note i)

1,268

495

DFSS charge (note ii)

1,703

438

Total share scheme charges

2,971

933

The share scheme charges reported above are net of the co-insurance share and therefore differ
from the gross charge reported in note 10 (2007: £5,560,000, 2006: £2,667,000) and the grosscredit to reserves reported in note 26.
The consolidated cashflow statement also shows the gross charge in the reconciliation between‘profit after tax’ and ‘cashflows from operating activities’. The co-insurance share of the charge isincluded in the ‘change in trade and other payables’ line.
(i) The Approved Share Incentive Plan (the SIP)
Eligible employees qualify for awards under the SIP based upon the performance of the Groupin each half-year against budget. The current maximum award for each half-year amounts to
600,000 shares (or a maximum annual award of £3,000 per employee if smaller).
The awards are made with reference to the Group’s performance against its budget. Employees
must remain in employment for the holding period (three years from the date of award),
otherwise the shares will be forfeited.
The fair value of shares awarded is either the share price at the date of award, or is estimatedat the latest share price available when drawing up the financial statements for awards not yet
made (and later adjusted to reflect the actual share price on the award date). Awards under the
SIP are entitled to receive dividends, and hence no adjustment has been made to this fair value.
(ii) The Discretionary Free Share Scheme (the DFSS)
Under the scheme, details of which are contained in the remuneration report, individuals receive
an award of free shares at no charge. A total of 1,645 employees received awards under thisscheme during 2007. 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 2007 scheme is 964,000.
Individual awards are calculated based on the growth in the Group's earnings per share (EPS)
relative to a risk free return (RFR), for which LIBOR has been selected as a benchmark. This
performance is measured over the same three-year period.

ADMIRAL GROUP plc 85

The range of awards is as follows:· If the growth in EPS is less than the RFR, no awards vest
· EPS growth is equal to RFR – 10% of maximum award vests· To achieve the maximum award, EPS growth has to be 36 points higher than RFR over the threeyear periodAwards under the DFSS are not eligible for dividends and hence the fair value of free shares to beawarded under this scheme has been revised downwards to take account of these distributions.
The unadjusted fair value is based on the share price at the date on which awards were made asstated in the remuneration report.
Number of free share awards committed at 31 December 2007:
Awardsoutstanding(*1)

Vesting
date

SIP H105 scheme

581,565

September 2008

SIP H205 scheme

330,306

March 2009

SIP H106 scheme

316,328

September 2009

SIP H206 scheme

224,808

April 2010

SIP H107 scheme

346,019

September 2010

SIP H207 scheme

310,000

April 2011

DFSS 2005 scheme

685,000

June 2008

DFSS 2006 scheme, 1st award

604,187

April 2009

DFSS 2006 scheme, 2nd award

77,248September 2009

DFSS 2007 scheme

964,000

June 2010

Total awards committed

4,439,461*1 – being the maximum number of awards expected to be made before accounting for expectedstaff attrition. Of the 4,439,461 share awards outstanding above, 4,129,461 have been issued to thetrusts administering the schemes, and are included in the issued share capital figures above.

Financial statements 43 - 94

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

8 6 F I N A N C I A L S TAT E M E N T S

26. Analysis of movements in capital and reserves
Sharecapital

As at 1 January 2006

Share
CapitalForeign Retained
premium redemption exchange profit andaccount
reserve
reserveloss

Total
equity

£000

£000

£000

£000

£000

£000

260

13,14517-

167,990

181,412Retained profit for theperiod----103,722103,722

Dividends

-

-

-

-

(70,104)(70,104)

Issues of share capital

1

-

-

-

-

1

Currency translationdifferences

-

-

-

(50)

-

(50)

Share scheme charges

-

-

-

-

2,667

2,667

Deferred tax credit on
share scheme charges

-

-

-

-

1,407

1,407

As at 31 December 2006

261

13,14517(50)

205,682

219,055

Retained profit for theperiod----127,416

127,416

Dividends

-

-

-

-

(116,016)(116,016)

Issues of share capital

2

-

-

-

-

2

Currency translationdifferences

-

-

-

429

-

429

Share scheme charges

-

-

-

-

5,560

5,560

Deferred tax credit on
share scheme charges

-

-

-

-

1,186

1,186

As at 31 December 2007

263

13,14517379

223,828

237,632

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

ADMIRAL GROUP plc 87

27. Financial commitments

31 December
2007

31 December
2006

£000

£000

-

-

Within two to five years

2,139

-

Over five years

27,35733,425

Total commitments

29,49633,425

Operating leases expiring:Within one years

Operating lease payments represent rentals payable by the Group for its office properties.
In addition, the Group had contracted to spend the following on property, plant and equipment
at the end of each period:
31 December
2007

31 December
2006

£000

£000

489

1,539

Expenditure contracted to

28. Group subsidiary companies

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

Subsidiary

Country ofincorporation Class of shares held

Principal activity

EUI Limited

England and Wales

Ordinary

General insuranceintermediary

Admiral Insurance Company
LimitedEngland and Wales

Ordinary

Insurance Company

Admiral Insurance (Gibraltar)
LimitedGibraltar

Ordinary

Insurance Company

Admiral Syndicate Limited

England and Wales

Ordinary

Lloyd’s corporate
capital vehicle

Admiral Syndicate
Management Limited

England and Wales

Ordinary

Lloyd’s managing
agencyAble Insurance Services
LimitedEngland and Wales

Ordinary

Intermediary

Inspop.com Limited

England and Wales

Ordinary

Internet insuranceintermediary

Financial statements 43 - 94

The Group was committed to total minimum obligations under operating leases on land andbuildings as follows:8 8 F I N A N C I A L S TAT E M E N T S

29. Related party transactions
There were no related party transactions occurring during 2007 that require disclosure. Details
relating to the remuneration and shareholdings of key management personnel are set out in the
remuneration report, which will be included in the statutory accounts referred to below. Key
management personnel are able to obtain discounted motor insurance at the same rates as allother Group staff, typically at a reduction of 15%.
The Board considers that only the Board of Directors of Admiral Group plc are key management
personnel.

ADMIRAL GROUP plc 89

Consolidated financial summary
The 2007, 2006, 2005 and 2004 figures below are as stated in the financial statements preceding
this financial summary and issued previously. Only selected lines from the income statement andbalance sheet have been included.

Income statement
UK
GAAP

IFRS
2007
£m

2006
£m

2005
£m

2004
£m

2003
£m

Total motor premiums

631.3

566.6

533.6

470.4

371.6

Net insurance premium revenue

142.2

145.0

139.5

107.5

79.3

Other revenue

176.9

131.6

93.4

69.5

50.8

Profit commission

20.5

19.9

14.7

21.7

1.4

Investment and interest income

24.6

14.5

15.5

11.9

6.8

Net revenue

364.2

311.0

263.1

210.6

138.3

Net insurance claims(99.8)(107.1)(100.5)(74.3)(43.5)

Total expenses(82.0)(55.5)(40.9)(28.9)(34.4)

Operating profit

182.4

148.4

121.7

107.4

60.4

Balance sheet
UK
GAAP

IFRS
2007
£m

2006
£m

2005
£m

2004
£m

2003
£m

Property, plant and equipment

7.7

7.5

4.6

3.3

5.8

Intangible assets

69.1

66.8

66.5

66.5

62.4

Financial assets

481.8

395.9

378.7

300.7

241.6

Reinsurance assets

131.7

74.7

54.2

66.1

56.7

Deferred income tax

1.6

-

-

-

-

Trade and other receivables

22.6

16.9

9.4

16.7

12.5

Cash and cash equivalents

155.8

191.2

150.2

119.3

70.1

Total assets

870.3

753.0

663.6

572.6

449.1

Equity

237.6

219.1

181.4

144.6

108.1

Insurance contracts

363.1

294.4

254.1

216.1

174.8

Financial liabilities

-

-

22.0

33.1

35.4

Provisions for other liabilities
and charges

-

-

-

-

11.7

Deferred income tax

-

1.0

3.6

4.8

6.4

Trade and other payables

239.6

215.1

182.9

164.3

104.0

Current tax liabilities

30.0

23.4

19.6

9.7

8.7

Total liabilities

870.3

753.0

663.6

572.6

449.1

Financial statements 43 - 94

Figures for 2003 have not been restated under IFRS, although have been reclassified into theformats used in these financial statements.

9 0 F I N A N C I A L S TAT E M E N T S

Parent Company financial statements

91
92-94
50
51
52
53
54-88
89
91-94

Balance Sheet
Notes to the financial statements

ADMIRAL GROUP plc 91

Parent Company balance sheet
31 December
2007

31 December
2006

Note:

£000

£000

4

106,604

103,804

5

4,354

91

48,11455,61652,46855,707(9,987)(6,857)

(16)

(183)

(10,003)(7,040)Net current assets

42,46548,667

Total assets less current liabilities

149,069

152,471--

149,069

152,471

263

261

Share premium account13,145

13,145

Capital redemption reserve17

17

135,644

139,048

149,069

152,471

Fixed asset investments
Current assets
Debtors
Cash at bank and in hand

Creditors – falling due within one year
Other creditors

7

Accruals and deferred income

Creditors – falling due after one year
Loans

6

Net assets
Capital and reserves

8

Called up share capital

9

Profit and loss account

These financial statements were approved by the Board of Directors on 3 March 2008 and weresigned on its behalf by:

Kevin Chidwick
Director

Financial statements 43 - 94

As at:

9 2 F I N A N C I A L S TAT E M E N T S

Notes to the Parent Company financial statements
The following accounting policies have been applied consistently in dealing with items which areconsidered material in relation to the financial statements:

1.

Basis of preparation and accounting policies

In these financial statements the following new standards have been adopted for the first time:· FRS 29 ‘Financial Instruments: Disclosures’;
The adoption of this standard has not had a material impact on either the current year orcomparative figures as the standard exempts parent companies in their single-entity financial
statements from preparing such disclosures. Refer to Note 18 in the Admiral Group consolidated
accounts, which precede these accounts, for disclosures that comply with this standard.
The Admiral Group plc Company financial statements have been prepared in accordance withapplicable accounting standards, under the historical cost convention and in accordance with theprovisions of Section 226 of, and Schedule 4 to, the Companies Act 1985.
As permitted by Section 230 of the Companies Act 1985, the profit and loss account of the
Parent Company is not presented. Under FRS 1 (Cash flow statements) the Company is exempt
from having to present a cash flow statement on the grounds that its cash flows are included in
the Group’s published consolidated financial statements.
The Company has taken advantage of the exemption in FRS 8 not to disclose transactions orbalances with its 90% or more owned subsidiary undertakings on the basis that the consolidated
accounts are publicly available.
The Parent Company audit fee is not disclosed in these accounts as it is disclosed in the
consolidated Group accounts, which precede them at note 10.

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

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

ADMIRAL GROUP plc 93

Investments in subsidiary undertakings

31 December
2007

31 December
2006

£000

£000

106,604

103,804

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

5. Debtors

Amounts owed by subsidiary undertakings
Deferred tax asset

31 December
2007

31 December
2006

£000

£000

4,348

86

6

5

4,354

91

6. Loans
Full details of the Company’s debt are included in the consolidated financial statements above.
The note, whilst prepared under IFRS also conforms to UK GAAP.

7. Other creditors – due within one year

Corporation tax payable
Amounts owed to subsidiary undertakings
Other creditors

31 December
2007

31 December
2006

£000

£000

9,931

6,775

-

10

56

72

9,987

6,857

Financial statements 43 - 94

4. Fixed asset investments

9 4 F I N A N C I A L S TAT E M E N T S

8. Reconciliation of movements in shareholders’ funds
SharecapitalShare
Capitalpremium redemption
account
reserve

Retained
profit and
loss

Total
equity

£000

£000

£000

£000

£000

260

13,14517

110,269

123,691

Retained profit for the period

-

-

-

96,216

96,216

Dividends---(70,104)(70,104)

Issues of share capital

1

-

-

-

1

Share scheme charges

-

-

-

2,667

2,667

As at 31 December 2006

261

13,14517

139,048

152,471Retained profit for the period

-

-

-

107,052

107,052

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

Issues of share capital

2

-

-

-

2

Share scheme charges

-

-

-

5,560

5,560

As at 31 December 2007

263

13,145

17

135,644

149,069

At 1 January 2006

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

Financial statements 43 - 94

ADMIRAL GROUP plc 95

D i r e c t o r s a n d ad v i s o r s

A D M IR A L G RO U P p l c

Directors and advisors

Notes

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

Company Secretary
Stuart Clarke

Registered Office
Capital Tower
Greyfriars Road
Cardiff CF10 3AZ

AuditorActuarial advisors

KPMG Audit Plc
Marlborough House
Fitzalan Court
Cardiff CF24 0TE

Ernst & Young
1 More Place
London SE1 2AF

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

Bank of Scotland
Corporate Banking
55 Temple Row
Birmingham B2 5LS

HSBC Business Banking
97 Bute Street
Cardiff CF10 5NA

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

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

Solicitor

Norton Rose
3 More London Riverside
London SE1 2AQ

Admiral Group plc

Köln

www.admiralgroup.co.uk

annual report 2007

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

annual report 2007