admiral group 2010

7/31/2019 Admiral Group 2010

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Annual Report 2010


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What we do:

Admiral Group is frst and oremost a successul car insurer.Since launching in January 1993 we have grown every

year and now have 2.75 million customers in fve countries.We employ over 4,700 people in nine countries.

The Groups core market is the UK, with a 10% shareo private car insurance through our brands; Admiral,Elephant, Diamond, and Bell. The Group also has carinsurance businesses in Spain, Italy, France and the USA.

We also own Conused.com, one o the leading UK pricecomparison websites, and have similar businesses in Spain,France and Italy.

Why we are dierent:

Highly proftableThe Group has delivered year-on-year proftgrowth, reaching a record 266 million in2010. Our Group combined ratio in 2010was below 90%.

Fast growingFive-year compound growth in turnoverincreased to 23% in 2010; year-on-year

growth o 47%. We have increasedcustomer numbers and revenue everyyear since launch.

Low risk proftsAdmiral has no debt, a low risk investmentportolio, a conservative reservingmethodology, and utilises reinsuranceagreements to signifcantly reduceunderwriting risk. We generate signifcantprofts rom insurance products underwrittenoutside the Group and generate high returnon capital invested (59% in 2010).

Strongly cash generativeAdmirals capital-light model enablesit to return the majority o its profts toshareholders as dividends. The totaldividend or 2010 was 18% higher than 2009and represented 94% o post-tax earnings.

Contents:

01 Financial and operatinghighlights 2010

02 Admiral Group our markets

04 Chairmans statement07 Chie Executives

statement10 Business review10 Group fnancial review

11 UK Car Insurance15 UK Car Insurancemarket review

16 Non-UK Car Insurance21 Price Comparison

23 Conused.com review24 Other Group items27 Principal risks

and uncertainties29 Corporate

Responsibility34 The Admiral Group

Board36 Directors report

39 Corporate Governance48 Remuneration report53 Independent auditors

report to the memberso Admiral Group plc

55 Consolidated incomestatement

56 Consolidatedstatement ocomprehensive income

57 Consolidated statemento fnancial position

58 Consolidated cashow statement

59 Consolidatedstatement o changesin equity

60 Index to the fnancialstatements

61 Notes to the fnancialstatements

87 Parent Companyfnancial statements

88 Notes to the ParentCompany fnancialstatements

91 Consolidated fnancialsummary

92 Directors and advisersFurther inormation


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01Admiral Group plc | Annual Report 2010

Financial andoperating highlights2010

Strong growth in turnover, customer numbers,profts and dividend in 2010

Three new businesses launched: LeLynx.r French price comparison

(January 2010) Chiarezza.it Italian price comparison

(February 2010) LOlivier Assurances French car insurance

(December 2010)

Number o Group employees grew by 26%to 4,740

Proft beore tax

265.5m2009: 215.8m +23%

Earnings per share

72.3p2009: 59.0p +23%

Full year dividend

68.1p2009: 57.5p +18%

UK Car Insuranceproft

275.8m2009: 206.9m +33%

Return on capital

59%2009: 54%

Turnover

1.58bn2009: 1.08bn +47%

Net revenue

640.8m2009: 507.5m +26%

Non-UK Car Insurancecustomers

195,0002009: 121,000 +61%


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02 Admiral Group plc | Annual Report 2010

Admiral Group our markets

Admiral is one o the top three private car insurers in the UKwith 10% o the market. The Group also owns Conused.com,one o the UKs leading price comparison websites (a distributionchannel which accounts or over hal o car insurance salesin the UK).

FranceLeLynx a price comparison website launchedin January 2010

Our newest operation outside the UK is based inParis. LOlivier Assurances, a French car insurerstarted trading in December 2010

ItalyConTe, our Italian car insurer launched in May 2008.

It ended 2010 with over 86,000 customers, makingit the largest Group business outside the UK

Chiarezza (Italian price comparison website) startedtrading February 2010

SpainWe launched our frst business outside the UK inSpain in 2006. Balumba made its frst ull-year proftin 2010 and insured nearly 71,000 cars at the endo 2010. Balumba is now combined with our secondSpanish car insurance brand, Globalty, to ormAdmiral Seguros Espaa

Rastreator our Spanish price comparison websitelaunched in March 2009

USAThe largest market we operate in is the USA (albeitonly currently in Virginia and Maryland). ElephantAuto launched there in October 2009 and justcompleted its frst ull year

A key part o Group strategy is to exploit the knowledge, skills and resource in the establishedUK businesses to promote expansion overseas (in car insurance and price comparison).

Our progress to date:

Where we operate

United Kingdom:

Admiral, Bell, Conused,Gladiator, Diamond, Elephant

Italy:

ConTe,Chiarezza

France:LeLynx,LOlivier Assurances

Virginia andMaryland, USA:Elephant Auto

Spain:Admiral Seguros

(Balumba andGlobalty), Rastreator


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The Groups core business is UK privatecar insurance

2010 was a year o very strong growthin customers, premiums and proft

Our estimated market share is nowaround 10%

The Group has our car insurers outside the UK Balumba (now part o Admiral Seguros along

with Globalty), based in Spain made its frst ullyear proft in 2010

ConTe in Italy ended its second ull year with86,500 customers

Elephant Auto in the USA completed its frstull year o operation

We launched LOlivier Assurances inDecember 2010 We exited the German car insurance market

with the sale o AdmiralDirekt

Conused.com endured a tough year in 2010,seeing revenue and profts all

Rastreator in Spain completed its frst ullyear o operation in 2010, generating wellover 1 million quotes

LeLynx (France) and Chiarezza (Italy) launchedin Q1 2010

Gladiator grew revenue and proft despitehigh levels o competition in UK van insurance

The Group is highly cash generative and hasa cautious approach to investments

UK Car Insurance Non-UK Car Insurance

Price Comparison Other Group activities

Turnover

1,420m +51%2009: 939m

Vehicles

2.46m +32%2009: 1.86m

Combined ratio

83.5%2009: 84.9%

Pre-tax proft

275.8m +33%2009: 206.9m

Turnover

78m +64%2009: 47m

ConTe vehicle count

86,500 +140%2009: 35,500

Vehicles

195,000 +61%2009: 121,000

Balumba operating proft

0.8m2009: loss 1.3m

UK revenue

71.8m -10%2009: 80.1m

Operating proft

16.9m -34%2009: 25.7m

Non-UK revenue

3.9m2009: 0.4m

Rastreator quotes

1.3m +420%2009: 0.3m

Gladiator operatingproft

2.7m +13%2009: 2.4m

Gladiator revenue

11.8m +11%2009: 10.6m

Investment andinterest income

9.5m +8%2009: 8.8m

Group cash plusinvestments

910m +44%2009: 633m

UK Highlights Non-UK Highlights Highlights

Confused.com


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totalshar

eholderret

urn

12monthsend

ing

31December

2010

33%

dividend

up18%on2009

68.1p


Chairmansstatement

Alastair Lyons, CBEChairman

Our consistent strategy

In my statement last year I reprised Admiralsstrategy since becoming a public company in 2004,the frst two elements being to:

Grow our share o the UK private motorinsurance market

Exploit the knowledge, skills and resourcesattaching to our established UK businesses topromote our expansion overseas in both privatemotor and price comparison

2010 was a year o marked progress against thesestrategic objectives. In turn this translated into stronggrowth in shareholder value, Admiral delivering a

33% Total Shareholder Return over the 12 monthsending 31 December 2010. In accordance withour philosophy o giving all our sta a stake in whatthey create by making them shareholders, thisexcellent perormance will mean employees willagain realise the maximum award o 3,000 reeshares in recognition o the achievement in ullo the 2010 objectives within the Approved FreeShare Scheme. Someone who has been employedsince otation now has the potential to hold2,041 shares under this scheme worth 34,000.*

Learn by taking relatively small and inexpensivesteps to test dierent approaches and identiythe best way orward

Operate a capital-light business modeltranserring a signifcant proportion o ourunderwriting risk to reinsurance partners, which

in turn allows Admiral to distribute the majorityo our earnings as dividends

Extend this low risk philosophy to our investmentstrategy, only employing cash deposits or moneymarket unds

Give all our sta a stake in what they createby making them shareholders

Recognise the responsibility we have tothe communities o which we are a part

* Based on the closing share price on 25 February 2011.

We will distribute 94% o2010 post-tax earnings.


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Big WeekendAdmiral has sponsored the Cardi Big Weekendsince 2004. Last year 260,000 people enjoyedthe three day event.

Welsh RugbyAdmiral Group are delighted tosponsor the Welsh Rugby Unionstrip or the next three years.

In the UK, Admirals strength in price comparisonand signifcantly better than market averagecombined ratio again gave us the exibility toachieve material growth in both market share andaverage premium. With a 32% growth in vehiclecount during 2010 to some 2.5 million vehiclescovered by Admiral brands we estimate that we arenow one o the top three UK private motor insurers,holding around 10% o the UK market. UK CarInsurance profts rose 33% to 276 million.

Our expansion overseas also made considerableprogress during 2010. Two days beore Christmas sawthe launch o LOlivier, Admirals new car insurancebrand in France, ollowing that o LeLynx.r, ourFrench price comparison business, early in 2010.We now have this complementary dual presenceo motor insurer and price comparison websitein 4 out o our 5 chosen markets. We have oundthat the price comparison launch helps stimulategrowth in what are oten immature price comparisonmarkets to the beneft o the direct operation,while the direct operation provides a willing partnerin markets where some players are resistant to the, inour view inevitable, emergence o price comparison.

Admirals Non-UK Car Insurance turnover increasedby 64% over 2009. ConTe in Italy advanced strongly,whilst in Spain, Balumba had 40% more customersby the year-end, despite difcult trading conditions.2010 was our frst ull year in the US with ElephantAuto and, as such, was a year o building capabilityand learning how best to position ourselves in thisnew market. At the end o the year we announcedthe sale o our German insurance business,AdmiralDirekt. We have made no secret o the actthat we have ound the German market the most

difcult o those entered under our internationalexpansion strategy and there was not, in our view,an early prospect o urther investment deliveringthe required return or our shareholders.

The UK Price Comparison market continuedintensely competitive during 2010 with very highlevels o media activity rom the our key players.Both turnover and proftability or Conused wereconsequently markedly down on 2009. In contrast,Rastreator, our aggregator in Spain, achieved verygood growth in the year.

The strength o our advance in UK Car Insurancedrove our Group result or 2010, pre-tax profts at266 million being 23% ahead o the previous year.Admirals capital-light business model, transerringa signifcant proportion o our underwriting risk toreinsurance partners, allows the majority o ourearnings to be distributed as dividends. This yearwe will distribute 94% o post-tax earnings, our ullyear dividends amounting to 68.1 pence per share,18% up on our declaration or 2009. Our normaldividend, growing in line with our growth in proftsbased on a 45% pay-out ratio, amounted to 32.4pence per share, whilst our available surplus, atertaking into account our required solvency, provisionor our overseas expansion plans, and a margin orcontingencies, made possible a special dividend o35.7 pence per share. We have paid such a special

dividend as part o every distribution we havemade since becoming a public company in total398 million, 52% o overall dividends.

We recognise that Admiral now represents asignifcant part o the communities in Wales wherewe are based. We identiy closely with thesecommunities and are delighted to sponsor theWelsh Rugby Union strip or the next three years.We continue to encourage our sta, wherever theyare working, to play an active part in their localcommunity and Admiral provides fnancial support

to not-or-proft groups in which sta are involved.In 2010 we sponsored organisations and activitiesas diverse as the Alzheimers Society Swansea,the National Theatre o Wales, and the CardiMardi Gras.


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Each year we undertake an appraisal o the workingo the Board and the Board Committees, and o myeectiveness as Chairman, and seek to identiy howwe can improve our Board process and itseectiveness in setting, and having oversight o theimplementation o, the Groups strategy. Everythree years, o which 2010 was one such, this takesthe orm o an external review o our eectiveness.Whilst the overall conclusion was that the Board hascontinued to work very eectively in relation tomost dimensions the review also identifed clearareas o ocus. In particular we recognise thatseveral o our Non-Executive Directors are due to

reach their maximum term in the next our yearsnecessitating an eective process o successionplanning leading to the recruitment o newdirectors with generous overlap to maintaincontinuity o knowledge and Board dynamics.

I am, thereore, delighted that Colin Holmes, untilrecently Tescos UK Commercial Director or FreshFoods and a member o Tescos Group ExecutiveCommittee, has accepted our invitation to join theBoard and provide succession to the role o AuditChair when, in due course, Martin Jackson

completes his three terms. Colin already hasNon-Executive experience having been a membero the Board o Bovis Homes since 2006.

The review also underlined the importance o theBoard increasing its exposure to senior managersacross the Group in order to assist the Boardsassessment o the bench strength available tosupport the broader executive succession planningand the Groups continued expansion. Whilst thestraightorward nature o our business, being amonoline direct private motor insurer, means thatSolvency II is less complex or Admiral than ormore broadly-based competitors, we recognise theneed to increase our depth in risk managementto ensure that the models supporting Solvency IIare appropriately embedded in our business.

I am oten asked what is the principal reason orAdmirals success: the answer is a simple one ourpeople, embracing our Board, our executive team,our management, and our sta in all roles andacross all geographies. It is they who develop thebusiness models, have the creative intuition, anddesign and implement the processes that, whentaken all together, engender success. To all ourpeople my thanks on behal o the Board oranother very successul year.

Thank you!

Alastair Lyons, CBEChairman1 March 2011

Chairmans statementcontinued

Swansea Bay 10kAdmiral has sponsored the Swansea Bay 10kroad race or our years. 235 members o stahave taken part in the race, raising money ora variety o charities.

MovemberSta at Admirals ofce in Haliax, Canadatook part in the Movember undraisingevent or prostate cancer. Colleaguesin the UK operations also grew moustaches.


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Perormance Perormance

In this section:07 Chie Executives statement10 Business review

10 Group fnancial review11 UK Car Insurance15 UK Car Insurance market review16 Non-UK Car Insurance21 Price Comparison23 Conused.com review24 Other Group items27 Principal risks and uncertainties


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1,600

0

200

400

600

1,200

1,000

800

1,400

1,585

2010

1,077

2009

910

2008

808

2007

698

2006

627

2005

540

2004

422

2003

373

2002

320

2001

262

2000

207

1999

150

1998

120

1997

100

1996

73

1995

47

1994

18

1993


Chie Executivesstatement

For the seventh consecutive year, every year sincewe became a public company, Admiral Group hasreported record profts and record turnover. Onthe ace o it I think most CEOs would be pleasedwith such results. Does it make sense to say thatI am pleased, but ar rom satisfed? In my view,2010 was a mixed year or the Group. There weresome big triumphs but also some quite soberingmoments and, in a lot o areas, its too early to

judge the quality o the work completed.

The big success was the UK motor insurancebusiness. Its a snowball going like a reight train.Downhill. Wow!

Admiral Group has a core business that is antasticand appears to be getting better. Tradingconditions in the UK were more avourable thanany time since 2000. And Im pleased to say wewere able to take ull advantage. Big price hikes inthe market pushed consumers to shop. We raisedour rates some, but also took advantage o ourcombined ratio advantage in the market to gobbleup market share.

Henry Engelhardt, CBEChie Executive Ofcer

Turnover growth m

For the seventh consecutiveyear, every year since webecame a public company,Admiral Group hasreported record profts

and record turnover.


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We are now home to about 10% o the UK privatecar insurance market by value. More details on thismarket and our perormance are provided byDavid Stevens on the ollowing pages.

Besides UK insurance there were other areas in theGroup that did well, including:

Growth and development o ConTe in Italy The continued growth o Rastreator, our price

comparison business in Spain

However, there were also important businessesin the Group that underperormed or that ran intosubstantial challenges, including:

AdmiralDirekt, our insurance operation inGermany, which we sold at the end o the year

Slow growth o Elephant Auto in the USA Difcult trading conditions in Spain, which acted

as a brake on the development o Balumba The all in Conuseds profts aligned with

ongoing market share decline (Kevin Chidwickgives more details on this business later inthis report)

Our other operations are all young and immature

businesses that need to mature and improve.

The Boards decision to exit the German marketater three years is a clear indication that youngand immature does not give even a new businesscarte blanche to underperorm. So 2011 will bededicated to improving our operations in Spain,Italy, the USA and France. Theres no magicormula and success will defnitely not beinstantaneous, but our goal is to quickly put thesebusinesses on a clear success trajectory. Impleased to say that I believe we have the rightpeople in place to do this. I do believe that all othese operations will be successul, albeit, in time.

Already we are successul at exporting ouraward-winning culture. Our operations in Italy,Spain and the USA all gained entry to theirrespective country or area lists that measureemployee satisaction. It is a very good eelingto walk into an ofce, hundreds or even thousandso miles away rom ones own, and know instantly itwas cut rom the same cloth. Now all we need todo is continue to grow ConTe proftably, get someprice hikes in the Spanish market and generatecheaper quotes in greater volume in the USA!

2010 goesdown as the

Year o thePuppy Dog.

Launches in 2010www.lolivier.r car insurance. www.chiarezza.it price comparison. www.lelynx.r price comparison.

Chie Executivesstatementcontinued


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Childrens partyAdmiral sta enjoy dressing up to helpentertain employees children at theChristmas Party in Swansea.

As you can see, on a lot o measures 2010 was apretty good year. As you may remember (actuallyquite unlikely, so Ill remind you), 2009 was the Yearo the Ox: a lot o hard-tilling o the insurance soil.I think 2010 goes down as the Year o the PuppyDog. It was the Year o the Puppy Dog becausewhen one looks at those highlights it looks like anincredibly cute, cuddly year with a lot o moments

that youll treasure orever. However, as with apuppy dog, sometimes it weed on the oor!

In sum, this is a good business and a goodorganisation. It will be better.

Time to say Thanks. In particular Id like tohighlight the contribution o Andrew Probert, ourormer Finance Director, who, instead o beingretired, was instrumental in achieving the sale oAdmiralDirekt. Finally, as one does, Ive saved thebest or last. Let me say Thanks! to sta, partnersand signifcant others, as those record profts andrecord turnover numbers didnt happen by

themselves.

Henry Engelhardt, CBEChie Executive Ofcer1 March 2011

Here are a ew highlights rom 2010

Overall: Record profts o 265.5 million 32% growth in customer numbers, rom

2.08 million to 2.75 million Record turnover fgure o 1.58 billion Record dividend declared, 35.5p/share 59% return on capital UK Childrens Christmas Parties attendance

tops 1,000!

41% growth in customers, rom 50,300 to 70,700 First annual proft o 0.8 million, a change o

2.1 million rom 2009

Did over 164,000 quotes rom launchin February

86,500 customers at year-end, up 144%rom 2009

Loss ratio ater 12 months was 28 percentagepoints better in 2010 than 2009

Gained licence and now trading in Maryland,as well as Virginia

Loss ratio fgures better than expectations

Did over 250,000 quotes rom launch onJanuary 18

420% growth in quotes in the year rom

254,000 to 1,320,000

Movie Madness2,300 people attended Admirals Movie Madnessparty at Cardi International Arena in July andenjoyed unair rides, movie-themed areas andentertainment rom Madness.


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Business review In fnancial terms the Groupenjoyed a very positive 2010,producing substantial topline growth, a signifcant risein the number o customers

and strong increases inpre-tax proft and dividends.

In fnancial terms the Group enjoyed a very positive2010, producing substantial top line growth, asignifcant rise in the number o customers andstrong increases in pre-tax proft and dividends.Three new businesses were launched in the year(two price comparison businesses in France andItaly plus a car insurer in France), while the decisionwas taken to exit the German car insurance market,with a deal to sell the AdmiralDirekt businessconcluded in early 2011.

Favourable conditions in the Groups core UK carinsurance market were the main driver o a 47%increase in turnover to 1,585 million rom 1,077million. The UK Car Insurance business accountedor 90% o the 2010 total. The number o customersacross the Group increased by almost one third to2.75 million, and 2010 ended with over 195,000vehicles insured outside the UK.

Pre-tax proft increased by 23% to 265.5 million,again strongly driven by UK Car Insurance whereprofts increased by one third to 275.8 million.Signifcant increases in earned premium andancillary profts were the key contributors tothe increase.

The Groups investment in young and new overseasbusinesses continued in 2010; total losses outsidethe UK (excluding pre-launch costs) amounting

Group Customers (000s) 2,748.4Group Turnover (m) 1,584.8m

Turnover comprises total premiums written and other revenue

2010

2006

2007

2008

2009

1,584.8

1,077.4

910.2

808.2

698.2

2010

2006

2007

2008

2009

2,784.4

2,076.0

1,745.8

1,490.8

1,284.7

Pre-Tax Proft (m) 265.5m Earnings per share (p) 72.3p

2010

20062007

2008

2009

72.3

59.0

54.9

48.639.8

2010

20062007

2008

2009

265.5

215.8

202.5

182.1147.3

Group fnancialreview

to 12.9 million, up rom 10.3 million last year.Encouragingly, Balumba in Spain made its frstull year proft (0.8 million, ater making a loss o1.3 million in 2009). The Group operates sevenbusinesses outside the UK our car insurers(Balumba in Spain, ConTe in Italy, Elephant Autoin the USA and LOlivier in France) and three pricecomparison websites (Rastreator in Spain, LeLynxin France and Chiarezza in Italy).

Conused had a tough year in the UK pricecomparison market, and saw revenue all by10% to 71.8 million and proft decline by 34%to 16.9 million.

Other Group highlights include:

Group combined ratio at 89%, improved rom92% in 2009

Net revenue up 26% to 641 million

Total dividends or the 2010 fnancial year willamount to 68.1 pence per share (183 million intotal), up 18% on the previous year (57.5 pence;153 million).

The Groups results are presented in three

key segments UK Car Insurance, Non-UK CarInsurance and Price Comparison. We summariseother Group items in a ourth section.


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What we do

The Groups core business is selling andunderwriting private car insurance in the UKthrough our brands Admiral, Bell, Diamondand Elephant

Our policies are distributed through pricecomparison websites and direct channels (ourown websites and the telephone)

We estimate that we account or around 10% othe UK market in value terms, insuring 2.5 millioncars at the end o 2010. Total UK premium in 2010was over 1.2 billion

Our main operations are in Cardi, Swansea andNewport in South Wales, and we also serviceour customers rom call centres in Haliax,Nova Scotia, Canada and Bangalore, India

UK Car Insurance strategy

The strategy or our UK business is unchangedand remains relatively simple:

We aim to manage our existing customerbase and uture growth in order to maximiseproftability and return on capital over themedium to long term

At the same time, we endeavour always togive excellent service to our customers, whilstproviding a positive environment in whichour sta can work and develop

90%Our UK Car Insurancebusiness represents90% o our combinedGroup turnover in 2010.

2010

2006

20072008

2009

2,458.9

1,861.8

1,587.21,381.7

1,240.2

UK Car Insurance vehicle numbers (000s)

2,459 Five year compound growth now at 19%,

year-on-year growth at 32%

Strong growth is a result o concentration on theprice comparison distribution channel, eectivepricing discipline and innovative products

2010

20062007

2008

2009

83.5

86.1

81.0

83.487.2

UK Car Insurance combined ratios (%)

83.5% Consistent and signifcant outperormance

against the market

Loss ratio advantage arises rom targeted pricingand efcient claims handling

Expense ratio advantage partly a actor ohigher average premium portolio, also efcient

acquisition and a ocus on cost control

2010

2006

2007

2008

2009

77

72

71

69

69

UK Car Insurance ancillary income per vehicle ()

77 Signifcant proft generated rom non-

underwriting activities 36% increase in 2010results rom signifcant increase in vehicles andmodest increase in income per vehicle

Track record o maintaining ancillary income pervehicle ancillary profts generally increase in linewith vehicle growth

Continual development o products and servicesin response to changing customer needs andindustry trends

UK CarInsurance

(We include KPIs on sta and customers in the Corporate Responsibility section later in the Business Review)


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2009

2010

2011

2012

2013

6.25

10.0

2.511.25

2.57.5 8.75

27.5

27.5

27.5 40.0

25.0

6.2510.050.0

10.07.545.0

8.757.5

40.0

2.5

2.5

3.013.25

3.013.2525.0 8.75 40.0 7.5

Admiral Option Munich Re Swiss Re Hannover Re New Re Mapre Re XL Re


3,500+Admirals core UK CarInsurance business employsover 3,500 people in SouthWales, Haliax, Nova Scotia,Canada and Bangalore, India.

UK Car Insurance Co-insurance and Reinsurance

One o the key eatures o Admirals businessmodel (in and outside the UK) is signifcant useo proportional risk sharing agreements, whereinsurers outside the Group underwrite a majorityo the risk generated, either though co-insuranceor reinsurance contracts. All contracts includeproft commission arrangements which allowAdmiral to retain a signifcant portion o theproft generated.

The two principal advantages o thearrangements are:

Capital efciency the majority o the capitalsupporting the underwriting is held outside theGroup. As Admiral is typically able to retainmuch o the proft generated via proftcommission, the return on Group capital ishigher than in an insurance company with astandard business model

Risk mitigation The co-insurer and reinsurersbear their proportional shares o claimsexpenses and hence provide protection shouldresults worsen substantially

In 2010, Admiral underwrote a net 27.5% o UKpremiums (in line with 2009 and 2008). 45% o the2010 UK total is underwritten by the Munich ReGroup (specifcally Great Lakes Reinsurance (UK)Plc) through a long-term co-insurance agreement,with a urther 27.5% being proportionallyreinsured to Hannover Re (10.0%), New Re(10.0%) and Swiss Re (7.5%).

The nature o the co-insurance is such that 45%o all motor premium and claims or the 2010year accrues directly to Great Lakes and doesnot appear in the Groups income statement.Similarly, Great Lakes reimburses the Group orits proportional share o expenses incurred inacquiring and administering the motor business.

UK Car Insurance

Non-GAAP*1 ormat income statementm 2008 2009 2010

Turnover*2 804.8 939.1 1,419.7

Total premiums written*3 690.2 804.7 1,237.6

Net insurance premium

revenue 161.9 199.1 269.4Investment income 17.1 7.5 8.3Net insurance claims (105.1) (138.7) (192.6)Net insurance expenses (26.0) (30.3) (32.4)

Underwriting proft 47.9 37.6 52.7Proft commission 34.7 54.2 67.0Net ancillary income 89.0 106.3 142.4Other revenue 8.3 8.8 13.7

UK Car Insuranceproft beore tax 179.9 206.9 275.8

*1 GAAP = Generally Accepted Accounting Practice*2 Turnover (a non-GAAP measure) comprises total premiums

written and other revenue*3 Total premiums written (non-GAAP) includes premium

underwritten by co-insurers

Key perormance indicators

2008 2009 2010

Reported loss ratio 62.0% 66.9% 68.3%Reported expense ratio 19.0% 18.0% 15.2%Reported combined ratio 81.0% 84.9% 83.5%

Written basis expense ratio 17.0% 16.9% 14.4%

Claims reserve releases 38.0m 31.3m 23.5mReleases as % o

net premium 23.5% 15.7% 8.7%

Proft commission as% o net premium 21.4% 27.2% 24.9%Vehicles insured at year-end 1.59m 1.86m 2.46mAncillary income per vehicle 70.7 72.0 77.0

Business reviewcontinued

UK Co-insurance & Reinsurance Arrangements (% share)


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Ministry o FunSta celebrate Elvis birthday aspart o a Ministry o Fun activity.


New arrangements or 2011 and beyond

During 2010, the Group signed new contractsto come into orce in 2011 with two new quotashare partners. Mapre Re and XL Re will bothunderwrite 2.5% o the UK business in 2011. Theremainder is split: Admirals net share at 27.5%;Great Lakes (co-insurance) 40.0%; New Re11.25%; Hannover Re 8.75% and Swiss Re 7.5%.

The Great Lakes co-insurance contract will rununtil at least the end o 2016, and will see GreatLakes co-insurance 40% o the UK business orthe remaining period. Admiral has committed

to retain at least 25% or the duration, whilst theallocation o the balance is at Admirals discretion.

The European and USA arrangements areexplained in the Non-UK Car Insurance sectionon page 16.

UK Car Insurance Financial PerormanceCommentary on UK market conditions is includedin David Stevens Review (see page 15).

Total premiums written in the UK increased by 54%to 1,237.6 million (2009: 804.7 million), whilst thenumber o vehicles insured at year-end rose by 32%to 2.46 million (2009: 1.86 million).

Admirals premium rates rose, on average, by just over25% during the year, whilst the average premiumor transacted business increased by around16% year-on-year (the dierence in percentagesreecting the timing o rate rises over the courseo the year). Our estimation is that our price riseslagged those in the market, the resultant increasein our competitiveness, combined with thecontinued growth o price comparison contributingto the signifcant growth in vehicles insured in 2010.

The 2010 loss ratio, beore the impact o reservereleases is 77%, an improvement on the 83%reported in 2009. The reduction is predominantlya result o the positive impact o price rises onpremiums earned in the year. The price changesin 2010 should continue to beneft the loss ratioin 2011.

Reserve releases in 2010 equated to 9% o net UKpremium revenue (23.5 million), down rom 16%

(31.3 million) in 2009. The reduction reects therecent shit in contribution between releases andproft commission in respect o business writtenin prior periods (reer to the claims reservingnote below).

Ater taking the lower level o releases into account,the 2010 loss ratio was 68.3% compared to 66.9%or 2009.

Claims reservingAdmirals policy is initially to reserveconservatively, above independent and internalprojections o ultimate loss ratios. This results in asignifcant margin being held in reserves to allowor unoreseen adverse development in openclaims and creates a position whereby Admiralmakes above industry average reserve releases.

As proft commission income is recognised in theincome statement in line with loss ratiosaccounted or on our own claims reserves, thereserving policy means that proft commissionincome is also deerred and released over time.

In determining the quantum o releases rom

prior years, we seek to maintain a consistent levelo prudence in reserves (taken together withreserves o proft commission) based onactuarial projections o ultimate loss ratios. Inrecent periods the contribution to the totalmargin deriving rom proft commission hasincreased signifcantly.

The 2010 expense ratio o 15.2% showed a notableimprovement on the 18.0% reported in 2009. Thiswas partly due to increases in average premiums,

but also reects continued efciencies in operationsas the business grows. Admirals UK expense ratio isapproximately hal the market average.

The combined ratio in 2010 was 83.5%, marginallybetter than the 84.9% or 2009. The improvement inexpense ratio was in part oset by the slightworsening in the reported loss ratio. The latestmarket inormation available or 2009 shows a totalcombined ratio o 123% (Admirals advantage overthis fgure being spread relatively evenly betweenthe loss and expense ratio elements).

Top 10 DepartmentsSwansea New Business department scoopedthe award or best department to work orat Admirals own Top 10 Departments awards.


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Group Share PlanAll employees, regardless o location,are entitled to receive shares in theGroups Approved Free Share Plan.

Dress upSwansea Renewals sta enjoy dressingup as part o a competition to win a tripto New York.

Including investment income o 8.3 million(2009: 7.5 million), underwriting proft in 2010 rosesignifcantly to 52.7 million rom 37.6 million in2009. O this increase, around 10 million relatesto higher net insurance premium revenue, with themajority o the remaining 5 million derived romthe improved combined ratio. Investment incomeis discussed urther below.

Proft commission income rom co-insurance andreinsurance partners grew strongly in 2010, to 67.0million rom 54.2 million in 2009 (an increase o24%). This equated to around 25% o net insurancepremium revenue, largely in line with 2009.

Strong growth in customer numbers translatedinto a signifcant increase in ancillary proft in 2010.Net ancillary contribution (ater overhead costallocation), increased by 34% to 142.4 million(2009: 106.3 million). The increase was aheado vehicle count growth due to an increase in thecontribution earned per vehicle (77 v 72 in 2009).Note that whilst the year-end vehicle count roseby 32% in 2010, the average number o vehiclesinsured (on which the income per vehicle KPIis measured) increased by 24%.

Ancillary contributionAncillary contribution is generated rom aportolio o insurance products that complementour core car insurance, and also ees generatedover the lie o the policy. There is also some(less signifcant) income rom other productsunconnected to car insurance.

We classiy ancillary contribution in threecategories:

Compulsory products legal expensesinsurance

Optional products such as breakdown cover,personal injury insurance, car hire insurance

Fees and other administration ees, wastedleads, claims reerral income

Overall, the high level o growth and continuedstrong perormance across the Groups corebusiness led to a one third increase in pre-taxprofts to 275.8 million (2009: 206.9 million).

Regulatory environmentThe UK car insurance business operates mainlyunder the regulation o the UK Financial ServicesAuthority, and also, through a Gibraltar-basedinsurance company, under the Financial ServicesCommission in that territory.

The FSA regulates two Group companies involvedin this business EUI Limited (an insurance

intermediary) and Admiral Insurance CompanyLimited (AICL, an insurer), whilst the FSC regulatesAdmiral Insurance (Gibraltar) Limited (AIGL, alsoan insurer).

All three companies are required to maintain capitalto levels prescribed by the home regulator, and allthree maintained surpluses above those requiredlevels throughout the year.

Solvency IIThe Groups two EU insurance companies (AICL andAIGL) will be subject to the regulations o Solvency II the EUs new regulatory regime or insurers whichcomes into orce in 2013. The Groups Solvency IIImplementation Committee (chaired by theChie Financial Ofcer) continued to work towardsensuring the Group is ready to comply with thenew rules in advance o January 2013, and during2010 ocused primarily on the ollowing areas:

Participating in Quantitative Impact Study (QIS) 5on the proposed new solvency requirement rules

Developing and documenting the riskmanagement and governance ramework acrossthe Group

Applying to join the FSAs Internal Modelpre-application process

Boosting the level o resource working onthe project



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UK Car Insurancemarket review David Stevens, CBEChie Operating Ofcer

I am told that in surfng slang, a double-upoccurs when two waves combine to create an extrapowerul wave. In 2010, Admiral enjoyed a pumpindouble-up, a high adrenalin combination ocontinued rapid growth in sales via price comparisonand a dramatic hike in car insurance prices.

The ghastliness o the market results on 2009 (at123% combined), the exhaustion o material reservecushions or most players and the lack o investmentincome led some smaller competitors to exit andmost bigger ones to increase rates dramaticallyduring 2010. HSBC closed down their largely brokerbusiness with a valedictory combined ratio o over200%, and RBSI fnally put their broker-distributedbook o private motor out o its misery with thewithdrawal o NIG. The pain wasnt limited tobroker-sourced business. Quinn, the higherpremium direct specialist, went into administrationin March. More importantly, the bigger playersconcluded enough was enough and pushed througha series o rate increases. Overall new businessprices rose by well over 30%, and some segments,notably younger drivers, saw increases o over 50%.

Our challenge throughout the year was to handlethe resulting ood o new business that came ourway, despite our own rapid, i slightly lagging, priceincreases. Our own rates rose by just over 25%across new business and renewals during the year.

The number o vehicles insured by Admiral rose by32% during 2010. That sort o growth carries risksin any business, but particularly in an insurancebusiness. Admiral employed 800 more people atthe end o the year than at the beginning (itsel a

joy in these difcult economic times). By year end,over a third o our sta had been with us or less thana year. It is a tribute to the quality and enthusiasm oour managers, rom team managers upwards, ando those new recruits, that the business has copedso well with this very substantial increase in its size.An increase in our customer retention ratios,despite the substantial year-on-year rate increases,and a urther reduction in the average time taken tosettle a claim are two examples o the measuresthat reassure us that these new sta are reinorcing,and not diluting, our success. Another source o

reassurance is that we gained our highest ever rankin the Sunday Times Best Companies to Work For2011 survey. We came ninth, up rom sixteenth in2010.

The rapid growth o the business in 2010 edthrough to the bottom line. Theres a strong linkbetween customer numbers and ancillary revenues,so a record number o policyholders led to ourhighest ever level o ancillary income (142 million).Higher volumes and higher average premium perpolicy (+8% on an earned basis, +16% on a writtenbasis) helped us to our lowest ever expense ratio,and to a record underwriting proft o 53 million.The time lag between our increases in averagewritten premiums translating into higher averageearned premiums, and our conservative approachto early year reserving means that the proft impacto an improving claims ratio is yet to impact ullyour reported profts.

Ultimately, waves always break the rate o growthin price comparison sales will slow, the cycle willalways turn. Some o our competitors will rely onthe market-wide cyclical turn to oat them back tomarginal, and probably temporary, proftability, butothers may have used the shock o recent losses asa catalyst to reinvent themselves as leaner, cleverercompetitors. Our own challenge will be twoold.Firstly, to be as efcient, as nimble and as pleasanta place to work while insuring one in every tencars in the UK, as we were when we only insuredone in every twenty. The second will be to spotthe next wave a-coming and line up the boardin preparation.

David Stevens, AdmiralGroup Chie OperatingOfcer, reports on theUK car insurance market.

+32%The number o UKvehicles insuredby Admiral rose by32% during 2010.


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Non-UKCar Insurance

What we do

The Group has our direct car insurance businessesoperating outside the UK:

Balumba (Seville, Spain) is our most maturenon-UK business, having enjoyed its ourth ullyear o trading in 2010. It fnished the year with71,000 customers and recorded its frst ull yearproft in 2010

ConTe (Rome, Italy) launched in May 2008 andfnished 2010 with nearly 87,000 customers

Elephant Auto (Richmond, Virginia, USA) startedtrading in October 2009

LOlivier (Paris, France) is the Groups newestbusiness, having launched in December 2010

Non-UK Car Insurance strategy

An important element o Group strategy is to useexisting expertise in UK car insurance and exportthis to overseas markets, aiming to create proftable,sustainable and growing businesses. We do notexpect to do this quickly and do not set marketshare or revenue targets within fxed timerames.

We expect new operations to be relatively small, andloss making in their early years (how long will dependon the market), until the business is established andscale is achieved. Use o proportional reinsuranceacross all markets (see below) helps reduce the

fnancial impact in the early years.

Whilst there was good news in 2010 as Balumbarecorded its frst ull year proft, the decision wasalso made to exit the German car insurance market.AdmiralDirekt, our German insurer which had beenwriting business since the start o 2008, was sold toa German mutual in early 2011. Further inormationis contained below.

Our overseas strategy is summarised in the tablebelow, where we also comment on our progress

to date.

Objective Progress

1) Establish new, direct car insurance businessesin fve selected countries outside the UK(Spain, Germany, Italy, USA and France)

Spain, Balumba, October 2006 Germany, AdmiralDirekt, October 2007

now sold Italy, ConTe, May 2008 USA, Elephant Auto, October 2009 France LOlivier, December 2010

2) Develop each new operation into a proftable,sustainable business All businesses remain in early stages Balumba has recorded its frst ull year proft ConTe is our largest business outside the UK

with 86,500 customers AdmiralDirekt was sold in January 2011

3) Minimise where possible the fnancial impacton the Group

65% reinsurance support in place in Europe(except France, 70%)

Elephant Auto has reinsurance support or twothirds o its business

The Group takes a slow and steady approachto expansion and aims to build sustainable

businesses beore pushing or signifcant growth The Directors will not persevere in markets

where there is no strong probability o success


Non-UK locationsAdmirals Non-UK insurance businesses arebased in Seville, Rome, Richmond and Paris.

Non-UK locations


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195,000+Total number o non-UKvehicles insured at the endo 2010, (2009: 121,000).

Non-UK Car Insurance

Financial PerormanceNon-GAAP ormat income statementm 2008 2009 2010

Turnover 29.7 47.2 77.6

Total premiums written 26.0 43.0 71.0

Net insurance premium revenue 7.9 12.8 18.7Investment income 0.7 0.2 0.1Net insurance claims (9.5) (13.0) (15.9)Net insurance expenses (6.2) (13.0) (16.5)

Underwriting result (7.1) (13.0) (13.6)Net ancillary income 2.8 3.3 5.3Other revenue and charges 0.2 0.2 0.3

Non-UK Car Insurance result (4.1) (9.5) (8.0)

Note Pre-launch costs excluded

Key Perormance IndicatorsAdmiral Elephant

2010 Balumba Direkt ConTe Auto Total

Total premiums

(m) 23.6 13.5 30.5 3.4 71.0Vehicles

insured 70,700 32,100 86,500 5,700 195,000Result (m) 0.8 (3.2) (2.6) (3.0) (8.0)2009

Total premiums(m) 17.8 14.0 11.1 0.1 43.0

Vehiclesinsured 50,300 35,000 35,500 200 121,000

Result (m) (1.3) (5.2) (2.4) (0.6) (9.5)

Non-UK Co-insurance and Reinsurance

Signifcant use o reinsurance is also a eature othe Groups insurance operations outside the UK.

The arrangements in Europe are generally similarand involve Admiral retaining 35% o the risks,the majority share o 65% being underwrittenby Munich Re. The exception is France, whereAdmiral retains a net 30%, with 70% reinsuredamong three reinsurers.

Following the sale o AdmiralDirekt in early 2011,all premium written and earned in 2011 inGermany is 100% reinsured to the acquiring

company, Itzehoer. The only risk retained by theGroup relates to the development o open claimson accidents prior to 1 January 2011. The totalexposure is not material.

In the USA, Admirals insurer retains one thirdo the underwriting, with the remaining twothirds shared between two reinsurers. Bothbear their proportional share o expenses andunderwriting, subject to certain caps on thereinsurers total exposures.

All contracts have proft commission terms thatallow Admiral to receive a proportion o the proftearned on the underwriting once the businessreaches cumulative proftability.

The contracts in place or Germany, Italy, Franceand the USA include proportional sharing oancillary profts.

Non-UK Car Insurance Financial PerormanceTotal premium written outside the UK rose to 71.0million in 2010 rom 43.0 million in 2009 (+ 65%).

The number o vehicles insured also continued torise strongly, moving to 195,000, 61% higher than the121,000 at the end o 2009. Non-UK vehicles nowaccount or 7% o the Groups total customer base.

In perormance terms, 2010 was a mixed yearoutside the UK. Balumba, the Groups most matureoperation completed its ourth ull year o tradingand recorded its frst ull year proft o 0.8 million.Whilst the headline result is positive, the combinedratio or 2010 remained around 150%, meaningBalumba still has work to do.


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There was urther positive news with the on-time,under-budget launch o LOlivier, the GroupsFrench car insurer, in Paris in December. As withother launches, business volumes will be small orsome time whilst dierent marketing approachesare tested and pricing is calibrated. ConTe in Italyalso had a positive year, growing its customer baseby over 140% and showing encouraging signs obecoming a sustainable business in the short-term.

Elephant Auto in the US, which completed itsfrst ull year o operation in 2010, generated alower than anticipated level o quote volumesat reasonable cost, and ended the year with only5,700 vehicles insured. The low level o premiumthat ollowed resulted in a very high expense ratio(though the loss ratio is encouraging, albeit onsmall volumes).

The decision was taken in 2010 to sell our Germaninsurer, AdmiralDirekt which had starting writingbusiness in January 2008. The German marketposed a number o challenges or the Group,including conservative customers, a small numbero dominant and successul incumbents and anoperationally challenging busy season leadingup to 1 January renewals. The Board thereoreconcluded that the chances o creating a sustainablebusiness in the oreseeable uture were not high.

In aggregate, our Non-UK Car Insurance businessesmade losses o 8.0 million in 2010, down rom9.5 million in 2009. In context, the 2010 loss is lessthan 3% o UK Car Insurance profts. Each businessis considered in more detail below.

Balumba

Balumba grew the number o vehicles it insuresby over 40% in 2010, closing the year with nearly71,000 customers (its highest ever level). However,conditions in the Spanish market were tough giventhe state o the Spanish economy, with very lowlevels o new or used car sales, very little movementin premium rates and no growth in the market shareo direct insurers. Excluding the impact o currencymovement, total premium written increased byaround 30% to 24 million. Balumbas rates werebroadly unchanged over 2010 as a whole.

Balumbas ocus on improving the loss ratiocontinues to yield positive results, with much moresatisactory loss ratio experience in the most recentperiods. See Fig. 1.

On an earned basis, the loss ratio or 2010 was 92%,down rom 100% in 2009.

Despite growing by 40% in volume terms, a ocuson cost control led to Balumbas operatingexpenses alling in 2010, and this led to animprovement in the expense ratio.

Taking the loss and expense ratios together, thecombined ratio on a reported basis improved to148% rom 163% last year. Despite the betteroutcome, the combined ratio is still materiallyahead o where it needs to be and Balumbamanagement continue to ocus on its improvement.

The positive contribution rom ancillaries toBalumbas result continued in 2010, with in excesso 75 in contribution generated per policy soldand renewed. This was modestly higher than in2009, and in total led to Balumba making a proft

or the year o 0.8 million.

Fig. 1.

Balumba loss ratio development

Underwriting year

2007 2008 2009 2010

Ater 12 months 137% 102% 83% 87%Ater 24 months 135% 109% 89% Ater 36 months 133% 111% Ater 48 months 133%


650+At the end o 2010, Admirals Non-UK CarInsurance businesses employed over 650 people.


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11th best workplace in ItalyAdmiral Groups Italian direct insurance brand,ConTe is named the 11th best workplace in Italy.

Christmas carolsThe team at Admiral Seguros celebrateChristmas with some carol-singing Feliz Navidad!


AdmiralDirekt

For reasons noted above, AdmiralDirekt was soldto a German insurer (Itzehoer Versicherungen)in a deal that concluded in early January 2011.

The transaction involved a sale o the trade andcertain assets o the business; the consideration orwhich was not materially dierent to the carryingvalue o the assets in the balance sheet at theyear-end.

The sale also involved signing a new reinsurancearrangement with Itzehoer, resulting in all premium

earned rom 1 January 2011 onwards being ullyreinsured to Itzehoer. All expenses incurred romJanuary 2011 onwards are also borne by the buyer.The only remaining economic exposure the Grouphas in Germany is the development o claimsrelating to accidents prior to 1 January 2011. At thebalance sheet date, net reserves or these claimstotalled only 1 million.

AdmiralDirekts result or 2010 was a loss o around3 million, notably better than the 5 million loss in2009. The combined ratio was over 50 percentage

points better in 2010 (183% v 238%), with theimprovement being spread over the loss andexpense ratios. Earned premium was broadly atat 4 million across 2009 and 2010.

There should be no material impact to the Groupsincome statement relating to the AdmiralDirektbusiness in the uture.

ConTe

Market conditions in Italy were positive or ConTein 2010, with signifcant increases in premium ratesin the market being a catalyst or strong growth.ConTes customer base increased rom 35,500 atthe start o the year to over 86,500 at the end. Totalpremiums (excluding currency impacts) increasedby over 150% to 30 million. ConTes base premiumrates increased relatively signifcantly during theyear, by around 16% on average across newbusiness and renewals.

This strong growth was accompanied by a positive

loss ratio outcome on the 2010 underwriting year,which was at 70% ater 12 months, compared to98% or the 2009 year. The 2010 ratio includes asignifcant allowance or incurred but not reported(IBNR) claims. See Fig. 2.

On an earned basis, the 2010 loss ratio improved to84% rom 98% in 2009.

Operating costs were a key area o ocus in ConTe,and expense ratios are developing positively as thebusiness grows. On a written basis, the expense

ratio in 2010 improved to 45% (rom 80%) whilston an earned basis the improvement was to 70%rom 145%.

Ater net ancillary contribution o around 1 million,ConTe made a loss o 2.6 million in 2010, broadlyin line with 2009, but on substantially higher earnedpremium (6.7 million v 1.9 million).

Fig. 2.

ConTe loss ratio developmentUnderwriting year

2008 2009 2010

Ater 12 months 87% 98% 70%Ater 24 months 105% 103% Ater 36 months 119%


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Paris LaunchThe LOlivier team celebratetheir launch, Christmas 2010.

Elephant Auto

Elephant completed its frst ull year o operation in2010, having launched in October 2009. Althoughstill early days or the business, volumes (in quoteand sales terms) were below expectation and ullyear premium only totalled around 4 million.Elephant insured around 5,700 cars at the end othe year.

One o the key positive eatures o the frst yearsperormance was the loss ratio, which (excludingloss adjustment costs) despite being on grossearned premium o only around 2.4 million,

fnished the year at around 60% including IBNR.

Elephant is currently ocusing on its marketingactivity in order to generate higher volumes at anacceptable acquisition cost. Having only operatedin Virginia in 2010, Elephant also started sellingin adjacent Maryland in early 2011 to improve theefciency o its advertising.

In 2010, Elephant made a loss o around 3 million.

LOlivier Assurances

The Groups new French car insurer launchedin Paris late in 2010. The short-term strategywill be based on test and learn and volumesare not expected to be signifcant or some time.Pre-launch costs were well below 1 million.

The approach taken in the French market isdierent to other launches in the sense thatmuch o the operational side o the business isoutsourced to a specialist external company. Thismeans ar greater certainty over expenses andshould result in a lower combined ratio in the early

stages o the businesss development.

The Groups new Frenchcar insurer launchedin Paris in late 2010.

ris Launch


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PriceComparison

What we do

Success in delivering against the strategy is measured against a large number o key perormanceindicators which are common across the UK and international businesses. These include quote volumes,conversion rates, sales volumes, income per sale, revenue per customer and cost per sale.

Price Comparison Strategy

In the UK Conused.com is an insurance and fnancial

services comparison website Operating in the UK, the site allows consumers

to compare a range o general insurance andfnancial services products across price and policybenefts

Conuseds income is primarily generated viacommissions paid by the product provider on thesale o an insurance policy or fnancial product

Conused is one o the UKs leading car and

home insurance comparison websites

UK Conuseds strategy is to become the comparison

website o choice in the UK or fnancial products,and to maximise the value to the business oeach customer relationship

In EuropeWe have three price comparison businessesoperating outside the UK:

In Spain, Rastreator (launched in 2009) oerscomparison on motor, home, motorcycle andlie insurance

LeLynx in France (launched January 2010)oers comparison on a similar range o products

Chiarezza in Italy (launched February 2010)currently oers comparison on motorinsurance only

Europe A key part o the Groups overall strategy is

to exploit its UK expertise in insurance andprice comparison and expand this overseas

To date we have targeted three markets (Spain,France, Italy), and we now have comparisonwebsites (alongside car insurers) operationalin these markets

Hot dogsConused.com celebrates launch o pet insurancewith hot dogs or all sta.


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Operating expenses were broadly at at just under

55 million, meaning Conused delivered anoperating proft o 16.9 million, one third lowerthan 2009s result. As a consequence o atexpenses and alling revenue, the operating marginpercentage ell to 23.5% rom 32.0%.

Non-UK Price ComparisonRastreatorHaving launched in March 2009, Rastreatorcompleted its frst ull year o operation in 2009.Revenue totalled 3.3 million, and the loss o 1.0million represented an encouraging result ater just

22 months in business.Rastreator increased the range o products onwhich it oers comparison during 2010, and nowprovides quotes on motor, motorcycle, home andlie insurance. Motor insurance leads account orover 90% o Rastreators total revenue.

LeLynx & ChiarezzaHaving traded or less than a ull year at the end o2010, fgures or these two new operations are notyet signifcant. Combined revenue was around 0.6million, and the two businesses made an aggregate

loss o 3.8 million as they developed marketpresence through advertising. Further detail willbe provided as the businesses become moresignifcant.

Regulatory environment:Conused is regulated by the UK FSA as aninsurance intermediary and is subject to all relevantmediation rules, including those on solvency capital.

The European operations are all structured asbranches o UK companies, with the UK insurance

intermediary permission passported into Europe.

Price Comparison

Financial PerormanceNon-GAAP ormat income statementm 2008 2009 2010

Revenue:Motor 52.9 62.2 59.6Other 13.2 18.3 16.1

Total 66.1 80.5 75.7

Operating expenses (40.5) (55.6) (63.6)

Operating proft 25.6 24.9 12.1

Conused.com proft 25.6 25.7 16.9Non-UK Price Comparison loss (0.8) (4.8)

25.6 24.9 12.1

UK Price Comparison Conused.comIn 2010, Conused endured its toughest year sincelaunch, recording alls in market share, revenueand operating proft. UK price comparison remainsa fercely competitive market, with substantialamounts spent on advertising by the our mainincumbents. Chie Financial Ofcer Kevin Chidwick,

who has Board responsibility or Conused,comments urther on the market and Conusedsposition within it in his review (see opposite).

Revenue at Conused ell by around 10% to 71.8million (2009: 80.1 million). The key cause wasa disappointing media campaign during theyear which led to alls in market share in motorand home insurance comparison. Revenue romproducts other than motor insurance totalled15.9 million (2009: 18.3 million), 22% o thetotal (2009: 23%).

Conused revenue (m) and proft (%)

02006 2007 2008 2009 2010

40

20

60

80

0%

40%

20%

60%

80%

Motor insurance revenue

Other revenueOperating proft

Launch in FranceAdmirals second Non-UK PriceComparison site LeLynx launchesin France on 18 January 2010.

...and in Italy tooChiarezza, Admirals Italian Price Comparison sitelaunches shortly aterwards in February 2010.


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Conused.comreview

Kevin Chidwick, AdmiralGroup Chie Financial Ofcer,answers some requentlyasked questions about our UKPrice Comparison business.

Kevin Chidwick,Chie Financial Ofcer

Q: How did Conused do in 2010?

Conused had a tough time in 2010. The main storyo the year was the success o our competitors TVcampaigns and the disappointing results rom ourown. The meerkat (Compare the Market) and theopera singer (Go Compare) both delivered well ortheir respective companies, whilst at the same timewe rolled out arguably our least successul TVcampaign since Conused began. We pulled thecampaign in the middle o the year once the resultsbecame apparent, but by then the damage hadbeen done. Towards the end o the year a new

advertising campaign was working better and weenter 2011 in better shape than we were at this timelast year.

Less than 10 years ago, Conused pretty muchcreated the car insurance price comparison marketand so it was inevitable that its very high marketshare (and margins) would be reduced as newplayers came in. And indeed, this is what hashappened in the last couple o years. But it is asource o disappointment that we lost as muchshare as we did and we have to hold our hands up

and concede that at least some o that was o ourown making.

Profts ell rom 25.7 million in 2009 to 16.9 millionin 2010. Margins declined as it became moreexpensive to get customers and we saw our marketshare o car insurance price comparison droprom 27% to 23% during the course o the year.

Q: Is Conused still losing market share?

Towards the end o the year it appeared that

Conuseds share o car insurance sales was holdingsteady. It is not rising, but it has at least stoppedalling. But price comparison customers aredemanding and can switch between pricecomparison sites easily, so it is a hard battle to holdon to or to win customers. The quality and appeal

o our advertising is important, but in the long term

it is more important that we consistently delivera product which gives customers a compellingreason to use Conused. That comes rom providinga comparison service that gives customers acomprehensive range o very competitive pricesor the products they want to compare. And itis also about providing a customer experiencethat is straightorward, quick, and easy to use.

We are very ocused on the quality o the customerexperience with the Conused website. We havea number o initiatives in place to improve that

process and we hope our customers will noticethe dierence. We are also actively working onimproving the competitiveness o the prices ourcustomers see when they get their quotes andalso the breadth o providers on the panels.

Q: How are non-car insurance products perormingor Conused?

The revenue rom products other than car insuranceis typically around 20-25% o Conuseds total

income, and they remain pretty stable at this level.The main contributors are home insurance, otherinsurance lines and energy products.

Q: How is the new marketing campaign doing?

It is early days, but so ar so good. We areencouraged by the results since the new Conusedadvertising campaign launched at the end o lastyear, but it is still too early to say whether it will betruly successul or not.

It is air to say that 2010 has been a tough yearor Conused. But the business remains proftablewith good margins and a signifcant position in itsmarket. It provides a great service or millions ocustomers every year and is a well known and wellliked brand. It is an important part o the AdmiralGroup and has, I believe, with good managementand some luck, a great uture.


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Other Groupitems

m 2008 2009 2010

Gladiator operating proft 2.8 2.4 2.7Group net interest income 6.6 1.1 1.1Share scheme charges (5.9) (9.2) (15.0)Expansion costs (0.8) (2.0) (1.1)Other central overhead (1.6) (1.7) (2.1)

GladiatorGladiator is a commercial vehicle insurance brokeroering van insurance and associated products,typically to small businesses. Distribution is viatelephone and internet (including price comparisonwebsites).

Non-GAAP income statement and keyperormance indicators

m 2008 2009 2010

Revenue 9.5 10.6 11.8Expenses (6.7) (8.2) (9.1)

Operating proft 2.8 2.4 2.7Operating margin 29% 23% 23%Customer numbers 84,900 93,400 94,500

Gladiators customer base remained broadly atover the course o 2010 as the van insurance market

remained very competitive. The business was,however, able to increase the amount o revenueearned rom each relationship.

Operating proft consequently increased to2.7 million rom 2.4 million, whilst the operatingmargin percentage was at at 23%.

Share scheme chargesThe charge in the income statement related to theGroups two share schemes increased to 15.0million rom 9.2 million or two key reasons:

Higher share price at award: The weightedaverage share price or shares awarded in 2010was 13.90 compared to 9.90 in 2009 (+40%)

Higher number o shares awarded: In 2010, atotal o 2.4 million shares were awarded underthe Groups schemes 10% higher than in 2009,reecting growth in Group headcount

Investments and CashInvestment strategyOnce again, there was no change in investmentstrategy, and the Groups unds were held eitherin money market unds, term deposits or as cashat bank.

The key ocus o the Groups investment strategy iscapital preservation, with additional priorities beingocus on low volatility o investment return and highlevels o liquidity.

Cash and investments analysis

31 December 2010

Non-UKUK Car Car Price

Insurance Insurance Comparison Other Totalm m m m m

Money marketunds 333.8 29.8 363.6

Long-termcash deposits 283.0 6.6 10.0 299.6

Cash 90.6 40.3 11.2 104.6 246.7

Total 707.5 76.7 11.2 114.6 909.9

31 December 2009

Non-UKUK Car Car Price

Insurance Insurance Comparison Other Totalm m m m m

Money marketunds 208.5 29.2 237.7

Long-termcash deposits 178.5 5.0 183.5

Short-termcash deposits 20.0 20.0

Cash 112.9 21.3 9.0 48.6 191.8

Total 499.9 55.5 9.0 68.6 633.0

The allocation o unds between the two main

investment types (money market unds and termdeposits) has remained relatively stable over theyear and all investment objectives continue tobe met.


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Average balances held during 2010 were notablyhigher than 2009, mostly due to the signifcantincrease in business written in the UK. Totalinvestment and interest income rose to 9.5 million(rom 8.8 million). The average rate o return oninvested sterling unds (composing the vast majorityo total balances) was just over 1% in 2010.

Around 67% o the unds are available withoutnotice (2009: 68%), providing the Group withsatisactory levels o liquidity.

Strong cash generation continues to be a eatureo the Groups businesses, enabling the distribution

o the majority o post-tax profts.m 2008 2009 2010

Operating cash ow, beoretransers to investments 251.5 286.4 522.0

Transers tofnancial investments (76.0) (10.5) (240.8)

Operating cash ow 175.5 275.9 281.2Tax and interest payments (56.9) (49.1) (69.5)Investing cash ows

(capital expenditure) (11.3) (11.8) (11.1)Financing cash ows

(largely dividends) (128.7) (142.2) (164.9)Foreign currency

translation impact 9.9 (5.3) (0.8)

Net cash movement (11.5) 67.5 34.9

Net increase in cash andfnancial investments 63.8 77.8 276.9

The signifcant increase in total cash plusinvestments reects the substantial growth o theUK business in 2010.

The main items contributing to the signifcantoperating cash inow are as ollows:

m 2008 2009 2010

Proft ater tax 144.9 156.9 193.6Change in net

insurance liabilities 37.6 51.1 129.7Net change in trade

receivables and liabilities (5.8) (4.6) 101.4Non-cash income

statement items 17.2 24.1 25.4

Tax and net interest expense 57.6 58.9 71.9Operating cash ow, beore

transers to investments 251.5 286.4 522.0

The key eatures to note are:

Proft ater tax increased by 23%, whilst operatingcash inow (beore movements into investments)increased by 82%

Operating cash ow is signifcantly higher thanprior years due to the signifcant increase in thesize o the UK Car Insurance business, coupled

with the act that quota share arrangements arenow largely on a unds withheld basis, meaningthe majority o reinsured premium cash remainswithin the Group

Winter WonderlandAdmiral sponsors the open air ice rinksin both Cardi and Swansea city centres.As part o the sponsorship, employeesenjoy a ree skating session.


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Other fnancial itemsTaxationThe taxation charge reported in the incomestatement is 71.9 million (2009: 58.9 million),which equates to 27.1% (2009: 27.3%) o proftbeore tax.

Earnings per shareBasic earnings per share rose by 23% to 72.3 pencerom 59.0 pence. The change is in line with pre- andpost-tax proft growth.

DividendsThe Directors have proposed a fnal dividend or

2010 o 35.5 pence per share. This payment is 19%higher than the second interim dividend or 2009(29.8 pence) and brings the total dividend or 2010to 68.1 pence (18% higher than the 57.5 pence paidout in relation to 2009).

The payment date is 10 June 2011, ex-dividenddate 18 May 2011 and record date 20 May 2011.

Capital structure, fnancial positionThe Group manages its capital to ensure that allentities within the Group are able to continue asgoing concerns and also to ensure that regulatedentities comortably meet regulatory requirements.Excess capital above these levels within subsidiariesis paid up to the Group holding company in theorm o dividends on a regular basis.

The Groups dividend policy is to make distributionsater taking into account capital that is required

to be held, a) or regulatory purposes; b) to undexpansion activities; and c) as a urther prudentbuer against unoreseen events. This policygives the Directors exibility in managing theGroups capital.

Capital continues to be held in equity orm, withno debt.

Other than as stated below, as ar as the Companyis aware, there are no persons with signifcant director indirect holdings in the Company. Inormation

provided to the Company pursuant to the FinancialServices Authoritys (FSA) Disclosure andTransparency Rules (DTRs) is published on aRegulatory Inormation Service and on theCompanys website.

At 31 January 2011, the Company had receivednotifcations in accordance with the FSAs DTRs othe ollowing notifable interests, in the voting rightsin the Companys issued share capital:

Number o shares %

Munich Re 27,079,400 10.1%

BlackRock 22,912,988 8.5%AXA 10,535,465 3.9%Fidelity 9,135,340 3.4%Legal & General 8,083,216 3.0%Morgan Stanley 7,984,063 3.0%

The interests o Directors and Ofcers and theirconnected persons in the issued share capital o theCompany are given in the Remuneration Report.

Saaricom MarathonA group o eight Admiral employees tookpart in the Saaricom Marathon in Kenya.The run through a Kenyan wildliereserve is organised by Tusk, the wildliecharity sponsored by elephant.co.uk

No Fit StateJakko, a member o the No Fit StateCircus perorms at Admirals ofcesas part o the Companys sponsorshipo the alternative circus company.

The Directors haveproposed a fnaldividend or 2010o 35.5 pence pershare. This paymentis 19% higher thanthe second interimdividend or 2009(29.8 pence).

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


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Principal risksand uncertainties

The table below sets out the principal risks currently aced by the Group with urther signifcant risks notedbelow. The report on corporate governance later in the Annual Report describes the risk managementramework in place throughout the Group.

Risk Description and Impact Mitigation

1.UK CarInsurance erosion ocompetitiveadvantage

Admiral has typically been able toproduce an advantage over the UKmarket in combined ratio terms oaround 30 percentage points. Thereis a risk that this advantage and/or thelevel o underwriting proft generatedby Admiral could erode.

A number o actors might contributeto this, including:

a) Flat or alling average premiums asAdmirals portolio trends towardsthe market average (expense ratioimpact)

b) A need to either cut rates, orincrease rates at a slower rate thanthe market in order to continuegrowth (loss and expense ratioimpacts)

c) A deterioration in ability to priceeectively (or example due tolegislation on gender discrimination)

d) Adverse changes in claims costs

or ability to handle claimsAdmiral has also been able to increaseits market share signifcantly over recentyears, and (to varying degrees) isdependent on the our main UK pricecomparison websites as an importantsource o new business and growth. Thegrowth in this distribution channel couldslow, cease or reverse, or Admiral couldlose one or more o the websites as asource o leads.

The impact on the business would bea less proftable UK Car Insurance resultand lower return on capital employed.

Admirals UK business has grown every year since thebusiness was launched in the early 1990s, and has enjoyedregular outperormance against the market throughoutthat time. We now insure 10% o the UK market and ourcombined ratio advantage is at one o its highest levels.

The Directors remain confdent that the key strengthso the business which contribute to the outperormance(including targeted pricing and claims handling onthe loss ratio side; lower cost inrastructure, efcientacquisition costs and cost control on the expense ratioside) are sustainable.

The Directors believe urther growth is achievable in theshort to medium term without signifcantly underminingAdmirals combined ratio advantage. Further growth couldbring benefts such as economies o scale and additionaldata which are likely to be benefcial or pricing.

The Groups ownership o Conused.com, one o theleading UK price comparison websites helps to mitigatethe risk o over-reliance on this distribution channel.Admiral also contributes materially to the revenues othe other businesses and thereore it is not consideredprobable that a material source o new business would

be lost.

2.UK andNon-UK CarInsurance claims shocks

The Group is exposed to underwritingrisk through its underwriting o motorinsurance policies. There is a risk thatclaims costs could rise signifcantlyabove historic or expected levels, ora number o reasons including:

a) Legislative changes (or example,periodic payment orders, Ogdendiscount rate changes)

b) Weather-related catastrophe events

(or example severe storm or ood)c) Very large, non-catastropheindividual claims

d) Fraud or other changes in claimantbehaviour

Many o the potential causes o claims shocks are outsidethe control o the Group and ocus, thereore, is generallyon how to prepare and react to the occurrence o suchevents.

In the case o legislative changes impacting existingclaims, the Group holds an appropriate and explicitbuer in reserves to cover signifcant changes. In thecase o the Ogden discount rate which has the potentialto be changed, the ultimate loss ratios projected byour independent actuaries include a buer to allow

or a reduction in the discount rate rom 2.5% to 0.5%.We continue to hold an additional buer in our reservesover and above these projected ultimate outcomes.

For very large claims (catastrophe and otherwise) theGroup purchases excess o loss reinsurance, whichmitigates the loss to the selected deductible amount(typically around 5 million at the total claim level).

The Group is mindul that many insurers have recentlyreported increases in bodily injury claims costs, potentiallydue to raud. Whilst this has not been a marked eatureo our portolio, claims and other senior managementtrack a wide range o key perormance indicators

to assess changes in trends, and resource continuesto be strengthened in the claims raud unction.


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Risk Description and Impact Mitigation

3.International

expansion risk o ailure

The Group has launched eight newoperations outside the UK in the past

fve years. AdmiralDirekt in Germanywas sold in early 2011, but there is acontinuing risk that one or more othe operations also ails to becomea sustainable long-term business.

The impact on the Group couldbe higher than planned losses(and potentially closure costs) anddistraction o key management.

The Groups approach to expansion is cautious. Ourinsurance businesses start small and are all backed by

proportional reinsurance support which provides substantialmitigation against start-up losses in the early years.

New price comparison businesses also ocus on modeststarts with low set-up costs and relatively small initial mediaspend budgets. This tends to mean that the losses a newoperation can incur are minimised whilst managementassess the likelihood o the business succeeding.

The Directors are mindul o management stretch andmonitor this risk on a regular basis. At present the Boardis confdent there is a suitable management structurein place or the Groups international operations.

As demonstrated by the sale o AdmiralDirekt, theDirectors are not prepared to let unproftable businessescontinue to generate losses where there is limitedoreseeable chance o success.

4.Ancillaryprofts potentialdiminution

There is a risk that over the medium tolong term, the level o ancillary proftearned per customer will diminish. Thismight be due to regulatory or legalchanges, or customer or marketbehaviour.

The impact on the Group would be lessproft earned on the car insurance

portolios and a lower return on capitalemployed.

Admiral earns ancillary profts rom a portolio o productsand seeks to minimise reliance on any single item.This would mitigate the impact o a regulatory changewhich aected a particular product or income stream.

The Groups risk management ramework leads topotential risks to ancillaries being identifed andmonitored, providing management time to respondappropriately to any such regulatory changes and

minimise fnancial impacts where possible.

5.UK PriceComparison eects ocontinuedcompetition

Conused.com operates in a highlycompetitive UK market with our mainbusinesses attempting to increase theirmarket share through aggressive mediaactivity.

Conused suered the eects o apoor media campaign in 2010, andexperienced a all in market share andprofts. There is a risk that this trendcontinues in 2011 and beyond.

The impact on the business would bereduced proftability in the uture.

The Directors recognise that Conuseds recentperormance was disappointing and largely attribute thisto the poor media campaign during 2010. In the UK market,the impact o a poor campaign is elt quickly in the ormo lost market share and higher average cost per lead.

Conused management continually analyse the successor otherwise o all media activity and will withdrawnon-perorming campaigns as soon as practicable.

The Directors believe Conused is a undamentally strong

business and is well positioned to rebuild its position inthe UK price comparison market.

There is also scope to increase and improve Conusedsoering in products beyond car insurance most notablyin money, which is a key element o Conuseds strategy.

6.Co-insuranceandreinsurancearrangements

Admiral uses proportional co-insuranceand reinsurance across its insurancebusinesses to reduce its own capitalneeds (and increase return on the capitalit does hold) and to mitigate the costand risk o establishing new operations.

There is a risk that such support will notbe available in the uture i the resultso either the UK business or (morerealistically) one or more o theinternational operations are notsatisactory to the co- and/or reinsurers.

The impact on the Group would bethe need to raise additional capital tosupport underwriting. This could bein the orm o equity (either reduceddividends or new equity) or debt.Return on capital would potentiallybe lower than current levels.

Admiral has enjoyed a long-term relationship with one othe worlds strongest reinsurers, Munich Re, which hassupported Admiral since 2000. The Group also has strongrelationships with a number o other reinsurers, includingAmlin, Hannover Re, Mapre Re, New Re, Swiss Re andXL Re (avoiding reliance on a single partner).

In the UK, co- and reinsurance arrangements have beenagreed up to the end o 2013, including deals with newpartners to the Group. Pricing on these deals was in linewith existing arrangements. The long-term co-insuranceagreement with Munich Re will remain in place (at 40%o the business) until at least the end o 2016.

Outside the UK, there is no current evidence to suggestthat partners will withdraw support when the opportunitybecomes contractually available to them, and it isimportant to note that capital within the Non-UKbusinesses is materially lower than or the UK.

The Board also considers the ollowing risks to be signifcant:

Credit risk deault o reinsurer (discussed in note 17 to the fnancial statements) Credit risk ailure o banking or investment counterparty (also discussed in note 17) Operational risk major raud (considered to be relatively low impact and mitigated by a wide range o internal controls)


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Governance

Governance

In this section:29 Corporate Responsibility34 The Admiral Group Board36 Directors report39 Corporate Governance48 Remuneration report53 Independent auditors report to

the members o Admiral Group plc


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Corporate Responsibility

development, management, communication andsocial aspects o working at Admiral.

The survey results are analysed by department andeach department manager is expected to share thesurvey results with their team, explore issues andconcerns, and then make recommendations toaddress them. This is a real exercise, and during2010 management changes have been instigatedater ollowing up survey results.

The key results relating to morale and whetheremployees eel that their opinions are importantare provided in the table below. There are no

specifc targets with respect to the survey results asthe Executive team use the results to look at trendswithin the scores rather than absolute values.

The survey results in the key areas measuringmorale, association with Admiral and howemployees eel Admiral treats its customers havestayed at very high levels or 2010. During 2010,the number o vehicles insured in the UK increasedby 32% to 2.46 million. This led to some resourceshortalls in a number o areas during March, Apriland May 2010 with signifcant recruitment o sta

taking place during the second hal o the year.This led to scores on the whole being lower thanthe 2009 survey and something that remains highon the agenda o the senior management teamor 2011.

85% o UK and Canadian employees completedthe survey with 3,083 responses. See Fig. 1.

IntroductionThroughout 2010 we continued to ensure thatCorporate Responsibility (CR) is a part oeveryones role at Admiral.

The CR report outlines what we do in the key areaso corporate responsibility:

Employees Customers Charitable giving and Community Environment

Again in 2010 the Group won a number o awardssupporting our commitment to CR and these aredetailed in the ollowing sections.

The Group corporate website (admiralgroup.co.uk)contains a copy o this report together with urtherinormation on some o the Groups key policieswith respect to our employees, Health & Saety,and environmental reporting.

EmployeesThe people working at Admiral are our key asset.It is not something we just say but something wetruly believe. We have a simple philosophy i

people like what they do, they will do it better.So we go out o our way to ensure a good workingenvironment. During 2010, as with every year since1996 our UK employees have completed ananonymous survey to collect views on what it is likeworking or Admiral. The survey includes questionsrelating to a wide range o topics including morale,

Fig. 1.

Survey question 2006 2007 2008 2009 2010

admiral group 2010

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