A year of success Annual Report 2005 3 DIRECTORS AND ADVISORS Directors and advisors Directors Alastair Lyons CBE (Non-executive Chairman) Henry Engelhardt (Chief Executive) Andrew Probert (Finance and IT Director) David Stevens (Chief Operating Officer) Manfred Aldag (Non-executive Director) Martin Jackson (Non-executive Director) Keith James OBE (Non-executive Director) John Sussens (Senior Independent Non-executive Director) Gillian Wilmot (Non-executive Director, appointed 26 April 2005) Company Secretary Stuart Clarke Registered Office Capital Tower Greyfriars Road Cardiff CF10 3AZ Auditor Actuarial advisors KPMG Audit Plc Ernst & Young Marlborough House 1 More Place Fitzalan Court London SE1 2AF Cardiff CF24 0TE Bankers Lloyds TSB Bank Plc Bank of Scotland Corporate Banking HSBC Business Banking City Office 55 Temple Row 97 Bute Street Bailey Drive Birmingham B2 5LS Cardiff CF10 5NA Gillingham Business Park Kent ME08 0LS Joint Corporate Brokers Merrill Lynch International Citigroup Financial Markets 2 King Edward Street UK Equity Limited London EC1A 1HQ Citigroup Centre 33 Canada Square London E14 5LB Registrar Solicitor Capita IRG Plc Norton Rose The Registry Kempson House 34 Beckenham Road Camomile Street Beckenham London EC3A 7AN Kent BR3 4TU ADMIRAL GROUP plc 89 Notes ADMIRAL GROUP plc 3 Contents 6-7 Chairman’s statement 8-15 Chief Executive’s statement 16-24 Financial review 25-32 Corporate governance 33-36 Remuneration report 37-39 Corporate responsibility 40-41 The Board of Directors 44-83 Financial statements 84-87 Notice of Annual General Meeting 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. www.admiral.com Bell was set up in 1997 – its main target market being drivers with zero or low no claims bonus. www.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. www.confused.com Diamond was created for women in response to a need in the market place for insurance specifically for young women drivers, which is not only good value, but also as hassle free as possible. www.diamond.co.uk elephant.co.uk is the Group’s main online car insurance service. Elephant passes on cost savings generated by being an online brand to customers in the form of lower premiums. www.elephant.co.uk Gladiator Commercial 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. www.gladiator.com 80 60 ADMIRAL GROUP plc 5 40 20 0 Financial highlights 800Profit before tax Adjusted Group core profit1 1200 700 140 140 600 1000 120 120 500 800 100 100 400 600 s 80 s 80 n 300n o o i i l l £119.5m £104.9m £122.1m £100.6m l l i i 60 40060 M 200M 100 40 20040 0 20 20 0 0 0 2005 2004 2005 2004 Group turnover2 Closing active customers 800 10200.35 100 700 0.30 1000 60080 0.25 800 500 s s 0.20 n 0 o i 60 0 l l 400 600 0 i M 0.15 1,141 1,041 300 £638.4m £548.0m 400 40 0.10 200 200 10020 0.05 0 0.000 0 2005 2004 2005 2004 Adjusted combined ratios Adjusted earnings per share3 100 35.0p 30.0p 80 25.0p 60 20.0p % 84.9% 82.0% 40 15.0p 32.7p 26.9p 10.0p 20 5.0p 0 0 2005 2004 2005 2004 1 Refer to page x in the financial review. 2 Group turnover includes total premiums, gross other income plus allocated investment return. Total premiums comprise gross motor insurance premiums written by the Group, before co-insurance and reinsurance. 3 2004 EPS adjusted for exceptional tax credit on ESOT share award. Refer to note 20. 6 CHAIRMAN’S STATEMENT Chairman’s statement 2005, our first full year since coming to We consider dividends in two parts: “We believe the market in September 2004, the first element, being the normal continued the sustained growth in dividend, is based on a 45% pay-out passionately that customer franchise and profitability ratio. The second special element a business that the Group has achieved since it derives from our principle of returning was launched in 1993. Henry Engelhardt, excess cash to our shareholders, succeeds our Chief Executive, writes in detail reflecting the strongly cash generative because people about the achievements of the year in nature of our business model. We only his own report – I shall, therefore, retain in the business sufficient cash to enjoy working for content myself with the headlines. provide both a prudent margin against it. Enthusiasm is contingencies, currently set at £25m, In a year when, given our assessment of and cover for planned investments, this infectious, where the motor market was in its year being £6m for our expansion into cycle, we deliberately set out to grow Spain and moving our Swansea office transmitting from less rapidly, we were pleased to add into larger modern premises. our staff to our 10% to customer numbers and finish the year with 1.1 million policyholders. On this basis there is £38.7m available customers and to This growth, together with a continuing to distribute out of year-end non- those thinking excellent expense ratio, helped offset regulated cash balances totalling the impact of the cycle on our claims £69.7m. A final dividend of 14.9p per about coming to ratio, whilst we achieved further strong share (7.8p normal; 7.1p special) is, work for us.” growth in income from products and therefore, proposed for 2005, which services that we do not underwrite. will bring total dividends for the year Alistair Lyons CBE Profit before tax was up 14% at £119m to 24.6p per share, a yield of 4.3% whilst total premiums written, including based on the closing share price on 1 those we share with our reinsurance March 2006. This is the first full partners, grew by 13% to £534m. dividend since flotation. We were delighted with the 48.3% The Group is well capitalised with a Total Return that we achieved for proven approach to reserving, and with Shareholders during 2005, itself part of solvency ratios in both the UK and an overall 73.9% since flotation. The Gibraltar which carry an appropriate sustained growth in our share price has margin over minimum solvency resulted in the business being valued at statutory requirements. £1.5Bn on 1 March 2006, which compares against £711m when first We believe passionately that a business listed just under 18 months previously. succeeds because people enjoy working for it. Enthusiasm is infectious, During the year we paid dividends to transmitting from our staff to our shareholders totalling £49.2m, customers and to those thinking about comprising a 9.3p per share final coming to work for us. Quality is central dividend for 2004 and a 9.7p per share to everything that we do: we measure interim dividend for 2005. the quality of every department on a monthly basis, and these quality scores ADMIRAL GROUP plc 7 translate into Quality Awards. Whilst of that business. As a consequence she quality cannot be achieved without will not offer herself for re-election as a effective training, it is also a mindset Director of Admiral at the forthcoming that depends upon people wanting to Annual General Meeting and we are achieve a quality outcome. currently seeking a new Non-executive Director with equivalent skills and We were, therefore, very proud to have experience. I would like to take this been named Employer of the Year at opportunity to thank Gillian for her the National Business Awards, to have contribution during her time with us. won Welsh Company of the Year for the second time, and to have As I wrote last year, Admiral’s strategy continued our uninterrupted series of is clear and straightforward – to being six years running in the Sunday continue to grow our share of the Times list of Top 100 Places to Work in direct private motor market, the UK. Being a leading employer of maximising the value derived from over 1,700 people in South Wales we each customer relationship. Along recognise our wider responsibility to the way we will identify profitable the communities of which we are a opportunities to exploit the part and support a large number of knowledge, skills and resources local charities - details of our activity attaching to our core business in the in this area can be found in the report UK. Our plans to launch later this on corporate responsibility. year in Spain, the first leg of our expansion into Europe, flow directly Ongoing alignment of interest between from this strategy, as does our our staff and our shareholders is one continuing development of Confused, of our core principles. Our Approved our intelligent automated car and Executive Share Schemes are insurance shopper which last year designed to strengthen that alignment handled 4 million quotes and added over time and we are delighted that household and travel insurance to its the strong out-performance against core motor offering. our plan for 2005 resulted in the Approved Scheme realising its We look forward to continuing maximum award of £3,000 free shares consistently to create value for all for each eligible employee. The our shareholders. Executive Share Scheme is based on growth in earnings per share over three years and will, therefore, first vest after the 2007 financial year.