Admiral Group plc Results for the Year Ended 31...

Admiral achieves another record profit coupled with continued strong growth. Profit before tax at £215.8 million was 7% ahead of 2008, whilst turnover rose 18% to £1,077.4 million. The Board is declaring a second interim dividend of 29.8p, to be paid on 1 April, in place of a final dividend. 2009 Preliminary Results Highlights * Group profit before tax up 7% at £215.8 million (2008: £202.5 million) * Second half dividend of 29.8p per share (2009 interim: 27.7p) * Group turnover* up 18% at £1,077.4 million (2008: £910.2 million) * Group net revenue up 20% at £507.5 million (2008: £422.8 million) * Number of Group customers up 19% to 2.08 million (2008: 1.75 million) * Profit from UK car insurance up 15% to £206.9 million (2008: £179.9 million) * UK ancillary income per vehicle stable at £72 (2008: £71) * Non-UK car insurance turnover £47.2 million (up 59%) and 121,000 customers (up 64%) * Elephant Auto, the Group's new US insurer based in Virginia launched in October 2009 * Rastreator.com, the Spanish price comparison site launched in March 2009 * Employee Share Scheme - shares, in total worth over £9 million will be distributed to over 3,500 staff based on the 2009 result * Turnover is defined as total premiums written (including co-insurers' share) and other revenue Comment from Henry Engelhardt, Group Chief Executive "In 2009 Admiral's continued strong growth enabled us to exceed £1 billion turnover for the first time in our history, to deliver yet another set of record profits and to pay another record dividend.  This is no mean feat whatever the circumstances but given that 2009 was a year of recession and record lows for investment returns this is an outstanding achievement! "The UK car insurance business remains central to our success, once again producing a great result, a pre-tax profit of £206.9 million. We increased the number of customers by 17% and achieved a combined ratio of 85%.  At the same time we increased premium rates by 12% during 2009, broadly in line with the UK market where, after a period of minimal increases, premiums are now rising to compensate for claims inflation in recent years. "As the UK business steams ahead we continue to nurture and develop our operations outside the UK. We now have over 120,000 car insurance customers outside the UK, in Spain, Germany, Italy, and since October 2009 the USA.  These businesses contributed £47.2 million of turnover in 2009. On 30 March we launched Rastreator.com in Spain, our second price comparison site, and in September Rastreator ran its first television campaign with positive initial response.  Early in 2010 we launched our third and fourth price comparison sites; LeLynx.fr in France, and Chiarezza.it in Italy. "It's not all plain sailing and setting up businesses outside the UK has its challenges; it takes time and some money to build growing, profitable businesses.  However, if I could fast forward 10 years I'd expect to see these businesses as key drivers of our profit growth. "Confused also had a good year, increasing revenue and maintaining profit levels in what continues to be a hyper-competitive market.  There is no doubt that 2010 will again be a challenging year in the price comparison industry. "In sum, it was a great year, which means that every member of staff in every country will get the maximum payout of shares in our Employee Share Scheme, with a total value of over £9 million for 2009 as a whole. They earned it." Comment from Alastair Lyons, Group Chairman "With a further advance in profits we are delighted once again to be able to declare an increase in total dividends for the year of 10% to 57.5p per ordinary share.This represents 97% of after-tax earnings. "In January this year we were very pleased to announce agreements with Munich Re and Hannover Re to broaden and lengthen our existing relationships with these strongly rated reinsurance providers. These long-term agreements further reduce risk, and allow us to perpetuate our model of strong growth, high return on capital and solid dividends." Dividend The second interim dividend of 29.8p will be paid on 1 April 2010.  The ex-dividend date is 10 March 2010 and the record date 12 March 2010. Management presentation Analysts and investors will be able to access the Admiral Group management presentation which commences at 09:00 GMT on Tuesday 2 March 2010 by dialling + 44 (0) 20 3059 5754 and using participant password "Admiral".  A copy of the presentation slides will be available on www.admiralgroup.co.uk. Chairman's Statement Since becoming a public company in 2004 Admiral's strategy has been clear and straightforward, being to:- * Grow our share of the UK private motor insurance market * Exploit the knowledge, skills and resources attaching to our established UK businesses to promote our expansion overseas in both private motor and price comparison * Learn by taking relatively small and inexpensive steps to test different approaches and identify the best way forward * Operate a "capital-light" business model transferring a significant proportion of our underwriting risk to reinsurance partners, which in turn allows Admiral to distribute the majority of our earnings as dividends * Extend this low-risk philosophy to our investment strategy, only employing cash deposits or money market funds * Give all our staff a stake in what they create by making them shareholders * Recognise the responsibility we have to the communities of which we are a part The milestones of the past year mark another successful 12 months implementing this strategic direction. With price comparison further increasing its share as a distribution channel for motor insurance, our UK private motor business had another very strong year, growing both its vehicle count and gross premiums by 17%. The 1.9 million cars covered by Admiral brands account, we estimate, for some 7% of the UK market making us the UK's third largest private motor insurer. This growth in our book in 2009 was accompanied by a 19% increase in profit derived from ancillary products and services. As regards our expansion overseas, in October Elephant Auto Insurance sold its first policies in the state of Virginia, adding the US to the list of Spain, Germany, and Italy in which we have established private motor insurers over the past 4 years. As Henry Engelhardt discusses in his CEO's report, we have learned significantly more about each of these markets over the past 12 months. Balumba, our business in Spain, has focussed with positive results on further reducing its loss ratio ahead of resuming policy growth. Our German business, AdmiralDirekt, also concentrated in its second year on its underwriting result, generating a steady flow of new business through the year rather than competing aggressively in the 1 January renewal market. In Italy ConTe now has 35,000 customers at the end of its first full financial year. Overall the Group now has some 120,000 customers outside the UK. Against the backdrop of an estimated 20% growth in motor insurance price comparison, Confused maintained its share at close to one-third of this market, with profits comparable to 2008. We have now started to take the learning from Confused into other markets, launching Rastreator.com in Spain in March 2009, followed by LeLynx.fr in France and Chiarezza.it in Italy in early 2010. We are delighted to have Mapfre, Spain's leading insurance group, as our 25% partner in Rastreator. Totally in line with our risk-sharing strategy were the agreements we announced in January this year with Munich Re and Hannover Re to broaden and lengthen our existing relationships with these very strongly rated reinsurance providers.Our association with Munich Re dates back to 2000 and may now go past 2020 with the advent of a new 15 year agreement for our US business and the extension of our agreements with them in Spain and Italy also to 15 year terms. We are very pleased to have the confidence of an institution of Munich Re's standing to justify its committal to such long-term agreements. Given our very prudent investment philosophy, exceptionally low interest rates across our business ate into the strong growth in UK car insurance profits, leaving Group pre-tax profits at £216 million, 7% ahead of the previous year. We will distribute 97% of post-tax earnings, our full year dividends amounting to 57.5 pence per share, 10% up on our declaration for 2008.Our normal dividend, growing in line with our growth in profits based on a 45% pay-out ratio, amounted to 26.5 pence per share, whilst our available surplus, after taking into account our required solvency, provision for our overseas expansion plans, and a margin for contingencies, made possible a special dividend of 31.0 pence per share. We have paid such a special dividend as part of every distribution we have made since becoming a public company - in total £303 million, 51% of overall dividends. Every Admiral employee is included in our Free Share Schemes. As regards the Approved Free Share Scheme the achievement in full of the 2009 objectives will mean employees will again realise the maximum award of £3,000 free shares. Someone who has been employed since flotation now has the potential to hold 1,820 shares under this scheme worth £22,600*. In line with our straight-forward remuneration philosophy of individual reward being simply a combination of base salary and performance-related shares, our Discretionary Free Share Scheme has a much wider than normal coverage, with over 1,900 individuals currently holding awards in the scheme. Our strong earnings growth over 2007 to 2009 resulted in the 2007 scheme achieving a 98% vesting percentage. We continue to encourage our staff, wherever they are working, to play an active part in their local community.Through our Community Chest giving scheme we supported around 150 organisations, charities, and sports teams during 2009 covering causes as disparate as the Ystradgynlais Community Car Scheme and Halifax County Soccer in Canada. The Admiral Cardiff Big Weekend was the UK's largest free festival during 2009. Our Board has spent a lot of time during 2009 discussing the learning that we should take from the events of the last 18 months and the conclusions arrived at by Sir David Walker, the Financial Reporting Council, and the FSA. Each year we undertake an appraisal of the working of the Board and the Board committees, and of my effectiveness as chairman, and seek to identify how we can improve our Board process and its effectiveness in setting, and having oversight of the implementation of, the Group's strategy. Particular areas of focus have been ensuring the Board spends its time on issues of significance, both operational and strategic, rather than on the reporting of detailed implementation; the management resource required by an ever larger and more complex business; and achieving adequate understanding by our Board of the increasing number of markets in which we have a presence. Too often one fails to say "thank you" often enough - to recognise how good people feel when they know that they, and what they do, are appreciated.Let me, therefore, be absolutely clear how much I, on behalf of the Board of Admiral, appreciate what everyone has contributed to achieving another successful year, in particular the commitment, energy, and enthusiasm of our directors, managers, and staff. Thank you! Alastair Lyons Chairman *  based on the closing share price on 26 February 2010 Chief Executive's Statement 2009 was an ever-so-much-more-so year.  That is to say, it was a lot like 2008 but ever-so-much-more-so.  For those of you who are fans of the author Robert McCloskey, you will know that ever-so-much-more-so is a colourless, tasteless, odourless chemical which makes things, well, ever-so-much-more-so: sprinkle it on a soft bed, the bed becomes softer; add it to a fine glass of wine and the wine is even finer, etc.  Well, I think somebody sprinkled it on Admiral Group and so 2009 was like 2008, only . ever-so-much-more-so. In 2009 we made more money than ever before, we put two new pins in the Group map and took a giant step towards perpetuating our model well into the future. Here are the highlights: * Record profits of £215.8 million * Turnover clears £1,000,000,000 for the first time! * Group combined ratio of 92% * Launch of Elephant Auto, our insurance businessin the USA * Launch of Rastreator.com, a price comparison site in Spain * 17% customer growth in the UK * Confused profits of £25.7 million * Balumba 2009 loss ratio at 83% * Signed an even longer-term, long-term reinsurance agreement with Munich Re (Yet) Another analogy 2009 was the year of the ox.  This was a year where we did a lot of hard labour, tilling the car insurance soil as it were.  The hard work certainly isn't over yet but we're one year closer to meeting our goal of creating profitable, sustainable, growing businesses outside the UK.  Meanwhile, 2009 in the UK was an ox on steroids. The model lives on We did three deals during the year that served to reinforce our low-risk, high-return-on-capital model.  The biggest of these was with Munich Re, where they will be our reinsurance partner in the UK, Spain, Italy and the USA possibly to 2020 and beyond.  The most important point to take from this deal is that it not only reduces our risk, it drastically reduces the amount of capital we'll need to grow our operations.  In turn, this means that if we can create successful businesses outside the UK we will perpetuate the cash generative model we have established far into the future. The second deal was to reinsure a further 33% of our US venture with Hannover Re, one of our UK partners.  Again, this deal serves to reduce our short-term risk in return for some of our profits in future years. The third deal was to sell 25% of our Spanish price comparison business, Rastreator.com, to Mapfre, Spain's leading insurer.  Once again, this is a deal that sharply reduces the need for our own capital and, therefore, reduces our risk.  It also begins a relationship with a highly respected insurance group. As most of our philosophies go, this one too is quite simple: we are happy to share some of our future profits in return for * reduced risk and * less use of our own capital The result is far less volatility in our results and, unusually for an insurance company, growth coupled with cash generation.  The beauty of the way we run the model is illustrated by the fact that despite all our investment in future growth during 2009 we made more money than we've ever made before!  (And this new record was achieved despite investment returns seemingly from the land of Lilliput.)  And, even with growth rates nearing 20%, we are, once again, paying a record dividend. Admiral, Confused and the UK car insurance market What a great year!  Lots of ever-so-much-more-so sprinkled here.  We grew the number of vehicles insured by 17% and produced a combined ratio of 85%.  During the year we raised rates by more than 12%. However, you will not see a 12% increase in our average premium as we continue to gently alter the composition of our portfolio towards somewhat lower premium business.   Many of our competitors are suffering, with experts predicting a 2009 combined ratio for the market between 115%-120%.  It is likely that the market will continue to raise prices in 2010, especially as investment returns are muted.  We are in an enviable position of having a combined ratio well below 100% while many of our competitors do not. Confused also had a good year in what continues to be a hyper-competitive market.  Confused profits were £25.7 million, almost the same as 2008 (£25.6 million).  Our excellent ad campaign featuring real customers, which paled only in comparison to the meerkat campaign from one of our competitors, allowed us to hold steady at around one third market share.  There is no doubt that 2010 will again be a challenging year in the price comparison industry. Balumba, Rastreator and the Spanish car insurance market Balumba lost €1.4 million for the year, but only €300k in the second half.  The challenge for Balumba in 2009 was to get its loss ratio under control and this was achieved through a lot of effort in pricing and claims handling.  We needed to create a base of viable customers upon which we can build a business.   The price paid for reducing the loss ratio from 102% for the 2008 year at the end of 2008 to 83% for the 2009 year at the end of 2009, was a slightly smaller business.  The end of year customer based declined from 55,400 to 50,300. However, we are now in a position to grow the customer base again and, in fact, the base grew by 6% in the last three months of the year.  As you can see by the expense ratio (63%), we are staffed up for a bigger business.  The goal for 2010 is to grow efficiently into this expense base without sacrificing the loss ratio. One of the great positive stories for us in 2009 was the birth and growth of Rastreator.com, our Spanish price comparison site.  Rastreator (sort of 'tracker dog' when translated), came to life on March 30.  In the autumn we ran our first television campaign and were positively surprised by the volume of quotes we immediately started to do.  It appears that price comparison is on the ascendancy in Spain. ConTe and the Italian car insurance market ConTe completed its first full year of trading in 2009.  We are very pleased with the progress of this operation.  It ended the year with: * 35,500 customers at year-end * €12.5 million gwp * 2009 calendar year loss ratio of 99% * Expense ratio of 145% Although the loss ratio for 2009 might look high, for a first year book of business in a new country it's actually quite encouraging (far better than Spain or Germany in either their first full year).  However, a note of caution, the book is still very young and the numbers quite volatile. It appears that some Italian insurers are suffering, as rates appear to have gone up in the latter part of the year.  ConTe has put through three substantial rate increases since the first of December and is still selling at a brisk pace. In February 2010 we launched our price comparison business in Italy, Chiarezza.it, which translates to 'clarity'. AdmiralDirekt and the German car insurance market The German market continues to be the most challenging market we're in.  In its second full year, similar to our experience in Spain, it was necessary to dramatically raise rates and stem the flow of new business to improve the underwriting result.  Due to the seasonal nature of the market, where the vast majority of renewals are on January 1, the results of all our pricing changes won't be known until later in 2010.  To give you an understanding of the magnitude of the price changes we've made, in the 'season' of 2008 for business incepting on January 1, 2009 we wrote nearly 17,000 policies.  A year later, for policies incepting on Jan. 1, 2010, the figure was just short of 3,200. However, we did write quite a bit of business during the year because of people changing cars, probably catalysed by the German government's cash for clunkers scheme.  So at the end of the year the vital statistics looked like this: * 35,000 customers, up 20,000 from 2008 (+133%) * But only up 5,000 from Jan. 1, 2009 (+16.6%) * €15 million gwp versus €5 million in 2008 (+200%) * Loss ratio for 2009 at the end of 2009 of 109% * Combined ratio of, gulp, 238% One positive development in the market has been the growth of price comparison sites.  In 2009 we did 4.7 million aggregator quotes, up substantially from 2008.  However, the real force in the market is HUK Coburg, an uber-efficient mutual that, unlike other insurers, doesn't seem to be feeling much pain despite the cycle at or nearing its nadir.  Other insurers appear to be raising rates, with about half the firms in the market raising their rates for January 1 business. 'USA, USA, USA' The biggest seed we planted in 2009 went in the ground in Richmond, Virginia. Elephant Auto Insurance began trading in Virginia on October 5.  Elephant is encouraged by the success Geico has enjoyed selling car insurance direct to consumers via phone and internet in the US.  Geico's market share has grown almost 3 percentage points in the five years through 2008 (latest figures available), from 5.1% to 7.7%, which, to put this in perspective, is an increase of some $4 billion in written premium.  We like other people to pave roads that we can then drive on. The US is a complicated market, not in the least because it is really 51 different markets, due to state-by-state regulation (all 50 states plus Washington D.C. for those keeping count).  Although Elephant launched in October it didn't write much business in 2009 as it used the time to ensure its systems worked and the pricing engine generated the correct rates.  For the record, it wrote 204 vehicles in 2009 and had 4 claims. We will take 33% of the risk on Elephant, with Munich Re and Hannover Re each taking 33% respectively.  In 2010 Elephant will concentrate on getting things to work in Virginia before it considers trading in an additional state. Vive La France! On January 18, 2010 we launched LeLynx.fr, a price comparison business in France, a country we think is ripe for a move towards internet distribution of car insurance.  At this point there's really not a whole lot more to say about this! All in all So, in 2009 we did pretty much the same things we did in 2008, except ever-so-much-more-so.  We grew both top and bottom lines in the UK.  We continued to develop our operations in Spain, Germany and Italy and we planted a couple of new seeds, in Spain and the USA.  Similar to 2008, I think it will be a year which is only really appreciated at some point in the not-to-distant future, in particular when the foreign operations have developed into growing, profitable, sustainable businesses.  The big difference between 2008 and 2009 was the signing of the reinsurance deals, particularly with Munich Re.  These deals give us the potential to carry our 50+% return on capital ratio many years into the future. Another source of pride in our company's development was the fact that we are one of only two firms to be included in the Sunday Times Best Companies To Work For in the UK list all 10 years it has been compiled.  We have a very simple philosophy: if people like what they do, they'll do it better.  So we go out of our way to make Admiral a great place to work.  And the people who work here think it is. So to all those many people who helped make 2009 another excellent year for Admiral Group: keep smiling! Henry Engelhardt Chief Executive Officer Business Review Group financial highlights and key performance indicators   2007 2008 2009 Turnover £808.2m £910.2m £1,077.4m Net revenue £364.1m £422.8m £507.5m Number of customers 1.49m 1.75m 2.08m Loss ratio 67.7% 64.7% 69.0% Expense ratio 17.7% 21.8% 23.1% Combined ratio 85.4% 86.5% 92.1% Profit before tax £182.1m £202.5m £215.8m Earnings per share 48.6p 54.9p 59.0p Turnover comprises total premiums written and other revenue The Admiral Group had another positive year in 2009, with strong top line growth and a continued rise in profit before tax and earnings per share. Turnover rose by 18% to £1.08 billion from £0.91 billion.  This was largely driven by the same rate of growth in the number of customers across the Group, up to 2.08 million from 1.75 million.  The Group also now has more than 120,000 customers outside the UK. Pre-tax profit increased by 7% to £215.8 million.  The rate of growth was below that seen in recent years for two main reasons - firstly, and most significantly, a £15 million (60%) fall in investment and interest income resulting from lower yields, and secondly, continuing investment in our new businesses overseas. The core part of the Group remains the UK Car Insurance business, which generated 87% of turnover and 96% of pre-tax profit.  The business grew significantly in 2009 and continues to build market share whilst remaining very profitable. As part of the Group's growing international activities, two new businesses were launched in 2009:  Rastreator.com, our Spanish price comparison website started offering car insurance quotes in March 2009, and later in the year Elephant Auto started selling private car insurance in Virginia, USA. The Group's results are presented in three key segments - UK Car Insurance, Price Comparison and Non-UK Car Insurance.  We summarise other Group items in a fourth section. UK Car Insurance Financial Performance Non-GAAP(*1) format income statement £m 2007 2008 2009 Turnover(*2) 714.9 804.8 939.1 ------------------------------ Total premiums written(*3) 617.0 690.2 804.7 ------------------------------ Net insurance premium revenue 140.2 161.9 199.1 Investment income 16.7 17.1 7.5 Net insurance claims (97.0) (105.1) (138.7) Net insurance expenses (19.9) (26.0) (30.3) ------------------------------ Underwriting profit 40.0 47.9 37.6 Profit commission 20.4 34.7 54.2 Net ancillary income 75.8 89.0 106.3 Other revenue 6.0 8.3 8.8 ------------------------------ UK Car Insurance profit 142.2 179.9 206.9 *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 performance indicators   2007 2008 2009 Reported loss ratio 66.7% 62.0% 66.9% Reported expense ratio 16.7% 19.0% 18.0% Reported combined ratio 83.4% 81.0% 84.9% Written basis expense ratio 17.0% 17.0% 16.9% Claims reserve releases £29.5m £38.0m £31.3m Releases as % of premium 21.0% 23.5% 15.7% Profit commission as % of premium 14.6% 21.4% 27.2% Vehicles insured at year-end 1.38m 1.59m 1.86m Ancillary income per vehicle £69.0 £70.7 £72.0 UK Car Insurance - Co-insurance and Reinsurance Arrangements In 2009, Admiral underwrote a net 27.5% of UK premiums (in line with 2008).  50% of the UK total is underwritten by the Munich Re Group (specifically Great Lakes Reinsurance (UK) Plc) through a long-term co-insurance agreement, and 22.5% was proportionally reinsured to Swiss Re (10.0%), Hannover Re (6.25%) and New Re (6.25%). The nature of the co-insurance is such that 50% of all motor premium and claims for the 2009 year accrues directly to Great Lakes and does not appear in the Group's income statement.  Similarly, Great Lakes reimburses the Group for its proportional share of expenses incurred in acquiring and administering the motor business. The profit commission terms in all the agreements allow Admiral to participate to a large extent in the profitability of the total underwriting, and the most recent reinsurance contracts allow for a significant proportion of the profit to be remitted back to Admiral. In 2010, Admiral will continue to underwrite 27.5% of the total, the remaining 72.5% being split 45.0% Great Lakes, Swiss Re 7.5%, Hannover Re & New Re 10.0% each. Extensions to Munich Re Agreements In January 2010, Admiral announced it had extended the agreements in place with Munich Re in the UK, Spain and Italy and had also signed a new long-term reinsurance arrangement in the USA.  Munich Re's risk and profit sharing has facilitated the Group's business 'capital-light' business model for a decade and these significant extensions are very positive for its continuation. In the UK, Admiral extended the current agreement for two further years, to at least the end of 2016.  Munich Re will retain 40% of the UK risks for the additional years.  Admiral has committed to retain at least 25% for the duration of this agreement whilst the allocation of the balance is at Admiral's discretion. The European and US contracts are explained below in the Non-UK Car Insurance section. UK Car Insurance Financial Performance The Group's core business grew strongly in 2009, with 17% more vehicles insured at the end of the year compared to December 2008 and a similar increase in written premium. Pre-tax profit increased by 15% to £206.9 million, despite having been held back somewhat by a significant (nearly £10 million or 56%) fall in investment income.  Our investment strategy remains cautious and is set out in detail later.  UK Car Insurance contributed over 95% of Group profit in the year. Whilst, Admiral's UK results have been consistently profitable for some time, the UK private motor market as a whole remains significantly loss-making.  These losses, coupled with a difficult investment environment and falling reserve cushions for most insurers have led to material increases in prices. Admiral increased its base premium rates by around 12% in 2009, the largest annual increase for nearly a decade.  However, Admiral's average written premium in 2009 did not change materially compared to 2008.  This reflected portfolio mix changes and the growing influence of price comparison websites (which we estimate now generate around 45% of all new business transacted in the UK), where customers generally transact at the cheapest price, resulting in market average written premiums not rising at the same rate as reported price changes. 2009 underwriting profit fell to £37.6 million from £47.9 million, though was broadly flat if the fall in investment income is excluded.  The reported combined ratio increased to 84.9% from 81.0%; the 4 point move being made up of a 1 point improvement in expense ratio and a 5 point higher loss ratio. The higher loss ratio was despite an improvement in the 2009 ratio, and was a result of a lower contribution from prior year reserve releases.  In 2008, releases contributed £38.0 million to the result, representing 23.5% of earned premium.  The 2009 equivalent was £31.3 million or 15.7%.  This fall reflects a market-wide return towards less dramatic levels than seen in recent years, which in turn resulted from overly pessimistic expectations of bodily injury claims inflation in the early 2000's. The significantly improved profit commission terms on the co-insurance and reinsurance arrangements for recent underwriting years continue to be a major factor in the income statement, with the material increase in 2008 v 2007 being followed by a similar rise in 2009.  Admiral's own underwriting result plus profit commission income amounted to £91.8 million in 2009 - 11% higher than 2008, despite the dramatic fall in investment income. Admiral's UK expense ratio of 18% compares very favourably to the market average figure of around 30%.  This significant (and sustained) advantage results in part from a portfolio with a higher average premium than the market, but also from lower infrastructure and acquisition costs.  Admiral's written basis expense ratio improved modestly in 2009 to just under 17%, Our claims reserving approach remains unchanged.  We initially reserve conservatively, above independent actuarial projections of the ultimate outcomes.  This results in a significant margin being held in reserves to allow for unforeseen adverse development in open claims and creates a position whereby Admiral makes above industry average reserve releases. In determining the quantum of releases from prior years, we seek to maintain a consistent level of prudence in reserves, taken together with 'reserves' of profit commission based on actuarial projections of ultimate loss ratios that are, however, yet to be recognised at the balance sheet date. Net income from ancillary products and services continues to be a major source of UK profits.  UK net ancillary profit increased (to £106.3 million from £89.0 million) at a faster rate than vehicle growth (19% v 17%) due to a small increase in the level of contribution per vehicle insured (to £72 from £71). Again, there were no major changes in the component parts of ancillary profit. It is worth repeating that although Admiral does not underwrite all the car insurance generated for its own account, it does retain all ancillary income generated. Price Comparison Financial Performance Non-GAAP format income statement £m 2007 2008 2009 Revenue: Motor 58.8 52.9 62.2 Other 10.3 13.2 18.3 ---------------------------- Total 69.1 66.1 80.5 Operating expenses (32.4) (40.5) (55.6) ---------------------------- Operating profit 36.7 25.6 24.9 ---------------------------- Confused.com operating profit 36.7 25.6 25.7 ---------------------------- Following the successful roll-out of Confused's new website early in the year accompanied by the 'Testimonials' TV campaign, the main story of 2009 was yet another year of fierce competition among the four key players in UK price comparison. Despite having to spend aggressively on media to defend its market position, Confused delivered a profit in line with 2008.  Whilst Confused maintained its share of car insurance price comparison at around one third (the market leading position), experience in the early part of 2010 provides no evidence that the tremendous levels of media activity from the major players will diminish in the near future. Confused has continued to develop its product range beyond car insurance and the proportion of revenue generated from non-motor has once again increased, despite an 18% increase in motor revenue itself:   2006 2007 2008 2009 Non-motor revenue % of total revenue 11% 15% 20% 23% ----------------------------- The most significant of the non-motor products remains household insurance comparison, but there is also notable contribution from van and life insurance as well as a growing capability in comparison of money products such as credit cards and loans. Despite the substantial competitive pressures and increased media activity, Confused delivered a profit margin of around one third.  This was down on 2008's result of 39%, but is a positive outcome in the context of the highly competitive UK price comparison market. Rastreator.com Having only started business in March 2009, the post-launch results for Rastreator in 2009 are not significant in the Group context. The focus for Rastreator in 2010 is to work to become top of mind in insurance price comparison in Spain and also an important strategic partner for insurers based on sales volumes generated. Alongside enjoying a successful period in operational terms, the Group also sold a 25% minority stake in Rastreator to Mapfre S.A. - Spain's largest insurer. This partial sale is consistent with Admiral's approach of working with partners who assist us in achieving profitable growth whilst at the same time reducing risk. LeLynx.fr and Chiarezza.it In early 2010, two further European price comparison businesses were launched in France (January) and Italy (February).  Both opened for business on-time and under budget.  In common with other Admiral international launches, both will have modest starts, and will focus during 2010 on developing their website, panel of insurers, and testing various marketing campaigns. Non-UK Car Insurance Financial Performance £m 2007 2008 2009 Turnover 16.5 29.7 47.2 -------------------------- Total premiums written 14.2 26.0 43.0 -------------------------- Net insurance premium revenue 2.0 7.9 12.8 Investment income 0.1 0.7 0.2 Net insurance claims (2.8) (9.5) (13.0) Net insurance expenses (1.8) (6.2) (13.0) -------------------------- Underwriting result (2.5) (7.1) (13.0) Net ancillary income 1.8 2.8 3.3 Other revenue - 0.2 0.2 -------------------------- Non-UK Car Insurance result (0.7) (4.1) (9.5) -------------------------- Note - Pre-launch costs excluded Key Performance Indicators 2009 Balumba AdmiralDirekt ConTe Total Total premiums written (£m) 17.8 14.0 11.1 43.0 Vehicles insured at period-end 50,300 35,000 35,500 121,000 Result (£m) (1.3) (5.2) (2.4) (9.5) 2008 Total premiums written (£m) 20.8 4.3 0.9 26.0 Vehicles insured at period-end 55,400 15,000 3,300 73,700 Result (£m) (1.2) (2.3) (0.6) (4.1) (Note - total figures include Elephant Auto business in 2009) Non-UK Co-insurance and Reinsurance The risk sharing model that has been a feature of the UK business since 2000 is also used in Europe and the USA.  As well as providing the capital for the majority of the underwriting, in return for a share of future profits, our co-insurance and reinsurance partners bear their proportional share of the post-launch expenses as well as the underwriting in all non-UK operations. The arrangements in each market in Europe are similar and involve Admiral retaining 35% of the risks, the majority share of 65% being underwritten by Munich Re. In the USA, Admiral's US insurer retains one third of the risks generated from January 2010, with the remaining two thirds split equally between Hannover Re and Munich Re.  Both reinsurers bear their proportional share of expenses and underwriting, subject to certain caps on the reinsurers' total exposures. All contracts have profit commission terms that allow Admiral to receive a proportion of the profit earned on the underwriting once the business reaches cumulative profitability. The contracts in place for Germany, Italy and the USA include proportional sharing of ancillary profits. Changes to Munich Re Agreements As noted in the UK Car Insurance section above, in early 2010, Admiral signed revisions to the Munich Re agreements in both Spain and Italy to extend the terms to a total of 15 years (though with options for Munich Re to exit earlier subject to various conditions).  Both agreements have also been revised to include a stronger alignment of long term interests and higher profit commissions for Admiral if results are very positive. The German contract was not materially changed and still runs to at least the end of 2011. Non-UK Car Insurance Financial Performance Total premium written outside the UK rose to £43.0 million in 2009 from £26.0 million in 2008.  The number of vehicles insured also rose strongly, to 121,000 from 73,700. The eldest of the four operations - Balumba in Spain - is only just over three years old and, as should be expected for new car insurance businesses, none has yet reached the scale or maturity to be profitable.  When a business reaches this milestone will depend on the individual market, though we would not expect it to happen for at least four or five years. The combined businesses lost a total of £9.5 million in 2009, up from £4.1 million in 2008.  The higher loss is partly a factor of more businesses operating for the full period, and each business bearing a combined ratio in excess of 100% on a higher level of earned premium. Balumba After having contracted in size over the first half of 2009 whilst management focussed on improving the loss ratio, Balumba started to grow again in the second half and ended the year with 50,300 customers.  This is 10% fewer than at December 2008, but 4% more than at 30 June 2009. The significant improvements made in the claims area, pricing and underwriting processes have led to a much more satisfactory loss ratio outcome for 2009 compared to earlier years. Balumba - loss ratio development triangle   Underwriting year   2007 2008 2009 After 12 months 137% 102% 83% After 24 months 135% 109% - After 36 months 133% - - As noted in our interim report, one consequence of holding back the growth of the business has been a less positive evolution of the expense ratio.  For the first half of 2009, Balumba's expense ratio (on an accounting basis) was around 55% and this has worsened slightly to just over 60% for the full year. Management expect this measure to improve over time as the business grows. Balumba continues to generate very positive ancillary contribution, with over €70 earned on average per customer.  This strong performance has contributed to a positive movement in the overall result, with only £0.3 million of the full year loss of £1.3 million arising in the second half of the year. The current focus in Spain is to recommence growing the portfolio at an acceptable level of acquisition cost, whilst remaining focussed on achieving an acceptable loss ratio. AdmiralDirekt Germany continues to be the market which offers the greatest challenge amongst our new businesses.  The 1 January renewal 'season' and an extremely competitive pricing environment are two of the factors that contribute. Despite focussing on the replacement car market rather than the 1 January renewal season, AdmiralDirekt grew its customer base relatively significantly during the first half of 2009, finishing the year with around 35,000 cars insured compared to 15,000 a year earlier. Even including the material impact of one very large claim (accounting for around 6 percentage points) the 2009 loss ratio has improved notably compared to 2008, though with a large proportion of customers being new, a relatively poor loss ratio is to be expected.  Material price increases, a growing proportion of renewal customers as well as continued development in the claims area are among the actions taken by management to further the improvement into 2010. AdmiralDirekt - loss ratio development triangle   Underwriting year   2008 2009 After 12 months 141% 109% After 24 months 128% - The high combined ratio on the portfolio (and lack of notable ancillary profit) resulted in AdmiralDirekt making a loss of £5.2million in 2009. ConTe ConTe has grown in size significantly in the second half of 2009, moving from 3,300 customers at December 2008 to 15,000 at the end of June 2009 and up to 35,500 at the end of the year.  Written premium in 2009 was £11.1 million. A small base of earned premium is vulnerable to the impact of large claims, and one such claim in the second half of the year has led to a worsening of the loss ratio since we reported interim results.  The 2009 ratio is still below 100%, and with the vast majority of the portfolio made up of new business customers, the result is encouraging. ConTe - loss ratio development triangle   Underwriting year   2008 2009 After 12 months 87% 98% After 24 months 105% - ConTe made a loss of £2.4 million in the year. Elephant Auto The Group launched its latest new car insurance business in Virginia, USA in October 2009. The period from launch to the end of the year was used to test and embed the systems and very little business was written until the start of 2010. The business currently just underwrites Virginia based risks, though it is actively researching a number of further states with a view to beginning to write business outside Virginia if and when the Virginia business produces satisfactory results. Other Group Items £m 2007 2008 2009 Gladiator operating profit 2.0 2.8 2.4 Group net interest income 7.8 6.6 1.1 Share scheme charges (3.0) (5.9) (9.2) Expansion costs (1.4) (0.8) (2.0) Other central overhead (1.3) (1.6) (1.7) Gladiator Established in 1998 and based in Swansea, Gladiator is a commercial vehicle insurance broker offering van insurance and associated products, typically to small businesses.  Distribution is via telephone and internet (including price comparison websites). Non GAAP income statement and key performance indicators £m 2007 2008 2009 Revenue 7.5 9.5 10.6 Expenses (5.5) (6.7) (8.2) ---------------------------- Operating profit 2.0 2.8 2.4 ---------------------------- Operating margin 27% 29% 23% Customer numbers 62,200 84,900 93,400 Gladiator has continued to grow its customer base - by 10% to 93,400 in 2009, but significant increases in competition in the market (resulting from growth in price comparison distribution and increased media spend) have led to notable pressure on margins. Gladiator's operating profit margin reduced to around 23% from 29% in 2008, reflecting this increased competition.  Operating profit fell from £2.8 million to £2.4 million. Other income statement items Other notable items in the income statement are: * Net interest income - substantial reduction from £6.6 million to £1.1 million reflecting significantly lower cash returns * Increased share scheme charges (£9.2 million v £5.9 million) - reflects increased staff numbers and a higher share price in 2009 which drives the accounting charge Investments and Cash Investment strategy There has been no change to the Group's investment strategy, though there were relatively small changes in the allocation of funds between investment types in the year. The key element of Group-wide investment strategy is capital preservation, with additional priorities focussing on low volatility in returns and high levels of liquidity. Cash and investments analysis   31 December 2009 --------------------------------------------------------------   UK Car Non-UK Car Insurance Price Comparison Insurance Other Total   £m £m £m £m £m Liquidity money market funds 208.5 - 29.2 - 237.7 Long-term cash deposits 178.5 - 5.0 - 183.5 Short-term cash deposits - - - 20.0 20.0 Cash 112.9 9.0 21.3 48.6 191.8 -------------------------------------------------------------- Total 499.9 9.0 55.5 68.6 633.0    31 December 2008 --------------------------------------------------------------   UK Car Non-UK Car Insurance Price Comparison Insurance Other Total   £m £m £m £m £m Liquidity money market funds 287.3 - 23.5 - 310.8 Long-term cash deposits 100.0 - - - 100.0 Short-term cash deposits 4.0 - - - 4.0 Cash 46.4 15.6 18.2 60.1 140.3 -------------------------------------------------------------- Total 437.7 15.6 41.7 60.1 555.1 There has been some movement of cash out of money market funds into cash deposits (maximum term 12 months) in order to secure higher rates of return than were being generated by the funds.  A level of liquidity has been sacrificed, but a high proportion of funds continue to be immediately available.  Our objectives noted above have always been achieved. Given our strategy, returns on cash and invested funds were predictably low. Total investment and interest income in 2009 amounted to £8.8 million, over 60% lower than the £24.4 million earned in 2008.  The weighted average return on invested funds was around 1.2% for the year. The Group continues to generate significant amounts of cash, enabling the Group to pay the majority of after-tax profits to shareholders in the form of dividends.  The Group has no debt. £m 2007 2008 2009 Operating cash flow, before transfers to investments 213.2 251.5 286.4 Transfers to financial investments (76.8) (76.0) (10.5) ------------------------- Operating cash flow 136.4 175.5 275.9 Tax and interest payments (49.8) (56.9) (49.1) Investing cash flows (5.4) (11.3) (11.8) Financing cash flows (117.1) (128.7) (142.2) Foreign currency translation impact 0.4 9.9 (5.3) ------------------------- Net cash movement (35.5) (11.5) 67.5 Net increase in cash and financial investments 42.5 63.8 77.8 All years show growth in the total value of cash and investments, and this growth has escalated over time as the total size of the business grows. Aside from continued growth, the only notable change in 2009 compared to 2008 is that less operating cashflow was moved into financial investments.  This is largely a timing difference, with a significant movement from cash to investments occurring in January 2010. The main items contributing to the significant operating cash inflow are as follows: £m 2007 2008 2009 Profit after tax 127.4 144.9 156.9 Change in net insurance liabilities 11.7 37.6 51.1 Net change in trade receivables and liabilities 10.7 (5.8) (4.6) Non-cash income statement items 8.4 17.2 24.1 Tax and net interest expense 55.0 57.6 58.9 ------------------------- Operating cash flow, before transfers to investments 213.2 251.5 286.4 Other financial items Taxation The taxation charge reported in the income statement is £58.9m, which equates to 27.3% of profit before tax. Earnings per share Basic earnings per share rose by 7% to 59.0p from 54.9p.  This rate of growth is in line with pre-tax profit growth. Dividends The Directors have declared a second interim dividend for 2009 of 29.8p in place of a final dividend.  In line with the Group's dividend strategy, this comprises a 13.7p normal element and a 16.1p special distribution, representing an increase of 12% on the final dividend paid in respect of 2008. The payment date is 1 April 2010, ex-dividend date 10 March and record date 12 March. The total dividend declared for 2009 (57.5p) is 10% higher than the 52.5p distributed in respect of 2008. Consolidated Income Statement     Year ended:       31 December 2009 31 December 2008   Note:   £m £m Insurance premium revenue     386.4 301.4 Insurance premium ceded to reinsurers (174.5) (131.6) ----------------------------------- Net insurance premium revenue 5   211.9 169.8 Other revenue 6   232.6 193.9 Profit commission 7   54.2 34.7 Investment and interest income 8   8.8 24.4 ----------------------------------- Net revenue     507.5 422.8 Insurance claims and claims handling expenses (283.1) (213.8) Insurance claims and claims handling expenses recovered from reinsurers 131.4 99.2 ----------------------------------- Net insurance claims     (151.7) (114.6) Expenses 9   (130.8) (99.8) Share scheme charges 9, 24   (9.2) (5.9) ----------------------------------- Total expenses     (291.7) (220.3) Profit before tax 10   215.8 202.5 Taxation expense 12   (58.9) (57.6) ----------------------------------- Profit after tax     156.9 144.9 Profit after tax attributable to: Equity holders of the parent     156.9 144.9 Non-controlling interests     - - -----------------------------------       156.9 144.9 Earnings per share: Basic 14   59.0p 54.9p Diluted 14   59.0p 54.9p +------------------------------------------------------------------------------+ |Dividends declared (total) 13   142.4 128.5| | | |Dividends declared (per share) 13   54.2p 49.2p| +------------------------------------------------------------------------------+ Consolidated Statement of Comprehensive Income     Year ended:       31 December 2009 31 December 2008       £m £m Profit for the period     156.9 144.9 Other comprehensive income Exchange differences on translation    of foreign operations     (5.3) 9.9 ----------------------------------- Other comprehensive income for the    period, net of income tax     (5.3) 9.9 ----------------------------------- Total comprehensive income    for the period     151.6 154.8 Total comprehensive income for the    period attributable to: Equity holders of the parent     151.6 154.8 Non-controlling interests     - - -----------------------------------       151.6 154.8 Consolidated Statement of Financial Position     As at:       31 December 2009 31 December 2008   Note   £m £m ASSETS Property, plant and equipment 15   12.1 11.0 Intangible assets 16   77.0 75.7 Reinsurance assets 18   212.9 170.6 Financial assets 17   630.9 586.9 Trade and other receivables 17, 19   32.7 25.5 Cash and cash equivalents 17, 20   211.8 144.3 ----------------------------------- Total assets     1,177.4 1,014.0 EQUITY Share capital 24   0.3 0.3 Share premium account     13.1 13.1 Other reserves     5.0 10.3 Retained earnings     281.8 251.8 ----------------------------------- Total equity attributable to equity holders of the parent     300.2 275.5 Non-controlling interests     0.6 - ----------------------------------- Total equity     300.8 275.5 LIABILITIES Insurance contracts 18   532.9 439.6 Deferred income tax 23   5.7 10.3 Trade and other payables 17, 21   306.8 270.1 Current tax liabilities     31.2 18.5 ----------------------------------- Total liabilities     876.6 738.5 Total equity and total liabilities     1,177.4 1,014.0 Consolidated Cash Flow Statement   Note 31 31 December December 2009 2008     £m £m Profit after tax   156.9 144.9 Adjustments for non-cash items: - Depreciation   5.1 3.7 - Amortisation of software   2.2 1.4 - Change in unrealised gains on investments   0.2 0.8 - Other gains and losses   2.9 - - Share scheme charge 24 13.7 11.3 Change in gross insurance contract liabilities   93.4 76.5 Change in reinsurance assets   (42.3) (38.9) Change in trade and other receivables, including from policyholders (41.1) (36.5) Change in trade and other payables, including tax and social security 36.5 30.7 Taxation expense   58.9 57.6 ------------------- Cash flows from operating activities, before movements in investments 286.4 251.5 Net cash flow into investments   (10.5) (76.0) ------------------- Cash flows from operating activities, net of movements in investments 275.9 175.5 Taxation payments   (49.1) (56.9) ------------------- Net cash flow from operating activities   226.8 118.6 Cash flows from investing activities: Purchases of property, plant and equipment and software   (11.8) (11.3) ------------------- Net cash used in investing activities   (11.8) (11.3) Cash flows from financing activities: Capital element of new finance leases   1.4 0.5 Repayment of finance lease liabilities   (1.2) (0.7) Equity dividends paid   (142.4) (128.5) ------------------- Net cash used in financing activities   (142.2) (128.7) ------------------- Net increase / (decrease) in cash and cash equivalents   72.8 (21.4) Cash and cash equivalents at 1 January   144.3 155.8 Effects of changes in foreign exchange rates   (5.3) 9.9 ------------------- Cash and cash equivalents at end of period 20 211.8 144.3 Consolidated Statement of Changes in Equity   Share Foreign Retained Share premium exchange profit Non-controlling Total capital account reserve and loss interests equity   £m £m £m £m £m £m At 1 January 2008 0.3 13.1 0.4 223.8 - 237.6 Profit for the period - - - 144.9 - 144.9 Other comprehensive income Currency translation differences - - 9.9 - - 9.9 --------------------------------------------------------------- Total comprehensive income for the period - - 9.9 144.9 - 154.8 --------------------------------------------------------------- Transactions with equity-holders Dividends - - - (128.5) - (128.5) Share scheme credit - - - 11.3 - 11.3 Deferred tax charge on share scheme credit - - - 0.3 - 0.3 --------------------------------------------------------------- Total transactions with equity-holders - - - (116.9) - (116.9) --------------------------------------------------------------- As at 31 December 2008 0.3 13.1 10.3 251.8 - 275.5 At 1 January 2009 0.3 13.1 10.3 251.8 - 275.5 Profit for the period - - - 156.9 - 156.9 Other comprehensive income Currency translation differences - - (5.3) - - (5.3) --------------------------------------------------------------- Total comprehensive income for the period - - (5.3) 156.9 - 151.6 --------------------------------------------------------------- Transactions with equity-holders Dividends - - - (142.4) - (142.4) Issue of shares to non-controlling interests - - - - 0.6 0.6 Share scheme credit - - - 13.7 - 13.7 Deferred tax credit on share scheme credit - - - 1.8 - 1.8 --------------------------------------------------------------- Total transactions with equity-holders - - - (126.9) 0.6 (126.3) --------------------------------------------------------------- As at 31 December 2009 0.3 13.1 5.0 281.8 0.6 300.8 Notes to the financial statements 1.         General information and basis of preparation General information Admiral Group plc is a Company incorporated in England and Wales.  Its registered office is at Capital Tower, Greyfriars Road, Cardiff CF10 3AZ and its shares are listed on the London Stock Exchange. The financial statements comprise the results and balances of the Company and its subsidiaries (together referred to as the Group) for the year ended 31 December 2009 and comparative figures for the year ended 31 December 2008.  The financial statements of the Company's subsidiaries are consolidated in the Group financial statements.  The Company controls 100% of the voting share capital of all its principal subsidiaries.  The Parent Company financial statements present information about the Company as a separate entity and not about its Group.  In accordance with International Accounting Standard (IAS) 24, transactions or balances between Group companies that have been eliminated on consolidation are not reported as related party transactions. The consolidated financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU).  The Company has elected to prepare its Parent Company financial statements in accordance with UK Generally Accepted Accounting Practice (GAAP). Adoption of new and revised standards The Group has applied all adopted IFRS and interpretations endorsed by the EU at 31 December 2009, including all amendments to extant standards that are not effective until later accounting periods, except for those listed below: * IFRIC 12 Service concession arrangements * IFRIC 15 Agreements for the construction of real estate * IFRIC 16 Hedges of a net investment of a foreign operation * IFRIC 17 Distribution of non-cash assets to owners * IFRIC 18 Transfer of assets from customers * Amendments to IAS 32 Classification of rights issues IFRIC 16 Hedges of a net investment of a foreign operation is effective for periods beginning on or after 1 July 2009 and the Group has elected not to adopt the Amendment in advance of the effective date. As the Group does not hedge its net investment in foreign operations, this interpretation is not expected to have a material impact on the Group's financial statements. IFRICs 12, 15, 17 and 18, and the amendment to IAS 32 are effective for periods beginning on or after 30 March 2009, 1 January 2010, 1 November 2009, 1 November 2009 and 1 February 2010 respectively. None of these interpretations have been applied during the current accounting period, and on adoption will not have a material impact on the Group's financial statements. There are a number of standards, amendments to standards and interpretations that were issued by 31 December 2009 but have either yet to be endorsed by the EU, or were endorsed shortly after the year end. These are as follows: * Improvements to IFRSs (2009) * Amendments to IFRS 2 Group cash-settled share-based payment transactions * Amendments to IFRS 1 Additional exemptions for first-time adopters * Revised IAS 24 Related party disclosures * IFRS 9 Financial instruments * IFRIC 19 Extinguishing financial liabilities with equity instruments * Amendment to IFRIC 14 Prepayments of a minimum funding requirement IFRS 9, Financial Instruments is the only new standard, all the others being improvements, amendments to standards, interpretations or revisions of current standards. This standard was issued in November 2009 by the IASB and focuses on the classification and measurement of financial instruments. Under the new standard only two possible classifications arise, rather than the four existing classifications currently available under IAS 39, and will result in all financial assets being valued at amortised cost or fair value through profit or loss. Financial liabilities are excluded from the scope of this standard. Based on the Group's current financial assets, this standard is not expected to have a material impact on the Group's financial statements in future periods. In addition, it is not anticipated that any of the other improvements, amendments to standards, interpretations or revisions of current standards above will have a material impact on the Group's financial statements in future periods. The following IFRS have been adopted and applied by the Group for the first time in these financial statements: * Amendments to IAS 1 Presentation of financial statements: a revised presentation * Amendments to IFRS 2 Share-based payment: vesting conditions and cancellations * Amendments to IAS 32 and IAS 1 Puttable financial instruments and obligations arising on liquidation * Amendments to IFRS1 and IAS 27 Cost of investment in a subsidiary, jointly controlled entity or associate * Amendments to IFRS 7 Improving disclosures about financial instruments * Amendments to IFRIC 9 and IAS 39 Embedded derivatives * IAS 23 Borrowing costs * IFRIC 13 Customer loyalty programmes * Improvements to IFRSs (2008) * Revised IFRS 3 Business combinations * Amendments to IAS 27 Consolidated and separate financial statements * Amendment to IAS 39 Financial instruments: recognition and measurement: eligible hedged items * Revised IFRS 1 First time adoption of IFRS Following adoption of IAS 1 Presentation of financial statements: a revised presentation, the Group now presents all income and expenses in two separate statements, namely the Consolidated Income Statement and the Consolidated Statement of Comprehensive Income. It also presents a Consolidated Statement of Changes in Equity as a primary statement for the first time and has renamed the Consolidated Balance Sheet the Consolidated Statement of Financial Position. There are no changes to the recognition, measurement or disclosure of transactions as a result of the adoption of this standard. The requirements of IFRS 7, Financial instruments, disclosures are met through note 17 to the financial statements.This includes the enhanced disclosures about fair value measurements required under the amendment to IFRS 7 that has been adopted for the first time. None of the other standards or interpretations adopted for the first time have had a material impact on the consolidated financial results or position of the Group for the year ended 31 December 2009. Basis of preparation The accounts have been prepared on a going concern basis.  In considering the appropriateness of this assumption, the Board have reviewed the Group's projections for the next twelve months and beyond, including cash flow forecasts and regulatory capital surpluses.  The Group has no debt. As a result of this review the Directors have satisfied themselves that it is appropriate to prepare these financial statements on a going concern basis. The accounting policies set out in note 3 to the financial statements have, unless otherwise stated, been applied consistently to all periods presented in these Group financial statements. The financial statements are prepared on the historical cost basis, except for the revaluation of financial assets classified as at fair value through profit or loss. Subsidiaries are entities controlled by the Group.  Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account.  The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The preparation of financial statements in conformity with adopted IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.  The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are reviewed on an ongoing basis.  Revisions to accounting estimates are recognised in the year in which the estimate is reviewed if this revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years. 2.         Critical accounting judgements and estimates Judgements: In applying the Group's accounting policies as described in note 3, management has primarily applied judgement in the classification of the Group's contracts with reinsurers as quota share reinsurance contracts.A contract is required to transfer significant insurance risk in order to be classified as such. Management reviews all terms and conditions of the contract, and if necessary obtains the opinion of an independent expert at the negotiation stage in order to be able to make these judgements. Estimation techniques used in calculation of claims provisions: Estimation techniques are used in the calculation of the provisions for claims outstanding, which represent a projection of the ultimate cost of settling claims that have occurred prior to the balance sheet date and remain unsettled at the balance sheet date. The key area where these techniques are used relates to the ultimate cost of reported claims.  A secondary area relates to the emergence of claims that occurred prior to the balance sheet date, but had not been reported at that date. The estimates of the ultimate cost of reported claims are based on the setting of claim provisions on a case-by-case basis, for all but the simplest of claims. The sum of these provisions are compared with projected ultimate costs using a variety of different projection techniques (including incurred and paid chain ladder and an average cost of claim approach) to allow an actuarial assessment of their likely accuracy.They include allowance for unreported claims. The most significant sensitivity in the use of the projection techniques arises from any future step change in claims costs, which would cause future claim cost inflation to deviate from historic trends.  This is most likely to arise from a change in the regulatory or judicial regime that leads to an increase in awards or legal costs for bodily injury claims that is significantly above or below the historical trend. The claims provisions are subject to independent review by the Group's actuarial advisors. For further detail on objectives, policies and procedures for managing insurance risk, refer to note 18 of the financial statements. Future changes in claims reserves also impact profit commission income, as the recognition of this income is dependent on the loss ratio booked in the financial statements, and cash receivable is dependent on actuarial projections of ultimate loss ratios. 3.         Significant accounting policies a)         Revenue recognition Premiums, ancillary income and profit commission: Premiums relating to insurance contracts are recognised as revenue proportionally over the period of cover. Income earned on the sale of ancillary products and income from policies paid by instalments is credited to the income statement over the period matching the Group's obligations to provide services.  Where the Group has no remaining contractual obligations, the income is recognised immediately.  An allowance is made for expected cancellations where the customer may be entitled to a refund of ancillary amounts charged. Under some of the co-insurance and reinsurance contracts under which motor premiums are shared or ceded, profit commission may be earned on a particular year of account, which is usually subject to performance criteria such as loss ratios and expense ratios.  The commission is dependent on the ultimate outcome of any year, with income being recognised based on loss and expense ratios used in the preparation of the financial statements. Revenue from Price Comparison and Gladiator: Commission from these activities is credited to income on the sale of the underlying insurance policy. Investment income: Investment income from financial assets comprises interest income and net gains (both realised and unrealised) on financial assets classified as fair value through profit and loss or held to maturity deposits. b)         Foreign currency translation Functional and presentation currency Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency').  The consolidated financial statements are presented in millions of pounds sterling, which is the Group's presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.  Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Translation differences on monetary items are reported as part of the fair value gain or loss.  Translation differences on non-monetary items are included in the foreign exchange reserve in equity. Translation of financial statements of foreign operations The financial statements of foreign operations whose functional currency is not pounds sterling are translated into the Group presentation currency (sterling) as follows: i. Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; ii. Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the date of the transaction); and iii. All resulting exchange differences are recognised as a separate component of equity. On disposal of a foreign operation, the cumulative amount recognised in equity relating to that particular operation is recognised in the income statement. c)         Insurance contracts and reinsurance assets Premium: The proportion of premium receivable on in-force policies relating to unexpired risks is reported in insurance contract liabilities and reinsurance assets as the unearned premium provision - gross and reinsurers' share respectively. Claims: Claims and claims handling expenses are charged as incurred, based on the estimated direct and indirect costs of settling all liabilities arising on events occurring up to the balance sheet date. The provision for claims outstanding comprises provisions for the estimated cost of settling all claims incurred but unpaid at the balance sheet date, whether reported or not.  Anticipated reinsurance recoveries are disclosed separately as assets. Whilst the Directors consider that the gross provisions for claims and the related reinsurance recoveries are fairly stated on the basis of the information currently available to them, the ultimate liability will vary as a result of subsequent information and events and may result in significant adjustments to the amounts provided. Adjustments to the amounts of claims provisions established in prior years are reflected in the income statement for the period in which the adjustments are made and disclosed separately if material.  The methods used, and the estimates made, are reviewed regularly. Provision for unexpired risks is made where necessary for the estimated amount required over and above unearned premiums to meet future claims and related expenses. Co-insurance: The Group has entered into certain co-insurance contracts under which insurance risks are shared on a proportional basis, with the co-insurer taking a specific percentage of premium written and being responsible for the same proportion of each claim.  As the contractual liability is several and not joint, neither the premiums nor claims relating to the co-insurance are included in the income statement.  Under the terms of these agreements the co-insurers reimburse the Group for the same proportionate share of the costs of acquiring and administering the business. Reinsurance assets: Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on the insurance contracts issued by the Group are classified as reinsurance contracts.  A contract is only accounted for as an insurance or reinsurance contract where there is significant insurance risk transfer between the insured and the insurer. The benefits to which the Group is entitled under these contracts are held as reinsurance assets. The Group assesses its reinsurance assets for impairment on a regular basis, and in detail every six months.  If there is objective evidence that the asset is impaired, then the carrying value will be written down to its recoverable amount. d)         Intangible assets Goodwill: All business combinations are accounted for using the purchase method.  Goodwill has been recognised in acquisitions of subsidiaries, and represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. The classification and accounting treatment of acquisitions occurring before 1 January 2004 have not been reconsidered in preparing the Group's opening IFRS balance sheet at 1 January 2004 due to the exemption available in IFRS 1 (First time adoption).  In respect of acquisitions prior to 1 January 2004, goodwill is included at the transition date on the basis of its deemed cost, which represents the amount recorded under UK GAAP, which was tested for impairment at the transition date.  On transition, amortisation of goodwill has ceased as required by IAS 38. Goodwill is stated at cost less any accumulated impairment losses.  Goodwill is allocated to cash generating units (CGU's) according to business segment and is reviewed annually for impairment. The Goodwill held on the balance sheet at 31 December 2009 is allocated solely to the UK Car Insurance segment. Impairment of goodwill: The annual impairment review involves comparing the carrying amount to the estimated recoverable amount (by allocating the goodwill to CGU's) and recognising an impairment loss if the recoverable amount is lower.  Impairment losses are recognised through the income statement and are not subsequently reversed. The recoverable amount is the greater of the net realisable value and the value in use of the CGU. The value in use calculations use cash flow projections based on financial budgets approved by management covering a three year period.  Cash flows beyond this period are considered, but not included in the calculation. The discount rate applied to the cashflow projections in the value in use calculations is 8.9% (2008: 9.2%), based on the Group's weighted average cost of capital (source: Bloomberg). The key assumptions used in the value in use calculations are those regarding growth rates and expected changes in pricing and expenses incurred during the period.  Management estimates growth rates and changes in pricing based on past practices and expected future changes in the market. Deferred acquisition costs: Acquisition costs comprise all direct and indirect costs arising from the conclusion of insurance contracts.  Deferred acquisition costs represent the proportion of acquisition costs incurred that corresponds to the unearned premiums provision at the balance sheet date.  This balance is held as an intangible asset.  It is amortised over the term of the contract as premium is earned. Software: Purchased software is recognised as an intangible asset and amortised over its expected useful life (generally between two and four years).  The carrying value is reviewed every six months for evidence of impairment, with the value being written down if any impairment exists.  Impairment may be reversed if conditions subsequently improve. e)         Property, plant and equipment and depreciation All property, plant and equipment is stated at cost less accumulated depreciation.  Depreciation is calculated using the straight-line method to write off the cost less residual values of the assets over their useful economic lives.  These useful economic lives are as follows: Motor vehicles - 4 years Fixtures, fittings and equipment - 4 years Computer equipment - 2 to 4 years Improvements to short leasehold properties - 4 years Impairment of property, plant and equipment In the case of property plant and equipment, carrying values are reviewed at each balance sheet date to determine whether there are any indications of impairment.  If any such indications exist, the asset's recoverable amount is estimated and compared to the carrying value.  The carrying value is the higher of the net realisable value and the asset's value in use.  Impairment losses are recognised through the income statement. f)          Leased assets The rental costs relating to assets held under operating leases are charged to the income statement on a straight-line basis over the life of the lease. Leases under the terms of which the Group assumes substantially all of the risks and rewards of ownership are classed as finance leases.  Assets acquired under finance leases are included in property, plant and equipment at fair value on acquisition and are depreciated in the same manner as equivalent owned assets. Finance lease and hire purchase obligations are included in creditors, and the finance costs are spread over the periods of the agreements based on the net amount outstanding. g)         Financial assets - investments and receivables Initial recognition Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables or held to maturity investments. The Group has not held any derivative instruments in the years ending 31 December 2009 and 31 December 2008. At initial recognition assets are recognised at fair value and classified according to the purpose for which they were acquired: The Group's investments in money market liquidity funds are designated as financial assets at fair value through profit or loss (FVTPL) at inception. This designation is permitted under IAS 39, as the investments in money market funds are managed as a group of assets and internal performance evaluation of this group is conducted on a fair value basis. The Group's deposits with credit institutions are classified as held to maturity investments which is consistent with the intention for which they were purchased. Subsequent measurement Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised through the income statement. Deposits with fixed maturities, classified as held to maturity investments are measured at amortised cost using the effective interest method. Movements in the amortised cost are recognised through the income statement, as are any impairment losses. Receivables are stated at their amortised cost less impairment using the effective interest method.  Impairment losses are recognised through the income statement. Impairment of financial assets The Group assesses at each balance sheet date whether any financial assets or groups of financial assets are impaired. Financial assets are impaired where there is evidence that one or more events occurring after the initial recognition of the asset, may lead to a reduction in the estimated future cashflows arising from the asset. Objective evidence of impairment may include default on cashflows due from the asset and reported financial difficulty of the issuer or counterparty. Derecognition of financial assets A financial asset is derecognised when the rights to receive cashflows from that asset have expired or when the Group transfers the asset and all the attaching substantial risks and rewards relating to the asset, to a third party. h)         Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term deposits with original maturities of three months or less. i)          Share capital Shares are classified as equity when there is no obligation to transfer cash or other assets. j)          Employee benefits Pensions: The Group contributes to a number of defined contribution personal pension plans for its employees.  The contributions payable to these schemes are charged in the accounting period to which they relate. Employee share schemes: The Group operates a number of equity settled compensation schemes for its employees.  For schemes commencing 1 January 2004 and after, the fair value of the employee services received in exchange for the grant of free shares under the schemes is recognised as an expense, with a corresponding increase in equity. The total charge expensed over the vesting period is determined by reference to the fair value of the free shares granted as determined at the grant date (excluding the impact of non-market vesting conditions).  Non-market conditions such as profitability targets as well as staff attrition rates are included in assumptions over the number of free shares to vest under the applicable scheme. At each balance sheet date, the Group revises its assumptions on the number of shares expected to vest, with the impact of any change in the assumptions recognised through income. Refer to note 24 for further details on share schemes. k)         Taxation Income tax on the profit or loss for the periods presented comprises current and deferred tax. Current tax: Current tax is the expected tax payable on the taxable income for the period, using tax rates that have been enacted or substantively enacted by the balance sheet date, and includes any adjustment to tax payable in respect of previous periods. Current tax related to items recognised directly in equity is recognised in equity and not in the income statement. Deferred tax: Deferred tax is provided in full using the balance sheet liability method, providing for temporary differences arising between the carrying amount of assets and liabilities for accounting purposes, and the amounts used for taxation purposes. It is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. The principal temporary differences arise from share scheme charges, depreciation of property and equipment, and the tax treatment of overseas profits. The resulting deferred tax is charged or credited in the income statement, except in relation to share scheme charges where the amount of tax benefit credited to the income statement is limited to an equivalent credit calculated on the accounting charge. Any excess is recognised directly in equity. l)          Government grants Government grants are recognised in the financial statements in the period where it becomes reasonably certain that the conditions attaching to the grant will be met, and that the grant will be received. Grants relating to assets are deducted from the carrying amount of the asset. The grant is therefore recognised as income over the life of the depreciable asset by way of a reduced depreciation charge. Grants relating to income are shown as a deduction in the reported expense. m)        Sale of shares to non-controlling interest On the sale of shares to a non-controlling interest a consolidated gain or loss is recognised in the Consolidated Income Statement. The gain or loss is calculated as the difference between the Group's share of the consideration received in exchange for the non-controlling interest, and the carrying value of the non-controlling share of net assets. The non-controlling interest is recognised as a separate component of equity. 4.         Operating segments The Group has four reportable segments, as described below. These segments represent the principal split of business that is regularly reported to the Group's Board of Directors, which is considered to be the Group's chief operating decision maker in line with IFRS 8, operating segments. UK Car Insurance The segment consists of the underwriting of car insurance and the generation of ancillary income in the UK. The Directors consider the results of these activities to be reportable as one segment as the activities carried out in generating the income are not independent of each other and are performed as one business. This mirrors the approach taken in management reporting. Price Comparison The segment relates to the Group's price comparison websites Confused.com in the UK and Rastreator.com in Spain. Rastreator.com was launched in March 2009, and is therefore included in this Price Comparison segment for the first time in 2009. Non-UK Car Insurance The segment consists of the underwriting of car insurance and the generation of ancillary income outside of the UK. It specifically covers the Group operations; Balumba.es in Spain, AdmiralDirekt.de in Germany, ConTe.it in Italy and for the first time in 2009, Elephant Auto in Virginia, USA which launched in October 2009.  None of these operations are reportable on an individual basis, based on the threshold requirements in IFRS 8. Other The 'Other' segment is designed to be comprised all other operating segments that do not meet the threshold requirements for individual reporting. Currently there is only one such segment, the Gladiator commercial van insurance broking operation, and so it is the results and balances of this operation that comprise the 'other' segment. 2008 comparatives have been restated to remove other corporate revenue, expenses and balances from the 'other' segment. These are included in the relevant reconciliations to the Consolidated Income Statement and Statement of Financial Position. Taxes are not allocated across the segments and, as with the corporate activities, are included in the reconciliation to the Consolidated Income Statement and Consolidated Statement of Financial Position. Segment income, results and other information An analysis of the Group's revenue and results for the year ended 31 December 2009, by reportable segment are shown below.  The accounting policies of the reportable segments are consistent with those presented in note 3 for the Group. 31 December 2009     UK Car Price Non-UK Car Segment Insurance Comparison Insurance Other total     £m £m £m £m £m Turnover*   939.1 80.5 47.2 10.6 1,077.4 Net insurance premium revenue 199.1 - 12.8 - 211.9 Other revenue and profit commission 188.6 80.5 4.2 10.6 283.9 Investment and interest income 7.5 - 0.2 - 7.7 ------------------------------------------------------------- Net revenue   395.2 80.5 17.2 10.6 503.5 Net insurance claims (138.7) - (13.0) - (151.7) Expenses   (49.6) (55.6) (13.7) (8.2) (127.1) ------------------------------------------------------------- Segment profit / (loss) before tax 206.9 24.9 (9.5) 2.4 224.7 Other central revenue and expenses         (10.0) Interest income           1.1 ------------ Consolidated profit before tax         215.8 Taxation expense           (58.9) ------------ Consolidated profit after tax         156.9 Other segment items: Capital expenditure 6.3 0.7 4.1 0.7 11.8 Depreciation and amortisation 9.9 0.5 4.3 0.2 14.9 *Turnover is a non-GAAP measure and consists of total premiums written (including co-insurers share) and other revenue. Restated revenue and results for the corresponding reportable segments for the year ended 31 December 2008 are shown below. 31 December 2008 (restated)     UK Car Price Non-UK Car Segment Insurance Comparison Insurance Other total     £m £m £m £m £m Turnover   804.9 66.1 29.7 9.5 910.2 Net insurance premium revenue 161.9 - 7.9 - 169.8 Other revenue and profit commission 149.3 66.1 3.7 9.5 228.6 Investment and interest income 17.1 - 0.6 - 17.7 ------------------------------------------------------------- Net revenue   328.3 66.1 12.2 9.5 416.1 Net insurance claims (105.1) - (9.5) - (114.6) Expenses   (43.3) (40.5) (6.8) (6.9) (97.5) ------------------------------------------------------------- Segment profit / (loss) before tax 179.9 25.6 (4.1) 2.6 204.0 Other central revenue and expenses         (8.2) Interest income           6.7 ------------ Consolidated profit before tax         202.5 Taxation expense           (57.6) ------------ Consolidated profit after tax         144.9 Other segment items: Capital expenditure 15.3 0.9 9.6 0.1 25.9 Depreciation and amortisation 13.4 0.3 2.1 0.1 16.0 Segment revenues The UK and Non-UK Car Insurance reportable segments derive all insurance premium income from external policyholders. Revenue within these segments is not derived from an individual policyholder that represents 10% or more of the Group's total revenue. The total of Price Comparison revenues from transactions with other reportable segments is £13.3m (2008: £11.1m). These amounts have not been eliminated in order to avoid distorting expense and combined ratios which are key indicators of insurance business. There are no transactions between reportable segments. Revenues from external customers for products and services is consistent with the split of reportable segment revenues as shown above. Information about geographical locations All material revenues from external customers, and net assets attributed to a foreign country are shown within the Non-UK Car Insurance reportable segment shown above. Segment assets and liabilities The identifiable segment assets and liabilities at 31 December 2009 are as follows. 31 December 2009     UK Car Price Non-UK Car Segment Insurance Comparison Insurance Other Eliminations total     £m £m £m £m £m £m Plant, property and equipment 6.3 1.2 3.8 0.8 - 12.1 Intangible assets 71.8 0.1 5.1 - - 77.0 Reinsurance assets 190.9 - 22.0 - - 212.9 Financial assets 582.9 - 48.0 - - 630.9 Trade and other receivables 108.8 16.8 1.2 7.7 (101.8) 32.7 Cash and cash equivalents 112.9 9.0 21.2 0.7 - 143.8 --------------------------------------------------------------- Reportable segment assets 1,073.6 27.1 101.3 9.2 (101.8) 1,109.4 Insurance contract liabilities 497.0 - 35.9 - - 532.9 Trade  and other payables   294.4 2.3 6.6 2.9 - 306.2 --------------------------------------------------------------- Reportable segment liabilities 791.4 2.3 42.5 2.9 - 839.1 Reportable segment net assets 282.2 24.8 58.8 6.3 (101.8) 270.3 Unallocated assets and liabilities           30.5 ---------- Consolidated net assets           300.8 Unallocated assets and liabilities consist of other central assets and liabilities, plus deferred and current corporation tax balances. These assets and liabilities are not regularly reviewed by the Board of Directors in the reportable segment format. There is an asymmetrical allocation of assets and income to the reportable segments, in that the interest earned on cash and cash equivalent assets deployed in the UK Car Insurance, Price Comparison and Non-UK Car Insurance segments is not allocated in arriving at segment profits. This is consistent with regular management reporting. Eliminations represent inter-segment funding and balances included in trade and other receivables and other payables. The restated segment assets and liabilities at 31 December 2008 are as follows. 31 December 2008 (restated)     UK Car Price Non-UK Car Segment Insurance Comparison Insurance Other Eliminations total     £m £m £m £m £m £m Plant, property and equipment 6.6 1.1 3.1 0.2 - 11.0 Intangible assets 68.8 - 6.9 - - 75.7 Reinsurance assets 149.5 - 21.1 - - 170.6 Financial assets 549.7 - 37.2 - - 586.9 Trade and other receivables 105.8 6.5 1.5 5.6 (93.9) 25.5 Cash and cash equivalents 50.4 15.6 18.2 2.0 - 86.2 --------------------------------------------------------------- Reportable segment assets 930.8 23.2 88.0 7.8 (93.9) 955.9 Insurance contract liabilities 406.9 - 32.7 - - 439.6 Trade  and other payables   261.7 4.1 4.4 2.3 (46.5) 226.0 --------------------------------------------------------------- Reportable segment liabilities 668.6 4.1 37.1 2.3 (46.5) 665.6 Reportable segment net assets 262.2 19.1 50.9 5.5 (47.4) 290.3 Unallocated assets and liabilities           (14.8) ---------- Consolidated net assets           275.5 5.         Net insurance premium revenue     31 31 December December 2009 2008     £m £m Total motor insurance premiums before co-insurance   847.7 716.3 Group gross premiums written after co-insurance   439.9 334.6 Outwards reinsurance premiums   (207.4) (140.2) ------------------- Net insurance premiums written   232.5 194.4 Change in gross unearned premium provision   (53.5) (33.2) Change in reinsurers' share of unearned premium provision   32.9 8.6 ------------------- Net insurance premium revenue   211.9 169.8 The Group's share of the car insurance business was underwritten by Admiral Insurance (Gibraltar) Limited (AIGL) and Admiral Insurance Company Limited (AICL).  All contracts are short-term in duration, lasting for 10 or 12 months. 6.         Other revenue     31 31 December December 2009 2008     £m £m Ancillary revenue   129.5 109.8 Price Comparison revenue   80.6 66.1 Other revenue   22.5 18.0 ----------------------- Total other revenue   232.6 193.9 Refer to the Business Review for further detail on the sources of revenue. 7.         Profit commission     31 31 December December 2009 2008     £m £m Total profit commission   54.2 34.7 Source of profit commission:   Financial year:   2006 2007 2008 2009 Underwriting year: £m £m £m £m 2004 & prior 14.9 10.5 8.1 0.4 2005 4.7 8.4 8.8 1.4 2006 0.3 1.7 9.3 4.2 2007 - - 8.5 33.1 2008 - - - 13.5 2009 - - - 1.6 ----------------------------- Total 19.9 20.6 34.7 54.2 8.         Investment and interest income     31 31 December December 2009 2008     £m £m Net investment return   7.7 17.7 Interest receivable   1.1 6.7 ----------------------- Total investment and interest income   8.8 24.4 9.         Expenses and share scheme charges   31 December 2009   31 December 2008   Insurance Insurance contracts Other Total   contracts Other Total   £m £m £m   £m £m £m Acquisition of insurance contracts 17.3 - 17.3   12.5 - 12.5 Administration and other marketing costs 26.0 87.5 113.5   19.7 67.6 87.3 ----------------------- ----------------------- Expenses 43.3 87.5 130.8   32.2 67.6 99.8 Share scheme charges - 9.2 9.2   - 5.9 5.9 ----------------------- ----------------------- Total expenses and share scheme charges 43.3 96.7 140.0   32.2 73.5 105.7 Analysis of other administration and other marketing costs:   31 31 December December   2009 2008     £m £m Ancillary sales expenses   20.0 17.9 Price Comparison operating expenses   55.6 40.6 Other expenses   11.9 9.1 ----------------------- Total   87.5 67.6 The £26.0m (2008: £19.7m) administration and marketing costs allocated to insurance contracts is principally made up of salary costs. The gross amount of expenses, before recoveries from co-insurers and reinsurers is £265.0m (2008: £211.2m). This amount can be reconciled to the total expenses and share scheme charges above of £140.0m (2008: £105.7m) as follows:     31 31 December December 2009 2008     £m £m Gross expenses   265.0 211.2 Co-insurer share of expenses   (80.6) (72.8) ----------------------- Expenses, net of co-insurer share   184.4 138.4 Adjustment for deferral of acquisition costs   (6.1) (6.0) ----------------------- Expenses, net of co-insurer share (earned basis)   178.3 132.4 Reinsurer share of expenses (earned basis)   (38.3) (26.7) ----------------------- Total expenses and share scheme charges   140.0 105.7 Reconciliation of expenses related to insurance contracts to reported Group expense ratio:     31 31 December December 2009 2008     £m £m Insurance contract expenses from above   43.3 32.2 Add:  claims handling expenses   5.5 4.7 ----------------------- Adjusted expenses   48.8 36.9 Net insurance premium revenue   211.9 169.8 Reported expense ratio   23.0% 21.8% ----------------------- 10.       Staff costs and other expenses Included in profit, before co-insurance arrangements are the following:     31 31 December December 2009 2008     £m £m Salaries   75.9 60.7 Social security charges   10.5 7.7 Pension costs   0.7 0.7 Share scheme charges (see note 24)   13.7 11.3 ----------------------- Total staff expenses   100.8 80.4 Depreciation charge: - Owned assets   3.8 2.7 - Leased assets   1.3 1.1 Amortisation charge: - Software   2.3 1.4 - Deferred acquisition costs   7.6 10.8 Operating lease rentals: - Buildings   5.7 3.9 Auditor's remuneration: - Fees payable for the audit of the Company's annual accounts - - - Fees payable for the audit of the Company's subsidiary accounts 0.2 0.2 - Fees payable for other services   0.1 0.2 Net foreign exchange (losses) / gains   (0.2) 0.2 Analysis of fees paid to the auditor for other services: Tax services   0.1 0.2 Other services   - - ------------ Total as above   0.1 0.2 The amortisation of software and deferred acquisition cost assets is charged to expenses in the income statement. 11.       Staff numbers (including Directors)   Average for the year   2008 2009 Number Number Direct customer contact staff 2,695 2,354 Support staff 846 731 ------------------------ Total 3,541 3,085 12.       Taxation     31 31 December December 2009 2008     £m £m Current tax Corporation tax on profits for the year   63.0 50.1 Over provision relating to prior periods   (1.2) (4.7) ------------------- Current tax charge   61.8 45.4 Deferred tax Current period deferred taxation movement   (2.8) 12.1 (Over) / under provision relating to prior periods - deferred tax (0.1) 0.1 ------------------- Total tax charge per income statement   58.9 57.6 Factors affecting the tax charge are:     31 31 December December 2009 2008     £m £m Profit before tax   215.8 202.5 Corporation tax thereon at UK corporation tax rate of 28% (2008: 28.5%) 60.4 57.7 Expenses and provisions not deductible for tax purposes   (0.6) 0.4 Other differences   0.3 (0.4) Adjustments relating to prior periods   (1.2) (0.1) ------------------- Tax charge for the period as above   58.9 57.6 13.       Dividends Dividends were declared and paid as follows:     31 31 December December 2009 2008     £m £m March 2008 (23.2p per share, paid May 2008)   - 60.5 July 2008 (26.0p per share, paid September 2008)   - 68.0 March 2009 (26.5p per share, paid May 2009)   69.6 - August 2009 (27.7p per share, paid October2009)   72.8 - ----------------------- Total dividends   142.4 128.5 The dividends declared in March represent the final dividends paid in respect of the 2007 and 2008 financial years.  Dividends declared in July 2008 and August 2009 are interim distributions in respect of 2008 and 2009. A second interim dividend of 29.8p per share has been declared in respect of the 2009 financial year.  Refer to the Chairman's Statement and Business Review for further detail. 14.       Earnings per share     31 31 December December 2009 2008 Profit for the financial year after taxation (£m)   156.9 144.9 Weighted average number of shares - basic   265,712,457 263,821,341 Unadjusted earnings per share - basic   59.0p 54.9p Weighted average number of shares - diluted   266,062,457 264,188,008 Unadjusted earnings per share - diluted   59.0p 54.9p The difference between the basic and diluted number of shares at the end of 2009 (being 350,000) relates to awards committed, but not yet issued under the Group's share schemes.  Refer to note 24 for further detail. 15.       Property, plant and equipment   Improvements to short leasehold Computer Office Furniture   buildings equipment equipment and fittings Total   £m £m £m £m £m Cost At 1 January 2008 2.7 13.3 5.0 2.0 23.0 Additions 1.3 3.5 1.8 0.4 7.0 Disposals - - - - - --------------------------------------------------------------- At 31 December 2008 4.0 16.8 6.8 2.4 30.0 --------------------------------------------------------------- Depreciation At 1 January 2008 1.3 9.2 3.3 1.5 15.3 Charge for the year 0.6 1.9 0.9 0.3 3.7 Disposals - - - - - --------------------------------------------------------------- At 31 December 2008 1.9 11.1 4.2 1.8 19.0 --------------------------------------------------------------- Net book amount At 1 January 2008 1.4 4.1 1.7 0.5 7.7 Net book amount At 31 December 2008 2.1 5.7 2.6 0.6 11.0 Cost At 1 January 2009 4.0 16.8 6.8 2.4 30.0 Additions 1.2 3.6 1.0 0.8 6.6 Disposals (0.2) (0.3) (0.1) - (0.6) --------------------------------------------------------------- At 31 December 2009 5.0 20.1 7.7 3.2 36.0 --------------------------------------------------------------- Depreciation At 1 January 2009 1.9 11.1 4.2 1.8 19.0 Charge for the year 0.9 2.7 1.1 0.4 5.1 Disposals - (0.1) (0.1) - (0.2) --------------------------------------------------------------- At 31 December 2009 2.8 13.7 5.2 2.2 23.9 --------------------------------------------------------------- Net book amount At 31 December 2009 2.2 6.4 2.5 1.0 12.1 The net book value of assets held under finance leases is as follows:     31 31 December December 2009 2008     £m £m Computer equipment   1.6 1.6 16.       Intangible assets   Goodwill Deferred acquisition costs Software Total   £m £m £m £m Carrying amount: At 1 January 2008 62.3 4.6 2.1 69.0 Additions - 14.6 4.3 18.9 Amortisation charge - (10.8) (1.4) (12.2) Disposals - - - - ----------------------------------------------------- At 31 December 2008 62.3 8.4 5.0 75.7 Additions - 8.6 5.2 13.8 Amortisation charge - (7.6) (2.2) (9.8) Disposals - - (2.7) (2.7) ----------------------------------------------------- At 31 December 2009 62.3 9.4 5.3 77.0 Goodwill relates to the acquisition of Group subsidiary EUI Limited (formerly Admiral Insurance Services Limited) in November 1999. It is allocated solely to the UK Car Insurance segment. As described in the accounting policies, the amortisation of this asset ceased on transition to IFRS on 1 January 2004. All annual impairment reviews since the transition date have indicated that the estimated recoverable value of the asset is greater than the carrying amount and therefore no impairment losses have been recognised. Refer to the accounting policy for goodwill for further information. 17.       Financial assets and liabilities The Group's financial instruments can be analysed as follows:     31 31 December December 2009 2008 Financial assets:   £m £m Investments held at fair value   237.7 310.8 Held to maturity deposits with credit institutions   183.5 100.0 Receivables - amounts owed by policyholders   209.7 176.1 ------------------- Total financial assets per consolidated balance sheet   630.9 586.9 Trade and other receivables   32.7 25.5 Cash and cash equivalents   211.8 144.3 -------------------     875.4 756.7 Financial liabilities: Trade and other payables   306.8 270.1 All receivables from policyholders are due within 12 months of the balance sheet date. All investments held at fair value are invested in AAA-rated money market liquidity funds.  These funds target a short term cash return with capital security and low volatility and continue to achieve these goals. The amortised cost carrying amount of held to maturity deposits and receivables is a reasonable approximation of fair value. 18.       Reinsurance assets and insurance contract liabilities A)         Sensitivity of recognised amounts to changes in assumptions: The following table sets out the impact on equity at 31 December 2009 that would result from a 1 per cent worsening in the UK loss ratios used for each underwriting year for which material amounts remain outstanding.   Underwriting year   2005 2006 2007 2008 2009 Loss ratio 66.0% 74.5% 71.5% 79.0% 84.0% Impact of 1% change (£m) 2.0 2.2 3.7 3.5 1.3 ----------------------------------------- The impact is stated net of reinsurance and includes the change in net insurance claims along with the associated profit commission movements that result from changes in loss ratios.  The figures are stated net of tax at the current rate. B)         Analysis of recognised amounts:     31 31 December December 2009 2008     £m £m Gross: Claims outstanding   323.5 282.3 Unearned premium provision   209.4 157.3 ----------------------- Total gross insurance liabilities   532.9 439.6 Recoverable from reinsurers: Claims outstanding   114.1 103.8 Unearned premium provision   98.8 66.8 ----------------------- Total reinsurers' share of insurance liabilities   212.9 170.6 Net: Claims outstanding   209.4 178.5 Unearned premium provision   110.6 90.5 ----------------------- Total insurance liabilities - net   320.0 269.0 C)         Analysis of net claims provision releases: The following table analyses the impact of movements in prior year claims provisions, in terms of their net value, and their impact on the reported loss ratio.  This data is presented on an underwriting year basis.   Financial year ended 31 December   2005 2006 2007 2008 2009   £m £m £m £m £m Underwriting year: 2000 0.4 1.1 0.7 0.4 0.4 2001 5.0 1.9 1.5 0.5 0.5 2002 5.2 2.3 1.3 - 0.3 2003 4.6 5.1 3.2 2.3 1.2 2004 2.1 7.9 7.6 6.4 (1.6) 2005 - 2.6 12.6 11.0 1.8 2006 - - 2.6 10.5 7.9 2007       6.9 11.6 2008         9.2 ----------------------------------------- Total net release 17.3 20.9 29.5 38.0 31.3 Net premium revenue 139.5 145.0 142.2 169.8 211.9 Release as % of net premium revenue 12.4% 14.4% 20.7% 22.4% 14.8% D)         Reconciliation of movement in net claims provision:     31 31 December December 2009 2008     £m £m Net claims provision at start of period   178.5 166.5 Net claims incurred   146.2 109.8 Net claims paid   (115.3) (97.8) ----------------------- Net claims provision at end of period   209.4 178.5 E)         Reconciliation of movement in net unearned premium provision:     31 31 December December 2009 2008     £m £m Net unearned premium provision at start of period   90.5 64.9 Written in the period   232.5 194.4 Earned in the period   (212.4) (168.8) ----------------------- Net unearned premium provision at end of period   110.6 90.5 19.       Trade and other receivables     31 31 December December 2009 2008     £m £m Trade receivables   32.5 22.3 Prepayments and accrued income   0.2 3.2 ----------------------- Total trade and other receivables   32.7 25.5 20.       Cash and cash equivalents     31 31 December December 2009 2008     £m £m Cash at bank and in hand   191.8 140.3 Cash on short term deposit   20.0 4.0 ----------------------- Total cash and cash equivalents   211.8 144.3 Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term deposits with original maturities of three months or less. 21.       Trade and other payables   31 31 December December   2009 2008     £m £m Trade payables   10.7 10.8 Amounts owed to co-insurers and reinsurers   154.4 147.9 Finance leases due within 12 months   0.3 0.2 Finance leases due after 12 months   0.1 - Other taxation and social security liabilities   10.9 9.5 Other payables   29.1 18.8 Accruals and deferred income (see below)   101.3 82.9 ----------------------- Total trade and other payables   306.8 270.1 Of amounts owed to co-insurers and reinsurers, £93.1m (2008: £77.5m) is held under funds withheld arrangements. Analysis of accruals and deferred income:     31 31 December December 2009 2008     £m £m Premium receivable in advance of policy inception   53.9 45.6 Accrued expenses   35.3 29.3 Deferred income   12.1 8.0 ----------------------- Total accruals and deferred income as above   101.3 82.9 22.       Obligations under finance leases Analysis of finance lease liabilities:   At 31 December 2009 At 31 December 2008   Minimum lease Interest Principal Minimum lease Interest Principal payments payments   £m £m £m £m £m £m Less than 0.3 - 0.3 0.2 - 0.2 one year Between one and five years 0.1 - 0.1 - - - More than - - - - - - five years -------------------------------------------------------------------   0.4 - 0.4 0.2 - 0.2 The fair value of the Group's lease obligations approximates to their carrying amount. 23.       Deferred income tax liability     31 31 December December 2009 2008     £m £m Brought  forward at start of period   10.3 (1.6) Movement in period   (4.6) 11.9 ----------------------- Carried forward at end of period   5.7 10.3 The net balance provided at the end of the year is made up as follows: Analysis of net deferred tax liability:   31 31 December December   2009 2008     £m £m Tax treatment of share scheme charges   (4.4) (2.4) Capital allowances   (1.6) - Other differences   (0.6) (0.1) Unremitted overseas income   12.3 12.8 ----------------------- Deferred tax liability at end of period   5.7 10.3 Deferred tax on unremitted overseas income has been provided to the extent that it is likely to reverse in the foreseeable future. The amount of deferred tax income / (expense) recognised in the income statement for each of the temporary differences reported above is: Amounts credited / (charged) to income or expense:   31 31 December December   2009 2008     £m £m Tax treatment of Lloyd's Syndicates   - 0.5 Tax treatment of share scheme charges   0.3 0.1 Capital allowances   1.6 0.1 Other differences   0.5 (0.1) Unremitted overseas income   0.5 (12.8) ----------------------- Net deferred tax credited / (charged) to income   2.9 (12.2) The difference between the total movement in the deferred tax balance above and the amount charged to income relates to deferred tax on share scheme charges that has been credited directly to equity. 24.       Share capital     31 31 December December 2009 2008     £m £m Authorised: 500,000,000 ordinary shares of 0.1p   0.5 0.5 Issued, called up and fully paid: 266,477,291 ordinary shares of 0.1p   0.3 - 264,541,810 ordinary shares of 0.1p   - 0.3 -----------------------     0.3 0.3 During 2009 1,935,461 (2008: 1,820,384) new ordinary shares of 0.1p were issued to the trusts administering the Group's share schemes. 751,513 (2008: 589,384) of these were issued to the Admiral Group Share Incentive Plan Trust for the purposes of this share scheme.  These shares are entitled to receive dividends. 1,183,948 (2008: 1,231,000) were issued to the Admiral Group Employee Benefit Trust for the purposes of the Discretionary Free Share Scheme.  The Trustees have waived the right to dividend payments, other than to the extent of 0.001p per share, unless and to the extent otherwise directed by the Company from time to time. Staff share schemes: Analysis of share scheme costs (per income statement):     31 31 December December 2009 2008     £m £m SIP charge (note i)   3.6 2.5 DFSS charge (note ii)   5.6 3.4 ----------------------- Total share scheme charges   9.2 5.9 The share scheme charges reported above are net of the co-insurance share and therefore differ from the gross charge reported in note 10  (2009: £13.7m, 2008: £11.3m) and the gross credit to reserves reported in the Consolidated Statement of Changes in Equity. The Consolidated Cashflow Statement also shows the gross charge in the reconciliation between 'profit after tax' and 'cashflows from operating activities'. The co-insurance share of the charge is included in the 'change in trade and other payables' line. (i) The Approved Share Incentive Plan (the SIP) Eligible employees qualify for awards under the SIP based upon the performance of the Group in each half-year period.  The current maximum award for each year is £3,000 per employee. The awards are made with reference to the Group's performance against prior year profit before tax.  Employees must remain in employment for the holding period (three years from the date of award) otherwise the shares are forfeited. The fair value of shares awarded is either the share price at the date of award, or is estimated at the latest share price available when drawing up the financial statements for awards not yet made (and later adjusted to reflect the actual share price on the award date).  Awards under the SIP are entitled to receive dividends, and hence no adjustment has been made to this fair value. (ii) The Discretionary Free Share Scheme (the DFSS) Under the DFSS, details of which are contained in the Remuneration policy section of the Remuneration Report (in the statutory accounts referred to in note 27 below), individuals receive an award of free shares at no charge.  Staff must remain in employment until the vesting date in order to receive shares. The maximum number of shares that can vest relating to the 2009 scheme is 1,438,426 (2008 scheme: 1,393,283). Individual awards are calculated based on the growth in the Company's earnings per share (EPS) relative to a risk free return (RFR), for which LIBOR has been selected as a benchmark.  This performance is measured over the same three-year period. For the 2009 scheme, 50% (2008 scheme: 100%) of the shares awarded at the start of the three year vesting period are subject to these performance conditions. The range of performance-related awards is as follows: * If the growth in EPS is less than the RFR, no awards vest * EPS growth is equal to RFR - 10% of maximum award vests * To achieve the maximum award, EPS growth has to be 36 points higher than RFR over the three year period Between 10% and 100% of the maximum awards, a linear relationship exists. Awards under the DFSS are not eligible for dividends and hence the fair value of free shares to be awarded under this scheme has been revised downwards to take account of these distributions.  The unadjusted fair value is based on the share price at the date on which awards were made (as stated in the Remuneration Report included in the statutory accounts referred to in note 27 below). Number of free share awards committed at 31 December 2009:   Vesting Awards outstanding (*1) date SIP H206 scheme 277,387 April 2010 SIP H107 scheme 353,444 September 2010 SIP H207 scheme 337,770 April 2011 SIP H108 scheme 352,732 September 2011 SIP H208 scheme 477,432 April 2012 SIP H109 scheme 396,200 September 2012 DFSS 2007 scheme  1st award 1,210,781 April 2010 DFSS 2007 scheme  2nd award 26,350 December 2010 DFSS 2008 scheme  1st award 1,306,081 April 2011 DFSS 2008 scheme  2nd award 87,202 November 2011 DFSS 2009 scheme  1st award 1,311,686 April 2012 DFSS 2009 scheme  2nd award 126,740 August 2012 --------------------------- Total awards committed 6,263,805 *1 - being the maximum number of awards expected to be made before accounting for expected staff attrition. During the year ended 31 December 2009, awards under the SIP H205 and H106 schemes and the DFSS 2006 scheme vested. The total number of awards vesting for each scheme is as follows. Number of free share awards vesting during the year ended 31 December 2009:     Original Awards Awards vested SIP H205 scheme   350,942 288,971 SIP H106 scheme   350,811 296,283 DFSS 2006 scheme, 1st award   603,720 543,079 DFSS 2006 scheme, 2nd award   77,248 72,369 25.       Group subsidiary companies The Parent Company's principal subsidiaries (all of which are 100% owned) are as follows: Subsidiary Country of Class of shares Principal activity incorporation held General insurance EUI Limited England and Wales Ordinary intermediary Admiral Insurance Company Limited England and Wales Ordinary Insurance Company Admiral Insurance (Gibraltar) Limited Gibraltar Ordinary Insurance Company Able Insurance Services Limited England and Wales Ordinary Intermediary Internet insurance Inspop.com Limited England and Wales Ordinary intermediary Elephant Insurance United States of Company America Ordinary Insurance Company Elephant Insurance United States of Insurance Services, LLC America Ordinary intermediary Of these principal subsidiaries, Elephant Insurance Company and Elephant Insurance Services LLC started trading in the year. For further information on how the Group conducts its business across UK and Europe, refer to the Business Review. 26.       Related party transactions There were no material transactions with related parties occurring during 2009 that require disclosure. Details relating to the remuneration and shareholdings of key management personnel are set out in the Remuneration Report in the statutory accounts referred to below. Key management personnel are able to obtain discounted motor insurance at the same rates as all other Group staff, typically at a reduction of 15%. The Board considers that only the Board of Directors of Admiral Group plc are key management personnel. 27.       Statutory information The financial information set out above does not constitute the company's statutory financial statements for the years ended 31 December 2009 or 31 December 2008 but is derived from those financial statements. Statutory financial statements for 2008 have been delivered to the Registrar of Companies and those for 2009 will be delivered in due course. The auditors have reported on those financial statements; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 237 (2) or (3) of the Companies Act 1985 in respect of the financial statements for 2008 nor a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the financial statements for 2009. Consolidated Financial Summary Basis of preparation: The figures below are as stated in the Group financial statements preceding this financial summary and issued previously.  Only selected lines from the Income Statement and Balance Sheet have been included. Income Statement     2009 2008 2007 2006 2005 £m £m £m £m £m Total motor premiums   847.7 716.3 631.3 566.6 533.6 Net insurance premium revenue 211.9 169.8 142.2 145.0 139.5 Other revenue   232.6 193.9 176.9 131.6 93.4 Profit commission   54.2 34.7 20.5 19.9 14.7 Investment and interest income 8.8 24.4 24.6 14.5 15.5 ---------------------------------------- Net revenue   507.5 422.8 364.2 311.0 263.1 Net insurance claims   (151.7) (114.6) (99.8) (107.1) (100.5) Total expenses   (140.0) (105.7) (82.0) (55.5) (40.9) ---------------------------------------- Operating profit   215.8 202.5 182.4 148.4 121.7 Balance Sheet     2009 2008 2007 2006 2005 £m £m £m £m £m Property, plant and equipment 12.1 11.0 7.7 7.5 4.6 Intangible assets   77.0 75.7 69.1 66.8 66.5 Financial assets   630.9 586.9 481.8 395.9 378.7 Reinsurance assets   212.9 170.6 131.7 74.7 54.2 Deferred income tax   - - 1.6 - - Trade and other receivables   32.7 25.5 22.6 16.9 9.4 Cash and cash equivalents   211.8 144.3 155.8 191.2 150.2 ----------------------------------- Total assets   1,177.4 1,014.0 870.3 753.0 663.6 Equity   300.8 275.6 237.6 219.1 181.4 Insurance contracts   532.9 439.6 363.1 294.4 254.1 Financial liabilities   - - - - 22.0 Deferred income tax   5.7 10.3 - 1.0 3.6 Trade and other payables   306.8 270.0 239.6 215.1 182.9 Current tax liabilities   31.2 18.5 30.0 23.4 19.6 ----------------------------------- Total liabilities   1,177.4 1,014.0 870.3 753.0 663.6 [HUG#1389786] ADMIRAL GROUP 2009 PRELIMINARY RESULTS: http://hugin.info/141442/R/1389786/347906.pdf

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