Final Results

Admiral Group PLC 04 March 2008 Admiral Group plc Results for the Year to 31 December 2007 4 March 2008 Admiral Reports Record Profits and Strong Growth Admiral Group plc ('Admiral' or 'the Group') today announces a record annual result with a profit of Â£182.1 million for the year to December 2007, an increase of 24% over the previous year. Turnover, comprising total premiums written, gross other income and investment income, rose 16% to Â£824.9 million. 2007 Highlights â€¢ Profit before tax up 24% at Â£182.1 million (2006: Â£147.3 million) â€¢ Total final dividend of 23.2p comprising normal dividend of 11.6p; special dividend of 11.6p per share â€¢ Total 2007 dividend of 43.8p (Â£115 million) up 22% on 2006 â€¢ Turnover* up 16% at Â£824.9 million â€¢ Net revenue up 17% at Â£364 million â€¢ Revenue from products and services not underwritten by the Group up 34% at Â£176.9 million â€¢ Year-end vehicle count up 16% to 1.5m from 1.3m at 31 December 2006 â€¢ Confused.com gave 13 million quotes (up 42%) and made a profit of Â£36.7 million (2006: Â£23.1 million) â€¢ All employee Share Scheme - over 2,200 staff are to receive around 310,000 free shares based on the H2 2007 results. This means that staff will have received the full allocation of Â£3,000 worth of free shares for 2007 * Turnover is defined as total premiums written (including co-insurers' share), other revenue and net investment return. It is reconciled in the financial review below. Comment from Henry Engelhardt, Group Chief Executive '2007 was a good year for the Admiral Group. We continue to grow our UK business and invest in our overseas ventures. We had a bumper year in absolute terms and we made great strides towards the creation of an even better future. 'In the UK, our car insurance business grew substantially whilst maintaining its combined ratio advantage over the market. The UK business also achieved record ancillary income, growing consistently in line with the growth in the policy base. 'Confused has continued to perform very well, considering the influx of aggregator sites. Confused's market share has declined during 2007, but this has been in a growing market and its quote volumes have held up well. As we've previously said, we will spend money to defend this market-leading position, but realistically, 2008 will be a much tougher year within which to grow. 'Balumba in Spain and AdmiralDirekt.de in Germany are building our future and our operation launching in Italy this year will further help grow the Admiral Group.' Comment from Alastair Lyons, Group Chairman 'After a year in which the Group made significant progress in implementing its agreed strategy we are very pleased to be able to propose a total final dividend of 23.2p per share, comprising a normal dividend of 11.6p and a special of 11.6p, the latter following our principle of returning available surpluses to shareholders. Our total dividends for the year at 43.8p per share mean that we will have distributed Â£115 million to shareholders, up 22% on 2006. 'A highlight of 2007 was admission in December to the FTSE 100, an achievement of which everyone at Admiral can justifiably be proud in slightly over three years since flotation. Over this period, taking dividends and share appreciation together we achieved a 335% total return for shareholders.' Final dividend Subject to approval at the Company's AGM, the final dividend of 23.2p per share will be paid on 7 May 2008. The ex-dividend date is 9 April 2008, the record date 11 April 2008. Chairman's statement I ended my statement last year by saying that our strategy remained clear and straightforward - to continue to grow our share of the UK direct private motor market, maximising the value derived from each customer relationship, whilst also identifying profitable opportunities, in particular our expansion overseas, to exploit the knowledge, skills and resources attaching to our core business. As Henry Engelhardt sets out in detail in his statement, 2007 was a year in which the Group made significant progress in that strategic direction. In the UK, despite market conditions remaining challenging, Admiral increased both underwriting and ancillary profits whilst substantially growing the number of vehicles insured. At the end of the year our brands covered 1.49 million vehicles, 16% up on December 2006. The 13% increase achieved in profit derived from ancillary products and services is testament to the success we continue to derive from our focus on maximising the value of each customer relationship. An upward trend in pricing does now seem to have become established with a general increase of 4% over the year as a whole. Whilst only sufficient to offset general claims inflation, this breaks a 5 year pattern of flat or even slightly falling rates. Against this backdrop we were happy to take back 5% of the underwriting risk when it came available at the end of last year, increasing the proportion of gross premiums underwritten by Admiral in 2008 from 22 1/2% to 27 1/2%. We have made significant progress during 2007 with our international strategy. Balumba.es, the on-line Spanish motor insurer that we launched in October 2006, ended 2007 with 47,000 customers - a great achievement in little over a year from a standing start. We followed this with the launch in October 2007 of AdmiralDirekt.de, our new on-line German motor insurer based in Cologne, and we announced at the time of our half-year results that we were well advanced with plans to launch into Italy during 2008. Our teams in each country have built on the learning of their colleagues who launched before them and I would take this opportunity to give them credit for their enthusiasm, resilience, and consequent achievements. Staying with the international theme I should also mention the establishment of our new customer service centre in Halifax, Canada where we now employ directly over 100 staff helping to share the load of our long opening hours with our teams in the UK. During the year we announced that we had entered discussions with potential private equity investors regarding the sale of a minority interest in our price comparison business, Confused.com. Having, however, understood in detail the implications of such an investment for the flexibility of Confused's ongoing management, the Board determined that taking such a step would materially constrain our ability to maximise Confused's contribution to the Group in the medium to long term. We, therefore, determined that it was in our shareholders' best interests to terminate the discussions and retain a 100% interest in Confused. We will continue our strategy of maintaining Confused's strong market position in car insurance price comparison and developing its potential to extend into price comparison within other product areas. 2007 was another very successful year for Confused, profits growing by 59% to Â£37million. As we have said previously, there is growing competition in this sector and we will continue to work hard to defend our leadership position in this rapidly expanding market. In a strongly competitive market we are pleased to be able to announce a 24% increase in Group pre-tax profits to Â£182million off an 11% growth in total written premiums. Taking into account the increased solvency capital required by the higher underwriting retained in 2008, this allows us to lift our dividends for the year by 22% to 43.8p per share (23.2p final: 20.6p interim). We have maintained our approach of considering dividends in two parts. The first element, being the normal dividend, is based on a 45% pay-out ratio. The second element - the special dividend - derives from our principle of returning to shareholders available surpluses, calculated as the Group's net assets less its required solvency; cover against any specific expansion plans, being at this year-end Â£5m in respect of overseas; and a prudent margin - currently Â£25m - against contingencies. Special dividends since flotation in September 2004 amount to Â£146.6m, this being in addition to Â£149.5m normal dividends over the same period. A highlight of 2007 was our admission in December to the FTSE 100, an achievement of which the executive team can be justifiably proud in slightly over three years since flotation. Over this period, taking dividends and share appreciation together, we achieved a 335% total return for shareholders. Alignment of the interests of our staff and our shareholders is one of our core principles. Our Free Share Schemes are designed to strengthen that alignment over time. We are delighted that strong out-performance against our plan during 2007 resulted in eligible employees once again realising the maximum award of Â£3,000 free shares under our Approved Scheme. The 2007 financial year marked the end of the first 3-year period for the Discretionary Free Share Scheme. A 54.8% outperformance of growth in earnings per share over and above the risk-free return qualified the scheme to vest the maximum share entitlement under the individual awards. Following the 2007 awards there are now 1,645 employees participating in the Discretionary Free Share Scheme, itself consistent with our philosophy of achievement through teamwork. As at the end of the year we employed 2,500 staff, 90% of whom live and work in South Wales. This makes Admiral a significant part of the local community and we encourage our staff to be associated with the local projects that are important to both them and their families. During 2007 we provided financial support to 110 such projects. In addition Admiral sponsored a number of high profile local events within South Wales - the Admiral Cardiff Big Weekend and the Swansea Waterfront Winterland, of both of which, Admiral was the main sponsor in 2007, together attracted over 365,000 visitors. More details of which will be found in the report on corporate responsibility. This report also describes the steps we take to minimise the impact of our operations on the environment. May I end by thanking everyone who has contributed so much to achieve the successes that I have been able to outline above - first and foremost our staff who make Admiral the Company it is: our executive management team whose quality of leadership justifies our being placed for 8 consecutive years amongst The Sunday Times Top 100 Companies to Work For in the UK: and our non-executive directors for their commitment and wise counsel. Chief Executive's statement 2007 was a good year for the Admiral Group. I should quit right there! But I won't. Why was it a good year? Well, the Group made more money than ever before. A lot more. We made more money by serving more customers than ever before, which resulted in a larger turnover than ever before. All these new records were set within the context of a challenging, highly competitive environment. But those items don't tell the whole story. As compelling as they may be, they only account for part of the reason why I think the year was successful. For me, the reason it was such a good year is that we did all the good things already mentioned while simultaneously making large investments of time and money in our future. These investments could easily have retarded our 2007 trading performance. But they didn't. We had a bumper year in absolute terms AND we made great strides towards the creation of an even better future. The list of achievements: â€¢ Profit before tax up 24% to Â£182m; â€¢ Number of customers up 16% to 1.5m; â€¢ Net revenue up 17% to Â£364m; â€¢ Turnover* up 16% to Â£825m; â€¢ Confused record pre-tax profit of Â£37m on 13m quotes; â€¢ Combined ratio improved to 85% from 87%; â€¢ Top 10 in the FT Best Companies To Work For; 57th in The Sunday Times Best Companies To Work For in the UK; â€¢ Invested in Balumba in Spain where we ended the year with 47,000 customers and Â£16.6m turnover; â€¢ Invested in AdmiralDirekt.de, our new operation in Germany that launched on October 16 and had 9,000 customers on January 1, 2008; â€¢ Began investing in an operation in Italy which is planned to launch in 2008. * Turnover is defined and reconciled in the financial review below Only in a few years time, when Spain, Germany, Italy, etc. are running at full throttle, will we really appreciate how good 2007 was. Here's a closer look at our results and the UK car insurance market. UK CAR INSURANCE: SLOTH-LIKE The UK car insurance market cycle is turning with sloth-like speed. Have you ever seen a sloth up close? Their muscle control is quite incredible. You try moving that slowly! (See http://animals.nationalgeographic.com/animals/mammals/ three-toed-sloth.html) Sloths are an appropriate metaphor for the UK car insurance market today. The market is moving. But slooooowwwwllllyyyy. It is just possible that in 2007, on a written basis, premium inflation for the market will have outpaced claims inflation for the first time since 2000. But, when all the results are tallied, I think that this move will be modest, and, as an earned basis lags rate movements, it won't fully flow through to the market's results until 2008. We put 4% on our rates during the year against a claims inflation factor above 3%. So the market is moving, keeping up with claims inflation, but will we see a definitive improvement in results? It looks like the market has found the corner and is, well, considering turning. But it hasn't quite turned yet. It is somewhat reminiscent of what happened in 1997-98-99 (showing my age). In 1997 the market moved up, maybe a bit faster than claims costs but in 1998 the market failed to follow through on those increases, leading to a combined ratio in excess of 120%. Only in 1999 did the market start to move in earnest. 1997 - 98 was something of a false dawn, which we might see again in the 2007-08 years. According to Deloitte, the UK market average pure year combined ratio for 2006 (latest data available) was 113%, again confirming the UK's status as one of (if not the) most competitive car insurance markets in the world; a market where companies are willing to subsidise consumers. This is the true power of a free market. For those that think regulation is the key to lower prices, just look at the UK. Strange as it might seem, collectively UK Insurers seem happy to subsidise consumers, not once in a while, but for years on end. As we are fond of saying: Admiral's different. We actually are not keen to subsidise consumers. We're very happy to offer a precise rate for every risk and give a great service to every customer, but we believe we should do these things without making a loss ourselves. The sustainable way to offer consumers lower rates is to operate more efficiently than the competition. This philosophy manifests itself in our advantage over the market in both claims ratio and loss ratio in the UK. Our UK loss ratio for the year was 66.7% and our expense ratio was 16.7% for a combined ratio of 83.4%. On a comparable basis, Deloitte predicts that the market loss ratio will be 79% and the expense ratio will be 28%, resulting in a combined ratio, including releases, of 107%. In addition to a combined ratio more than 20 points better than the market average, we also grew the business. Our UK turnover increased by 14% (Â£708m to Â£808m) and the number of vehicles we insure rose 13% (1.28m to 1.44m). Our conservative reserving philosophy meant we released Â£29.5m from prior years into this year's profit. We build claims reserves because history tells us that this is an area that changes quite quickly. It has not been unusual to see changes in the claims environment result in additional costs to all your open claims, some of which are four or more years old. So there is a method to our madness, we reserve in case the world changes and then release if it does not. From what I know at the moment, I do not see any reason to believe that this pattern will not continue. The biggest development in the market in 2007 has been the rapid growth of price comparison websites as a leading channel of distribution in the industry. With the growth in the number of price comparison sites during the year and with more sites planned to launch in 2008, I can only see this growth trend accelerating. The important point of this change in distribution is that small insurers can get exposure to consumers equal to that of big insurers. Previously smaller insurers wouldn't have the muscle to get equal exposure. The big insurers, who could spend a lot of money advertising and/or be on lots of broker sites, could dominate the market by the very fact that they were always visible to consumers. Now small insurers, without spending a penny of marketing money, can get equal time. For car insurance this is revolutionary stuff. This means that the market is pinned to the lowest quote for any given risk. That is, a single firm could undercut the entire market or, for any given risk, one firm could undercut the rest. Either way, this chain is going to move only as quickly as the slowest link. Typically the UK cycle is around seven years (1985 cyclical worst point, to 1991 worst point, to 1998 worst point). On an earned basis it looks like 2007 or 2008 will be the worst point in this cycle, which is 9 or 10 years on from the previous worst point of 1998. Think sloths. And if the 2007 rate rises prove to be a false dawn, think slow-moving sloths! CHANGING DISTRIBUTION: THE GROWTH OF PRICE COMPARISON However, when one bemoans the effect of price comparison sites on the market keep in mind that the leader in car insurance price comparison is our own Confused.com. Confused had it rather cosy for a number of years, amassing a market share of some 65%. But we predicted back in March 2006 that this market would be a competition magnet and we've only been surprised at how long it took for the competition to materialise. But materialise it has! At last count there were more than half a dozen price comparison sites actively touting for business. Not surprisingly, consumers have been seduced by the ease in which they can now get countless quotes. Overall ad spend in the market, which had been on the decline in 2006 began to rise again in 2007 and continues to rise, setting new records along the way. Price comparison sites accounted for approximately 35% of the car insurance tv and press spend in 2007. However, this figure grew throughout the year and in January 2008 it was 67%. Advertising as a stand-alone car insurance brand to generate direct quotes has become awfully expensive, as it is almost impossible for a single brand to better the proposition of multiple quotes put forward by price comparison sites. Given the development of the price comparison sector, it is not surprising that Confused's market share declined during 2007. However, this decline has been into a growing market and as a result its quote and sale volumes have held up rather well. We accept that some erosion of share is unavoidable in the short term but, as we've said previously, we will spend money to defend our market-leading position. BEYOND THE UK: SPAIN, GERMANY AND ITALY 2007 was a dramatic year in the development of the Group's business beyond the UK. Balumba in Spain, which launched at the end of October 2006, grew quickly. A year after Balumba's start, AdmiralDirekt.de successfully launched in Germany and during the year we began implementation of our plan to launch in Italy during 2008. Balumba in Spain ended the year with 47,000 policyholders and a turnover of Â£16.6m. It posted a loss of just Â£0.7m in its first full year of trading. Balumba's combined ratio totalled 232%, with a loss ratio of 141% and an expense ratio of 91%. The ratio of expenses to premium written during the year was 51%, a very credible figure. Balumba's result was helped by contribution from ancillary products. As you can imagine, there is still a lot of work to do on Balumba, particularly in the pricing and claims areas, although high loss ratios are not unusual in a Company's first year of trading. The key question surrounding Balumba beginning the year was: could it market to consumers efficiently? It appears that the answer to that question is a resounding 'yes' as we gave over 396,000 quotes in the year. The launch in Germany, some 50 weeks after the launch in Spain, was very satisfying. Most of the German market renews its car insurance on January 1. In addition, consumers have to give their insurers one month notice if they are planning to switch. So the window for attracting new business is about 8 weeks long, from early October through early December. It was imperative that we launch the operation in October to get some experience in the 'season'. Once again, the key test was marketing. And, once again, we were pleased by the results. AdmiralDirekt.de made 9,000 sales with income of Â£1.7m, all with a policy start date of January 1, 2008. Lo and behold, the first claim occurred the morning of January 2, 2008, when one of our customers hit a boar at 5:30 a.m. I suspect this will be a first claim not soon forgotten! Project Chianti, otherwise known as The Italian Job, is moving forward at pace with an anticipated launch later in 2008. The operation will be based in Rome. GLADIATOR GROWS AND WE BEGIN TO TAKE CALLS IN CANADA Other notable accomplishments during the year include the growth in customer numbers of Gladiator Commercial and the creation of a call centre in Halifax, Nova Scotia primarily to handle evening calls from the UK. Gladiator is our commercial vehicle intermediary and it turned in a profit before tax of Â£2m. However, Gladiator increased its customer base significantly during the year and now boasts over 62,000 customers up from 43,000 last year (+44%), which bodes well for the future A combination of a strong service ethic and a four-hour time difference led us to open a call centre in eastern Canada. We now have almost 100 agents on the phones, taking over from the UK in the early evening (mid-afternoon there). ALMOST THE END OF THIS REPORT I'm proud to say that it was another very good year for return on capital. This is the benefit of our model, where we have reinsurers put up the capital pro-rata for their share of the underwriting, but we get profit commissions from them when we make profits and we keep the revenue from everything else we do, like Confused, for ourselves. Although we do sacrifice some profit to get this reinsurance support it gives us a layer of protection against losses and serves to make us capital efficient. A good measure of this is our return on capital, which in 2007 was 58% (2006: 57%). Another important indicator is our return on income - 57% in 2007, up from 53% in 2006. Finally, the best possible tribute to our staff: the first lot of free shares distributed since our 2004 float will vest in 2008. We want all our staff to feel like they own part of the Company and the best way to do that is to give them part of the Company to own. We are very pleased that those who qualified in 2005 and earned free shares will take control of those shares later this year. Our staff give a lot of themselves to the organisation and it is great to share the fruits of our communal efforts with every person in the Company. Last point of note, at the end of 2007 we joined the FTSE 100. We are the only Welsh Company in this elite club. In fact, we are only the second Welsh Company in history to be in the 100, the first one having been a member for 9 months back in 1992-93. (I hope that by the time you read this we're still a member!) Our rapid rise into the FTSE 100 is a tribute to all the staff across our six sites in five countries who are building a great business by working hard every day to give customers great service. This is a very exciting time for the Admiral Group and we're looking forward to another great year in 2008. Henry Engelhardt Financial review Key financial highlights Group profit before tax again grew strongly in 2007 - moving up 24% to Â£182.1m from Â£147.3m last year. Earnings per share grew 22% to 48.6p from 39.8p. 2007 2006 Â£000 Â£000 Underwriting profit 37,502 28,351 Profit commissions 20,448 19,926 Ancillary and other net income 93,363 79,262 Confused.com profit 36,727 23,080 Share scheme, pre-launch and other charges (5,942) (3,277) Profit before tax 182,098 147,342 Group underwriting profits grew significantly in 2007 (by around one third) - this despite a very slowly turning pricing environment in the UK motor market and the inclusion of a first full year's result for Balumba.es (the Group's Spanish motor insurer). In UK motor, the Group reduced its share of the underwriting to 22.5% (from 25.0%) in a year when this cycle possibly hit its worst point. The number of customers grew significantly once again: 2007 2006 000s 000s UK year end private vehicle count 1,382 1,240 Spanish private vehicles 47 2 Gladiator Commercial vehicles 62 43 Total vehicle count 1,491 1,285 Within the overall increase of 16%, UK vehicles insured grew by 11 1/2%, and Gladiator grew by 47%. Balumba increased its customer base to end the year at 47,000 (having ended 2006, two months after launch, with around 2,200). October 2007 saw the successful launch of AdmiralDirekt.de - the Group's German car insurer, based in Cologne. In the relatively short period before the end of the year, AdmiralDirekt sold 9,000 policies, generating around Â£1.7m in premium and ancillary income. Cover for these risks started 1 January 2008. A more detailed split of Group profit, including geographical analysis follows below. Each element is discussed in the following notes. 2007 2006 UK GROUP EUROPE TOTAL UK GROUP EUROPE TOTAL Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Underwriting profit 39,976 (2,474) 37,502 28,541 (190) 28,351 Profit commissions 20,448 - 20,448 19,926 - 19,926 Ancillary and other net income 91,517 1,846 93,363 79,186 76 79,262 Confused.com profit 36,727 - 36,727 23,080 - 23,080 Share scheme, pre- launch (4,534) (1,408) (5,942) (2,782) (495) (3,277) and other charges Profit before tax 184,134 (2,036) 182,098 147,951 (609) 147,342 Europe figures include the results of Balumba in Spain, and set up and pre-launch costs relating to AdmiralDirekt (Germany) and the Italian business. Turnover, comprising total premiums written (including premium underwritten by co-insurers), gross other income and net investment return (as a measure of the combined size of the Group's businesses) continued to grow strongly: 2007 2006 UK GROUP EUROPE TOTAL UK GROUP EUROPE TOTAL Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Total premiums written 617,023 14,228 631,251 566,048 560 566,608 Other revenue 174,641 2,237 176,878 131,536 85 131,621 Net investment return 16,662 133 16,795 9,925 - 9,925 Turnover 808,326 16,598 824,924 707,509 645 708,154 A reconciliation of turnover to figures appearing in the income statement is shown at the end of this review. Overall growth of 16% was made up of an 11% increase in total premium, a 34% rise in other revenue (predominantly ancillary income and Confused.com revenue) and a 69% increase in investment return after a disappointing investment year in 2006. Net revenue in the income statement increased by 17% to Â£364m. Balumba (providing all the European figures above) contributed 2% of total turnover. Underwriting Underwriting arrangements During 2007 the Group retained 22.5% (2006: 25%) of UK motor underwriting on a net basis. 60% of the total is underwritten by Great Lakes Reinsurance (UK) Plc (a UK subsidiary of Munich Re) under a long-term co-insurance arrangement. The remaining 17.5% is ceded to two reinsurers - Swiss Re, 10.0% and Partner Re, 7.5%. The nature of the co-insurance arrangement is such that 60% of all motor premium and claims for the 2007 year accrues directly to Great Lakes and does not appear in the Group's income statement. Similarly, Great Lakes reimburses the Group for its proportional share of expenses. The Group also retains 35% of the risks generated by Balumba in Spain and AdmiralDirekt in Germany, with 65% being reinsured. In 2008, the share of the UK motor underwriting retained increases to 27.5% as Great Lakes' share declines by the 5% set out in the revised co-insurance arrangement. Underwriting results Total premiums increased by around 11% to Â£631m from Â£567m - Balumba accounted for around Â£14m of this total (having written less than Â£1m in 2006). The total number of vehicles insured (excluding Gladiator) rose by around 15% to 1.43m from 1.24m. Balumba grew its customer count from around 2,000 to 47,000 at the end of the year. Vehicle growth exceeded premium growth due in part to lower average premiums in Spain and also in the UK due to mix effects. As noted above, German motor risks sold in the latter part of 2007 do not incept until 2008 and are not included in the premium or results. Premium rate rises of around 4% have been implemented in the UK and data suggests similar increases have been seen across the market. Net insurance premium revenue fell marginally to Â£142m - due to the decrease in the proportion of UK premium retained. The overall loss ratio improved to 68% - four points down from the 72% reported in 2006. The UK motor ratio improved significantly to 67% from 72%. Balumba's reported loss ratio in its first full year of trading is 141%. Positive development of prior year reserves continued, and the 2007 result includes releases of almost Â£30m (up from Â£21m last year) - improving the loss ratio by around 21 percentage points. The pure year loss ratio (including Balumba) declined to 88% from 86% in 2006. The UK expense ratio was 16.7%, up 1 percentage point on the previous year, primarily as a result of lower average premiums resulting from changes in the mix of the portfolio. When the Balumba figures are included, the Group expense ratio totals 17.7%. The expense ratio is reconciled to the figures included in the income statement in note 9 below, whilst the underwriting result is reconciled later in this review. As a consequence, the Group's combined ratio improved by two points to 85% (87% in 2006). Taken together with the increase in premiums, this resulted in a 32% rise in underwriting profits, to Â£37.5m from Â£28.4m. Part VII transfer During November 2007, the Group completed the transfer of the remaining liabilities of Syndicate 2004 (through which the Group underwrote UK private motor insurance from 2000 to 2002) into one of its active insurers - Admiral Insurance Company Limited. Whilst the transfer has a number of advantages in terms of simplifying Group structure and administrative requirements, the transfer has not had a material financial impact on the results in 2007. Profit commission The Group earns profit commission through its co-insurance and reinsurance arrangements. The amount receivable is dependent on the volume and profitability of the insurance business, measured by reference to loss and expense ratios. Around Â£20.4m was recognised in 2007, which is Â£0.5m higher than 2006, although as reported last year, the 2006 total included Â£2.0m relating to earlier year contracts (Â£0.5m in 2007). The reinsurance contracts entered into with Munich Re in Spain and Germany also have profit commission clauses, though these require the underwriting results to move into cumulative profitability before any commission will be earned. Ancillary and other net income 2007 2006 UK GROUP EUROPE TOTAL UK GROUP EUROPE TOTAL Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Ancillary profit 75,836 1,767 77,603 66,946 76 67,022 Interest income 7,745 32 7,777 4,539 - 4,539 Instalment income 5,936 47 5,983 5,676 - 5,676 Gladiator Commercial profit 2,000 - 2,000 2,025 - 2,025 91,517 1,846 93,363 79,186 76 79,262 Ancillary profit & instalment income This is primarily made up of commissions and fees earned on sales of insurance products and services complementing the motor policy, but which are underwritten by external parties. It continues to be a major component of Group profit. Net ancillary contribution increased by 16% in 2007 to Â£78m from Â£67m, broadly in line with the growth in vehicles insured. Gross UK ancillary income per average active vehicle was Â£69 for both years, with no notable change in the component elements. Balumba has also been successful in selling ancillary products, with income per policy sold of around Â£45. Gladiator Commercial Gladiator made a contribution to profit of Â£2m in 2007, consistent with 2006. In a highly competitive market, Gladiator grew market share by increasing its customer base by 44% to 62,000. This was partly as a result of new distribution through price comparison sites, and partly the result of improved conversion from a larger and more comprehensive panel. Gladiator offered 230,000 quotes in 2007, up 68% on last year. Increased investment in new business growth meant that Gladiator's net margin reduced to 27% from 34% in 2006. Confused.com 2007 2006 Â£000 Â£000 Confused.com profit 36,727 23,080 Confused enjoyed another year of significant growth in 2007. Increased media activity (along with the return of large numbers of previous visitors to the site) led to an increase in the total number of insurance quotes provided by Confused of 43%, to 13.0m from 9.1m in 2006. Revenue increased by 81% to Â£69.2m from Â£38.5m. Operating profit rose 59% to Â£36.7m from Â£23.1m in 2006. Confused also increased its share of the home and travel insurance markets by improving market coverage and panel depth, and revenue growth has also been achieved in a number of other general insurance areas including van and motorbike insurance. Home insurance quotes increased by almost 80% to 0.9m from 0.5m, whilst Confused also gave 0.5m travel insurance quotes (up substantially from just over 0.1m last year). As noted in the Chief Executive's statement, Confused faced a significant increase in the level of competition in the motor insurance price comparison market during 2007. In spite of this, Confused maintained its position as market leader. Advertising spend by the main competitors in this market has grown substantially over the past year and continues to grow into 2008. International operations Balumba has completed its first full year of trading and has progressed well. Management are pleased with the development of the business, which has grown ahead of plan and is well positioned to continue to grow market share and move towards profitability. The European figures above show Balumba made a loss of around Â£0.7m in the year (the net effect of the underwriting loss, offset by ancillary profits). AdmiralDirekt launched successfully in Cologne, Germany during October, just under one year after Balumba. The German market brings new challenges, not least the large proportion of motor policies that incept 1 January. AdmiralDirekt sold around 9,000 policies in its short period of trading, managing to commence operating in time to target the January renewals. The business will continue to develop its infrastructure over the coming months, building towards the next peak period in Q4 2008. The Group's Italian motor insurer is expected to launch later in the year. The business, based in Rome, is making made good progress towards launch in all the key areas (management team, premises, IT system, pricing and marketing). Earnings per share (EPS) Earnings per share rose 22% to 48.6p from 39.8p in 2006. The difference in the increase compared to pre-tax profit growth (which was 23.5%) is due to the issue of new share capital in the year to the trustees of the Group's share schemes. Taxation The taxation charge reported in the income statement is Â£54.7m (2006: Â£43.6m) representing 30.0% of pre-tax profit (2006: 29.6%). Refer to note 13 to the financial statements for further detail on taxation. Investments and cash The Group invests its insurance funds in three AAA-rated sterling liquidity funds which have performed very consistently in 2007. Against a background of extreme volatility in other asset classes during the year, the three funds delivered a net return of 5.6%, with the variance between the highest and lowest fund's performance in the year being just 0.1%. The funds target a 7-day LIBID return with capital security and low volatility and they continue to achieve this. Of the total Group cash and investments of Â£491m at the end of the year (2006: Â£449m), Â£336m (2006: Â£258m) was held in these money market funds. Total investment return and interest income was Â£24.6m up substantially from the Â£14.5m earned last year. This increase is due in part to the higher level of cash and investments held, but more to the increase in investment return rates. Dividends The Directors propose a final dividend for 2007 of 23.2p per share, which is made up of 11.6p per share normal element, plus 11.6p per share special distribution based on the Group's resources at the end of the year. The total distribution for 2007 will be 43.8p per share - up 21% on the 36.1p declared in 2006. Reconciliation of turnover 2007 2006 Â£000 Â£000 Insurance premium revenue 233,075 188,288 Change in gross unearned premium provision 27,826 8,090 Group premiums written 260,901 196,378 Add: co-insurer's share of premium written 370,350 370,230 Total premiums written 631,251 566,608 Other revenue 176,878 131,621 Net investment return 16,795 9,925 Turnover 824,924 708,154 Reconciliation of underwriting profit 2007 2006 Â£000 Â£000 Net insurance premium revenue 142,236 144,955 Net insurance claims (99,795) (107,145) Net expenses related to insurance contracts (21,734) (19,384) Investment return (see note 8) 16,795 9,925 Underwriting profit 37,502 28,351 Reconciliation of loss ratios reported 2007 2006 Â£000 Â£000 Net insurance claims 99,795 107,145 Deduct: claims handling costs (3,471) (3,538) Adjusted net insurance claims 96,324 103,607 Net premium revenue 142,236 144,955 Loss ratio 67.7% 71.5% Reconciliation of alternative operating ratios 2007 2006 Â£000 Â£000 Profit before tax 182,098 147,342 Income: Net insurance premium revenue 142,236 144,955 Other revenue 176,878 131,621 319,114 276,576 Return on income 57% 53% Consolidated income statement (audited) Year ended: 31 December 2007 31 December 2006 Note: Â£000 Â£000 Insurance premium revenue 233,075 188,288 Insurance premium ceded to reinsurers (90,839) (43,333) Net insurance premium revenue 5 142,236 144,955 Other revenue 6 176,878 131,621 Profit commission 7 20,448 19,926 Investment and interest income 8 24,572 14,464 Net revenue 364,134 310,966 Insurance claims and claims handling expenses (172,611) (136,472) Insurance claims and claims handling expenses recovered from reinsurers 72,816 29,327 Net insurance claims (99,795) (107,145) Expenses 9 (78,986) (54,528) Share scheme charges 9, 25 (2,971) (933) Total expenses (181,752) (162,606) Operating profit 182,382 148,360 Finance charges 12 (284) (1,018) Profit before tax 10 182,098 147,342 Taxation expense 13 (54,682) (43,620) Profit after tax attributable to equity holders of the Company 127,416 103,722 Earnings per share: Basic 15 48.6p 39.8p Diluted 15 48.6p 39.8p Dividends declared (total) 14 116,016 70,104 Dividends declared (per share) 14 44.6p 27.0p Consolidated balance sheet (audited) As at: 31 December 2007 31 December 2006 Note Â£000 Â£000 ASSETS Property, plant and equipment 16 7,708 7,448 Intangible assets 17 69,063 66,757 Financial assets 18 481,848 395,938 Reinsurance assets 19 131,668 74,689 Deferred income tax 24 1,629 - Trade and other receivables 20, 18 22,633 16,931 Cash and cash equivalents 21, 18 155,773 191,242 Total assets 870,322 753,005 EQUITY Share capital 25 263 261 Share premium account 26 13,145 13,145 Retained earnings 26 223,828 205,682 Other reserves 26 396 (33) Total equity attributable to equity holders of the 237,632 219,055 Company LIABILITIES Insurance contracts 19 363,060 294,425 Deferred income tax 24 - 981 Trade and other payables 22, 18 239,593 215,137 Current tax liabilities 30,037 23,407 Total liabilities 632,690 533,950 Total equity and total liabilities 870,322 753,005 Consolidated statement of recognised income and expense (audited) As at: 31 December 2007 31 December 2006 Â£000 Â£000 Exchange differences on translation of foreign 429 (50) operations Net income / (expense) recognised directly in 429 (50) equity Profit for the period 127,416 103,722 Total recognised income and expense for the period 127,845 103,672 Consolidated cash flow statement (audited) 31 31 December December Note 2007 2006 Â£000 Â£000 Profit after tax 127,416 103,722 Adjustments for non-cash items: - Depreciation 3,227 2,489 - Amortisation of software 725 446 - Unrealised gains on investments (1,123) (624) - Share scheme charge 25 5,560 2,667 Loss on disposal of property, plant and equipment and software 6 151 Change in gross insurance contract liabilities 68,635 40,295 Change in reinsurance assets (56,979) (20,523) Change in trade and other receivables, including from policyholders (14,772) (23,150) Change in trade and other payables, including tax and social security 25,506 33,652 Interest expense 284 1,018 Taxation expense 54,682 43,620 Cash flows from operating activities, before movements in investments 213,167 183,763 Net cash flow into investments held at fair value (76,849) (1,073) Cash flows from operating activities, net of movements in investments 136,318 182,690 Interest payments (284) (1,018) Taxation payments (49,477) (40,931) Net cash flow from operating activities 86,557 140,741 Cash flows from investing activities: Purchases of property, plant and equipment and software (5,390) (6,046) Net cash used in investing activities (5,390) (6,046) Cash flows from financing activities: Repayments of borrowings - (22,000) Capital element of new finance leases 457 1,519 Repayment of finance lease liabilities (1,506) (2,970) Equity dividends paid (116,016) (70,104) Net cash used in financing activities (117,065) (93,555) Net (increase) / decrease in cash and cash equivalents (35,898) 41,140 Cash and cash equivalents at 1 January 191,242 150,152 Effects of changes in foreign exchange rates 429 (50) Cash and cash equivalents at end of period 21 155,773 191,242 Notes to the financial statements 1. General information and basis of preparation Admiral Group plc is a Company incorporated in England and Wales. Its registered office is at Capital Tower, Greyfriars Road, Cardiff CF10 3AZ and its shares are listed on the London Stock Exchange. The financial statements comprise the results and balances of the Company and its subsidiaries (together referred to as the Group) for the year ended 31 December 2007 and comparative figures for the year ended 31 December 2006. The financial statements of the Company's subsidiaries are consolidated in the Group financial statements. The Company controls 100% of the voting share capital of all its 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). The Group has applied all adopted IFRS and interpretations endorsed by the EU at 31 December 2007, including all amendments to extant standards that are not effective until later accounting periods, except for those listed below: â€¢ IFRS 8 (Operating Segments); and â€¢ IFRIC 11 (IFRS 2: Group and Treasury Share Transactions') IFRS 8 becomes effective for the period commencing 1 January 2009, whilst IFRIC 11 will become effective for the period commencing 1 January 2008. The application of either the standard or the interpretation would not have had a material impact on these financial statements. There are a number of standards, amendments to standards and interpretations that were issued by 31 December 2007 but have yet to be endorsed by the EU. Of these, only the amendment to IAS 1 (Presentation of financial statements: a revised presentation) is expected to have any impact on the Group's financial statements. This amendment introduces a number of changes to the primary financial statements, but does not change the recognition, measurement or disclosure of transactions or events that are required by other IFRS. The following IFRS have been adopted and applied by the Group for the first time in these financial statements: â€¢ IFRS 7 (Financial instruments: Disclosure); and â€¢ Amendment to IAS 1 (Capital disclosures) The accounting policies set out below 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 Groups 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 represents 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. 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. Income is allocated to profit commission in the income statement when the right to consideration is achieved, and is capable of reliable measurement. Revenue from Gladiator Commercial and Confused.com: 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. b) Segment reporting The Group's primary format for segment reporting is business segments. There is no secondary segment. A business segment is defined as a group of assets and operations engaged in providing products and services that are subject to risks and returns that are different from other business segments. For the Group, the risks and returns of its insurance broking activities, namely Gladiator Commercial and Confused.com, are clearly distinguishable from its motor insurance segment. This is reflected in the Group's management and organisation structure and internal financial reporting systems. Management classify the private motor insurance underwriting and private motor insurance ancillary income results as one business segment (private motor insurance). This is because although the results are distinguishable between underwriting and non-underwriting, the activities carried out in generating the income are not independent of each other and are carried on as one business. This mirrors the approach in management reporting. c) Foreign currency translation Functional and presentation currency Items included in the financial 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 thousands 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 non-monetary items, such as equities held at fair value through profit or loss, are reported as part of the fair value gain or loss. Translation differences on non-monetary items are included in the fair value reserve in equity. Translation of financial statements of foreign branches The financial statements of foreign branches 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. d) 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 each 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 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. e) 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 IFRS 3. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash generating units (CGU's) according to business segment and is reviewed annually for impairment. The Goodwill held on the balance sheet at 31 December 2007 is allocated solely to the private motor 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 10.3%, based on the Group's weighted average cost of capital. The key assumptions used in the value in use calculations are those regarding growth rates 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. f) 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. g) 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. h) Financial assets - investments and receivables Financial assets are classified according to the purpose for which they were acquired. The Group's investments in money market liquidity funds are designated as financial assets 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. Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised through the income statement. Receivables are stated at their historic cost (discounted if material) unless they are impaired. Impairment losses are recognised through the income statement. i) Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term deposits with original maturities of three months or less. j) Share capital Shares are classified as equity when there is no obligation to transfer cash or other assets. k) Loans and borrowings Interest bearing loans and borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest bearing loans and borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the life of the borrowings on an effective interest basis. l) 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 to be granted with the impact of any change in the assumptions recognised through income. Refer to note 25 for further details on share schemes. m) 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. 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 depreciation of property and equipment, share scheme charges and the tax treatment of Lloyd's 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. o) 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. 4. Segment reporting Revenue and results for the year ended 31 December 2007, split by business segment are shown below. Consolidation adjustments represent the elimination of inter-segment trading, specifically interest charged on inter-company loans. As noted above, the Directors consider there to be two business segments. These are private motor insurance and insurance broking (Confused.com and Gladiator Commercial). No geographical business split has been presented as the results of the Group's European operations are not material to the 2007 figures. 31 December 2007 Private motor Insurance Consolidation Group insurance broking adjustment Â£000 Â£000 Â£000 Â£000 Net revenue 286,451 77,683 - 364,134 Profit after tax 99,644 27,772 - 127,416 Other segment items: Depreciation 3,011 216 - 3,227 Amortisation 9,174 - - 9,174 The segment assets and liabilities at 31 December 2007 and capital expenditure for the year are as follows. Consolidation adjustments represent the elimination of inter-company balances. 31 December 2007 Private motor Insurance Consolidation Group insurance broking adjustment Â£000 Â£000 Â£000 Â£000 Total assets excluding deferred tax 842,742 27,722 (1,771) 868,693 balances Total liabilities excluding current and 597,647 6,778 (1,771) 602,654 deferred tax balances Capital expenditure: Intangible assets 11,480 - - 11,480 Plant, property and equipment 3,099 394 - 3,493 Revenue and results for the corresponding business segments for the year ended 31 December 2006 are reported below. 31 December 2006 Private motor Insurance Consolidation Group insurance broking adjustment Â£000 Â£000 Â£000 Â£000 Net revenue 266,168 45,069 (271) 310,966 Profit after tax 85,699 18,023 - 103,722 Other segment items : Depreciation 2,366 123 - 2,489 Amortisation 6,508 - - 6,508 The segment assets and liabilities at 31 December 2006 and capital expenditure for the year are as follows. 31 December 2006 Private motor Insurance Consolidation Group insurance broking adjustment Â£000 Â£000 Â£000 Â£000 Total assets 736,160 18,780 (1,935) 753,005 Total liabilities excluding current and 506,426 5,071 (1,935) 509,562 deferred tax balances Capital expenditure: Intangible assets 6,764 - - 6,764 Plant, property and equipment 5,088 364 - 5,452 5. Net insurance premium revenue 31 31 December December 2007 2006 Â£000 Â£000 Total motor insurance premiums before co-insurance 631,251 566,608 Group gross premiums written after co-insurance 260,901 196,378 Outwards reinsurance premiums (119,049) (57,731) Net insurance premiums written 141,852 138,647 Change in gross unearned premium provision (27,826) (8,090) Change in reinsurers' share of unearned premium provision 28,210 14,398 Net insurance premium revenue 142,236 144,955 The Group's share of the UK and Spanish private motor insurance business was underwritten by Admiral Insurance (Gibraltar) Limited (AIGL) and Admiral Insurance Company Limited (AICL). All contracts are short-term in duration, lasting for 10 or 12 months. 6. Other revenue 31 31 December December 2007 2006 Â£000 Â£000 Ancillary revenue 94,216 81,527 Revenue from Confused.com 69,159 38,517 Instalment income earned 5,983 5,676 Revenue from Gladiator Commercial 7,520 5,901 Total other revenue 176,878 131,621 Ancillary revenue primarily constitutes commission from sales of insurance products that complement the motor policy, but which are underwritten by external parties. 7. Profit commission 31 31 December December 2007 2006 Â£000 Â£000 Total profit commission 20,448 19,926 8. Investment and interest income 31 31 December December 2007 2006 Â£000 Â£000 Net investment return 16,795 9,925 Interest receivable 7,777 4,539 Total investment and interest income 24,572 14,464 9. Expenses and share scheme charges 31 December 2007 31 December 2006 Insurance Other Total Insurance Other Total contracts contracts Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Acquisition of insurance contracts 8,420 - 8,420 7,375 - 7,375 Administration and other marketing costs 13,314 57,252 70,566 12,009 35,144 47,153 Expenses 21,734 57,252 78,986 19,384 35,144 54,528 Share scheme charges - 2,971 2,971 - 933 933 Total expenses and share scheme charges 21,734 60,223 81,957 19,384 36,077 55,461 Analysis of other administration and other marketing costs: 31 31 December December 2007 2006 Â£000 Â£000 Ancillary sales expenses 16,613 14,505 Confused.com operating expenses 32,432 15,437 Gladiator Commercial operating expenses 5,520 3,876 Central overheads 2,687 1,326 Total 57,252 35,144 The Â£13,314,000 (2006: Â£12,009,000) administration and marketing costs allocated to insurance contracts is principally made up of salary costs. The gross amount of expenses, before recoveries from co-insurers and reinsurers is Â£167,773,000 (2006: Â£122,343,000). This amount can be reconciled to the total expenses and share scheme charges above of Â£81,957,000 (2006: Â£55,461,000) as follows: 31 31 December December 2007 2006 Â£000 Â£000 Gross expenses 167,773 122,343 Co-insurer share of expenses (66,430) (59,075) Expenses, net of co-insurer share 101,343 63,268 Adjustment for deferral of acquisition costs (3,687) (1,044) Expenses, net of co-insurer share (earned basis) 97,656 62,224 Reinsurer share of expenses (earned basis) (15,699) (6,763) Total expenses and share scheme charges 81,957 55,461 Reconciliation of expenses related to insurance contracts to reported expense ratio: 31 31 December December 2007 2006 Â£000 Â£000 Insurance contract expenses from above 21,734 19,384 Add: claims handling expenses 3,471 3,538 Adjusted expenses 25,205 22,922 Net insurance premium revenue 142,236 144,955 Reported expense ratio 17.7% 15.8% 10. Staff costs and other expenses Included in profit, before co-insurance arrangements are the following: 31 31 December December 2007 2006 Â£000 Â£000 Salaries 45,022 36,083 Social security charges 6,231 3,337 Pension costs 588 517 Share scheme charges (see note 25) 5,560 2,667 Total staff expenses 57,401 42,604 Depreciation charge: - Owned assets 2,127 1,009 - Leased assets 1,100 1,480 Amortisation charge: - Software 725 446 - Deferred acquisition costs 8,449 6,062 Operating lease rentals: - Buildings 3,018 3,292 Auditor's remuneration: - Fees payable for the audit of the Company's annual accounts 25 19 - Fees payable for the audit of the Company's subsidiary accounts 169 154 - Fees payable for other services 85 60 Loss on disposal of property, plant and equipment 6 151 Net foreign exchange gains 171 - Analysis of fees paid to the auditor for other services: Tax services 85 45 Other services - 15 Total as above 85 60 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 2007 2006 Number Number Direct customer contact staff 1,839 1,593 Support staff 525 404 Total 2,364 1,997 12. Finance charges 31 31 December December 2007 2006 Â£000 Â£000 Term loan interest - 166 Finance lease interest 243 481 Letter of credit charges 41 221 Other interest payable - 150 Total finance charges 284 1,018 13. Taxation 31 31 December December 2007 2006 Â£000 Â£000 UK Corporation tax Current charge at 30% 56,194 45,430 Over provision relating to prior periods - corporation tax (87) (648) Current tax charge 56,107 44,782 Deferred tax Current period deferred taxation movement (1,422) (1,249) (Over) / Underprovision relating to prior periods - deferred tax (3) 87 Total tax charge per income statement 54,682 43,620 Factors affecting the tax charge are: 31 31 December December 2007 2006 Â£000 Â£000 Profit before taxation 182,098 147,342 Corporation tax thereon at 30% 54,629 44,203 Adjustments in respect of prior year insurance technical - 17 provisions Expenses and provisions not deductible for tax purposes 178 114 Other differences (36) (153) Adjustments relating to prior periods (89) (561) Tax charge for the period as above 54,682 43,620 14. Dividends Dividends were declared and paid as follows. 31 31 December December 2007 2006 Â£000 Â£000 March 2006 (14.9p per share, paid May 2006) - 38,667 September 2006 (12.1p per share, paid October 2006) - 31,437 March 2007 (24.0p per share, paid May 2007) 62,412 - September 2007 (20.6p per share, paid October 2007) 53,604 - Total dividends 116,016 70,104 The dividends declared in March represent the final dividends paid in respect of the 2006 and 2005 financial years. Dividends declared in September are interim distributions in respect of 2007 and 2006. A final dividend of 23.2p per share has been proposed in respect of the 2007 financial year. Refer to the Chairman's statement and financial review for further detail. 15. Earnings per share 31 31 December December 2007 2006 Profit for the financial year after taxation (Â£000s) 127,416 103,722 Weighted average number of shares - basic 261,981,843 260,632,740 Unadjusted earnings per share - basic 48.6p 39.8p Weighted average number of shares - diluted 262,291,843 260,906,740 Unadjusted earnings per share - diluted 48.6p 39.8p The difference between the basic and diluted number of shares at the end of 2007 (being 310,000) relates to awards committed, but not yet issued under the Group's share schemes. Refer to note 25 for further detail. 16. Property, plant and equipment Improvements to Computer Office Furniture Motor Total short leasehold equipment equipment and fittings vehicles buildings Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Cost At 1 January 2006 680 9,534 2,623 1,372 12 14,221 Additions 1,655 1,672 1,684 441 - 5,452 Disposals (2) (15) (138) (1) - (156) At 31 December 2006 2,333 11,191 4,169 1,812 12 19,517 Depreciation At 1 January 2006 428 5,603 2,320 1,230 4 9,585 Charge for the year 220 1,750 396 120 3 2,489 Disposals - (5) - - - (5) At 31 December 2006 648 7,348 2,716 1,350 7 12,069 Net book amount At 1 January 2006 252 3,931 303 142 8 4,636 Net book amount At 31 December 2006 1,685 3,843 1,453 462 5 7,448 Cost At 1 January 2007 2,333 11,191 4,169 1,812 12 19,517 Additions 413 2,129 781 170 - 3,493 Disposals - (6) - (3) - (9) At 31 December 2007 2,746 13,314 4,950 1,979 12 23,001 Depreciation At 1 January 2007 648 7,348 2,716 1,350 7 12,069 Charge for the year 577 1,858 611 178 3 3,227 Disposals - (2) - (1) - (3) At 31 December 2007 1,225 9,204 3,327 1,527 10 15,293 Net book amount At 31 December 2007 1,521 4,110 1,623 452 2 7,708 The net book value of assets held under finance leases is as follows: 31 31 December December 2007 2006 Â£000 Â£000 Computer equipment 2,149 2,996 17. Intangible assets Goodwill Deferred Software Total acquisition costs Â£000 Â£000 Â£000 Â£000 Carrying amount: At 1 January 2006 62,354 3,328 808 66,490 Additions - 6,179 596 6,775 Amortisation charge - (6,062) (446) (6,508) At 31 December 2006 62,354 3,445 958 66,757 Additions - 9,584 1,896 11,480 Amortisation charge - (8,449) (725) (9,174) At 31 December 2007 62,354 4,580 2,129 69,063 18. Financial instruments The Group's financial instruments can be analysed as follows: 31 31 December December 2007 2006 Financial assets: Â£000 Â£000 Investments held at fair value 335,608 257,634 Receivables - amounts owed by policyholders 146,240 138,304 Total financial assets per consolidated balance sheet 481,848 395,938 Trade and other receivables 22,633 16,931 Cash and cash equivalent 155,773 191,242 660,254 604,111 Financial liabilities: Trade and other payables 239,593 215,137 All receivables from policyholders are due within 12 months of the balance sheet date. All investments held at fair value are invested in money market liquidity funds. 19. 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 2007 that would result from a 1 per cent change in the loss ratios used for each underwriting year for which material amounts remain outstanding. UNDERWRITING YEAR TOTAL 2003 2004 2005 2006 2007 Loss ratio 56.0% 62.5% 74.0% 86.0% 89.0% Impact of 1% change (Â£000s) 1,214 1,552 2,017 1,822 529 7,134 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 2007 2006 Â£000 Â£000 Gross: Claims outstanding 242,576 202,421 Unearned premium provision 120,484 92,004 Total gross insurance liabilities 363,060 294,425 Recoverable from reinsurers: Claims outstanding 76,055 47,710 Unearned premium provision 55,613 26,979 Total reinsurers' share of insurance liabilities 131,668 74,689 Net: Claims outstanding 166,521 154,711 Unearned premium provision 64,871 65,025 Total insurance liabilities - net 231,392 219,736 C) Analysis of re-estimation of claims provisions: The following tables set out the cumulative impact, to 31 December 2007, of the retrospective re-estimation of claims provisions initially established at the end of the financial years stated. Figures are shown gross and net of reinsurance. These tables present data on an accident year basis. Financial year ended 31 December Gross amounts: 2003 2004 2005 2006 2007 Â£000 Â£000 Â£000 Â£000 Â£000 Gross claims provision as originally 115,169 142,968 170,216 202,421 242,576 estimated Provision re-estimated as of: One year later 111,599 137,075 162,205 192,283 - Two years later 105,748 127,613 149,317 - - Three years later 100,880 119,625 - - - Four years later 97,850 - - - - Five years later - - - - - As re-estimated at 31 December 2007 97,850 119,625 149,317 192,283 - Gross cumulative overprovision (17,319) (23,343) (20,899) (10,138) - Financial year ended 31 December Net amounts: 2003 2004 2005 2006 2007 Â£000 Â£000 Â£000 Â£000 Â£000 Net claims provision as originally estimated 75,549 98,120 128,631 154,711 166,521 Provision re-estimated as of: One year later 72,579 93,910 122,423 146,435 - Two years later 67,726 87,761 111,964 - - Three years later 63,954 82,004 - - - Four years later 61,620 - - - - Five years later - - - - - As re-estimated at 31 December 2007 61,620 82,004 111,964 146,435 - Net cumulative overprovision (13,929) (16,116) (16,667) (8,276) - D) 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 2003 2004 2005 2006 2007 Â£000 Â£000 Â£000 Â£000 Â£000 Underwriting year: 2000 5,176 1,480 370 1,110 740 2001 7,938 2,967 5,043 1,879 1,483 2002 2,975 3,229 5,166 2,260 1,292 2003 - 1,513 4,622 5,084 3,235 2004 - - 2,076 7,948 7,589 2005 - - - 2,623 12,545 2006 - - - - 2,588 Total net release 16,089 9,189 17,277 20,904 29,472 Net premium revenue 79,327 107,501 139,454 144,955 142,236 Release as % of net premium revenue 20.3% 8.5% 12.4% 14.4% 20.7% E) Reconciliation of movement in net claims provision: 31 31 December December 2007 2006 Â£000 Â£000 Net claims provision at start of period 154,711 128,631 Net claims incurred 96,324 103,607 Net claims paid (84,514) (77,527) Net claims provision at end of period 166,521 154,711 F) Reconciliation of movement in net unearned premium provision: 31 31 December December 2007 2006 Â£000 Â£000 Net unearned premium provision at start of period 65,025 71,333 Written in the period 141,851 138,647 Earned in the period (142,005) (144,955) Net unearned premium provision at end of period 64,871 65,025 20. Trade and other receivables 31 31 December December 2007 2006 Â£000 Â£000 Trade receivables 20,747 14,982 Prepayments and accrued income 1,886 1,949 Total trade and other receivables 22,633 16,931 21. Cash and cash equivalents 31 31 December December 2007 2006 Â£000 Â£000 Cash at bank and in hand 150,902 164,989 Cash on short term deposit 4,871 26,253 Total cash and cash equivalents 155,773 191,242 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. 22. Trade and other payables 31 31 December December 2007 2006 Â£000 Â£000 Trade payables 5,960 4,601 Amounts owed to co-insurers and reinsurers 134,659 124,238 Finance leases due within 12 months 345 1,337 Finance leases due after 12 months 4 61 Other taxation and social security liabilities 8,557 4,742 Other payables 15,545 13,708 Accruals and deferred income (see below) 74,523 66,450 Total trade and other payables 239,593 215,137 Analysis of accruals and deferred income: 31 31 December December 2007 2006 Â£000 Â£000 Premium receivable in advance of policy inception 38,477 31,772 Accrued expenses 26,948 25,456 Deferred income 9,098 9,222 Total accruals and deferred income as above 74,523 66,450 23. Obligations under finance leases Analysis of finance lease liabilities: At 31 December 2007 At 31 December 2006 Minimum Interest Principal Minimum Interest Principal lease lease payments payments Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Less than one year 360 15 345 1,383 46 1,337 Between one and five years 4 - 4 63 2 61 More than five years - - - - - - 364 15 349 1,446 48 1,398 The average term of leases outstanding is two years. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. The fair value of the Group's lease obligations approximates to their carrying amount. 24. Deferred income tax (asset) / liability 31 31 December December 2007 2006 Â£000 Â£000 Brought forward at start of period 981 3,550 Movement in period (2,610) (2,569) Carried forward at end of period (1,629) 981 The net balance provided at the end of the year is made up as follows: Analysis of net deferred tax (asset) / liability: 31 31 December December 2007 2006 Â£000 Â£000 Tax treatment of Lloyd's Syndicates 541 1,936 Tax treatment of share scheme charges (2,091) (853) Capital allowances 126 149 Other differences (205) (251) Deferred tax (asset) / liability at end of period (1,629) 981 The amount of deferred tax income / (expense) recognised in the income statement for each of the temporary differences reported above is: Amounts credited to income or expense: 31 31 December December 2007 2006 Â£000 Â£000 Tax treatment of Lloyd's Syndicates 1,395 1,880 Tax treatment of share scheme charges 53 (239) Capital allowances 23 (541) Other differences (46) 62 Net deferred tax credited to income 1,425 1,162 The closing deferred tax balance reflects the change in UK corporation tax rate from 30% to 28% which becomes effective on 1 April 2008. The change in rate does not have a significant impact on the value of the asset. 25. Share capital 31 31 December December 2007 2006 Â£000 Â£000 Authorised: 500,000,000 ordinary shares of 0.1p 500 500 Issued, called up and fully paid: 262,721,426 ordinary shares of 0.1p 263 - 261,186,599 ordinary shares of 0.1p - 261 263 261 During 2007, 1,534,827 new ordinary shares of 0.1p were issued to the trusts administering the Group's share schemes. 570,827 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. 964,000 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 2007 2006 Â£000 Â£000 SIP charge (note i) 1,268 495 DFSS charge (note ii) 1,703 438 Total share scheme charges 2,971 933 The share scheme charges reported above are net of the co-insurance share and therefore differ from the gross charge reported in note 10 (2007: Â£5,560,000, 2006: Â£2,667,000) and the gross credit to reserves reported in note 26. The consolidated cashflow statement also shows the gross charge in the reconciliation between 'profit after tax' and 'cashflows from operating activities'. The co-insurance share of the charge 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 against budget. The current maximum award for each half-year amounts to 600,000 shares (or a maximum annual award of Â£3,000 per employee if smaller). The awards are made with reference to the Group's performance against its budget. Employees must remain in employment for the holding period (three years from the date of award), otherwise the shares will be forfeited. The fair value of shares awarded is either the share price at the date of award, or is 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 scheme, details of which are contained in the remuneration report, individuals receive an award of free shares at no charge. A total of 1,645 employees received awards under this scheme during 2007. Staff must remain in employment until the vesting date in order to receive the shares. The maximum number of shares that can vest relating to the 2007 scheme is 964,000. Individual awards are calculated based on the growth in the 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. The range of awards is as follows: â€¢ If the growth in EPS is less than the RFR, no awards vest â€¢ EPS growth is equal to RFR - 10% of maximum award vests â€¢ 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). Number of free share awards committed at 31 December 2007: Awards Vesting outstanding (*1) date SIP H105 scheme 581,565 September 2008 SIP H205 scheme 330,306 March 2009 SIP H106 scheme 316,328 September 2009 SIP H206 scheme 224,808 April 2010 SIP H107 scheme 346,019 September 2010 SIP H207 scheme 310,000 April 2011 DFSS 2005 scheme 685,000 June 2008 DFSS 2006 scheme, 1st award 604,187 April 2009 DFSS 2006 scheme, 2nd award 77,248 September 2009 DFSS 2007 scheme 964,000 June 2010 Total awards committed 4,439,461 *1 - being the maximum number of awards expected to be made before accounting for expected staff attrition. Of the 4,439,461 share awards outstanding above, 4,129,461 have been issued to the trusts administering the schemes, and are included in the issued share capital figures above. 26. Analysis of movements in capital and reserves Share Share Capital Foreign Retained Total capital premium exchange profit and equity account redemption reserve loss reserve Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 As at 1 January 2006 260 13,145 17 - 167,990 181,412 Retained profit for the period - - - - 103,722 103,722 Dividends - - - - (70,104) (70,104) Issues of share capital 1 - - - - 1 Currency translation - - - (50) - (50) differences Share scheme charges - - - - 2,667 2,667 Deferred tax credit on share scheme charges - - - - 1,407 1,407 As at 31 December 2006 261 13,145 17 (50) 205,682 219,055 Retained profit for the period - - - - 127,416 127,416 Dividends - - - - (116,016) (116,016) Issues of share capital 2 - - - - 2 Currency translation - - - 429 - 429 differences Share scheme charges - - - - 5,560 5,560 Deferred tax credit on share scheme charges - - - - 1,186 1,186 As at 31 December 2007 263 13,145 17 379 223,828 237,632 The capital redemption reserve arose in 2002 on the redemption of shares previously in issue at below par. The foreign exchange reserve represents the net gains or losses on translation of the Group's net investment in foreign operations. 27. Financial commitments The Group was committed to total minimum obligations under operating leases on land and buildings as follows: 31 31 December December Operating leases expiring: 2007 2006 Â£000 Â£000 Within one years - - Within two to five years 2,139 - Over five years 27,357 33,425 Total commitments 29,496 33,425 Operating lease payments represent rentals payable by the Group for its office properties. In addition, the Group had contracted to spend the following on property, plant and equipment at the end of each period: 31 31 December December 2007 2006 Â£000 Â£000 Expenditure contracted to 489 1,539 28. Related party transactions There were no related party transactions occurring during 2007 that require disclosure. Details relating to the remuneration and shareholdings of key management personnel are set out in the remuneration report, which will be included in the statutory accounts referred to below. No key management personnel sit outside of the Board of Directors. 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%. 29. Non-statutory accounts The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2007 or 2006. Statutory accounts for 2006 have been delivered to the registrar of companies and those for 2007 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985. 30. Annual Report The Company's annual report and accounts for the year ended 31 December 2007 is expected to be posted to shareholders by 7 April 2008. Copies of both this announcement and the annual report and accounts will be available to the public at the Company's registered office at Capital Tower, Greyfriars Road, Cardiff CF10 3AZ and through the Company's website at www.admiralgroup.co.uk. Consolidated financial summary Basis of preparation: The 2007, 2006, 2005 and 2004 figures below are as stated in the financial statements preceding this financial summary and issued previously. Only selected lines from the income statement and balance sheet have been included. Figures for 2003 have not been restated under IFRS, although have been reclassified into the formats used in these financial statements. Income statement IFRS UK GAAP 2007 2006 2005 2004 2003 Â£m Â£m Â£m Â£m Â£m Total motor premiums 631.3 566.6 533.6 470.4 371.6 Net insurance premium revenue 142.2 145.0 139.5 107.5 79.3 Other revenue 176.9 131.6 93.4 69.5 50.8 Profit commission 20.5 19.9 14.7 21.7 1.4 Investment and interest income 24.6 14.5 15.5 11.9 6.8 Net revenue 364.2 311.0 263.1 210.6 138.3 Net insurance claims (99.8) (107.1) (100.5) (74.3) (43.5) Total expenses (82.0) (55.5) (40.9) (28.9) (34.4) Operating profit 182.4 148.4 121.7 107.4 60.4 Balance sheet IFRS UK GAAP 2007 2006 2005 2004 2003 Â£m Â£m Â£m Â£m Â£m Property, plant and equipment 7.7 7.5 4.6 3.3 5.8 Intangible assets 69.1 66.8 66.5 66.5 62.4 Financial assets 481.8 395.9 378.7 300.7 241.6 Reinsurance assets 131.7 74.7 54.2 66.1 56.7 Deferred income tax 1.6 - - - - Trade and other receivables 22.6 16.9 9.4 16.7 12.5 Cash and cash equivalents 155.8 191.2 150.2 119.3 70.1 Total assets 870.3 753.0 663.6 572.6 449.1 Equity 237.6 219.1 181.4 144.6 108.1 Insurance contracts 363.1 294.4 254.1 216.1 174.8 Financial liabilities - - 22.0 33.1 35.4 Provisions for other liabilities and charges - - - - 11.7 Deferred income tax - 1.0 3.6 4.8 6.4 Trade and other payables 239.6 215.1 182.9 164.3 104.0 Current tax liabilities 30.0 23.4 19.6 9.7 8.7 Total liabilities 870.3 753.0 663.6 572.6 449.1 This information is provided by RNS The company news service from the London Stock Exchange

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Admiral Group (ADM)

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