Interim Results

Admiral Group PLC 05 September 2006 Admiral Group plc Results for the 6 months ended 30 June 2006 5 September 2006 Admiral Group plc ('Admiral' or 'the Group') today announces its results for the six months ended 30 June 2006. H1 2006 Highlights • Profit before tax up 24% at £68.7 million (H1 2005: £55.6 million) • Group turnover up 12% at £359.2 million (H1 2005: £319.3 million) • Total motor premiums written up 10% at £294.0 million (H1 2005: £268.5 million) • Net income from products and services not underwritten by the Group up 30% at £45.6 million (H1 2005: £35.2 million) • Combined ratio 87.0% (H1 2005: 86.5%) • Active customers at period-end up 10% to 1,161,000 from 1,057,000 at 30 June 2005 • Confused.com made a profit of £8.7 million (H1 2005: £2.3 million) • Interim dividend of 12.1p per share, payable 18 October 2006 - includes special element of 3.7p per share Copies of this statement will be sent to all shareholders and will be available from the registered office. Comment from Alastair Lyons, Chairman Our business has continued strongly profitable and cash generative over the last six months, with profit before tax up 24%. We are, therefore, very pleased to be able to declare dividends that are 25% higher than at the same point last year. As we have previously indicated, we have reviewed our future cash needs against funds accumulated in the business as at the half year. Accordingly we propose a further special dividend of 3.7p per share in addition to an 8.4p per share normal dividend based on 45% of after-tax profits. Our policy remains only to retain within the business what funds we need to provide a prudent contingency and support our plans for growth. Since going public in September 2004 Admiral has declared dividends on four occasions amounting in total to £119m or 46.0p per share. £67m of normal dividends have been supplemented by £52m of special dividends, these specials accounting for 44% of the total amount declared. Comment from Henry Engelhardt, Chief Executive We're very pleased with our results for the first half of 2006. We met the needs of our customers, made money and had fun doing it. In fact, we set a record for half-year profitability at £68.7m. Despite high levels of competition in the UK motor insurance market our business continues to grow and grow profitably. Confused.com, our leading car insurance aggregator, saw significant growth in both number of quotes and contribution. Our level of claims releases grew to £9.8m. We are on track to release an amount at least equal to the amount we released last year, however this year we believe that the releases will not be weighted towards the second half of the year. Going forward, we plan to maintain our combined ratio advantage over the market while the number of customers we service continues to grow. As part of our longer-term strategy we will launch our Spanish operation later this year or early next year and have already begun looking beyond Spain at other opportunities. Financial review Key financial highlights Group profit before tax rose 24% in the first half of 2006 compared to the same period in 2005, reaching £68.7m. Profit can be split into the three key elements of the Group's business: 1) underwriting, 2) profit commissions and 3) net other income (most notably ancillary income). 6 months ended: Year ended: June June December 2005 2006 2005 £000 £000 £000 Underwriting profit 13,474 14,730 32,361 Profit commissions 9,639 5,666 14,735 Net other income 45,593 35,191 72,398 ____________________________________________ Profit before tax 68,706 55,587 119,494 ============================================ The Group's low risk business model enables it to grow profit significantly in an environment of worsening loss ratios (both for the Group and the market as a whole) and in a period of low investment returns. The key features of this model are: • Limited risk retention (25% of the book, through co-insurance and reinsurance arrangements); • Generation of substantial non-underwriting income from the whole customer base (ownership of which is retained) - the proportion of the Group's profits earned from non-underwriting was 80% in the six months to June 2006 compared to 74% in the first half of 2005 (and 73% in 2005 as a whole) • Strong and growing contribution from other broking activities, primarily Confused.com Group turnover (comprising total premiums written before co-insurance, gross other income and net investment return), which is a measure of the combined size of the Group's businesses, also showed good growth (+ 12%): 6 months ended: Year ended: June June December 2005 2006 2005 £000 £000 £000 Total premiums written 293,998 268,462 533,616 Gross other income 61,470 44,769 93,405 Net investment return 3,736 6,087 11,342 ____________________________________________ Group turnover 359,204 319,318 638,363 ============================================ The increase reflected growth in premiums written and a significant increase in revenue generated from non-underwriting sources (primarily ancillary products, Confused.com and Gladiator Commercial). The key elements of the Group's profits are further analysed below. Underwriting Underwriting structure The Group's underwriting structure is as follows: 65% of the business written continues to be underwritten by Great Lakes (a UK subsidiary of Munich Re) under a long-term co-insurance contract. 35% of the business is underwritten by the Group through Admiral Insurance (Gibraltar) Limited (AIGL) and Admiral Insurance Company Limited (AICL). 10% (of the total business) is ceded via quota share contracts that qualify for deductions in required solvency capital (5% to Axis Re Europe and 5% to Swiss Reinsurance Company UK Limited). This means the Group retains 25% of the underwriting on a net basis. As well as proportional reinsurance, the Group has also arranged an excess of loss reinsurance programme with a number of reinsurers to protect itself against very large claims. For the 2000 to 2002 underwriting years, the Group's retained share of the motor business was underwritten through the Group's Syndicate (Syndicate 2004) at Lloyd's of London. During July 2006, the Group achieved the release of a significant proportion of the profits earned by the Group's Syndicate - amounting to around £24m, net of amounts retained to meet corporation tax liabilities. Underwriting result Total premium written increased by 10% to £294m from £268m. With premium rates largely flat, the growth came from a 10% rise in the number of active customers. The underwriting result fell to £13.5m from £14.7m in the first half of 2005. Investment income fell to £3.7m from £6.1m due to adverse conditions in UK bond markets, whilst the reported combined ratio was consistent at around 87% for both half years. The pure year loss ratio has moved to 85% from 80% in the first half of 2005 reflecting the ongoing impact of claims inflation compared to flat premium rates. However, as shown in note 16 to the interim financial statements, back years continue to release reserves. The six month results include £9.8m of net releases (compared to £5.2m in H1 2005). The impact of this is equivalent to a 13 percentage points reduction in the reported loss ratio (8 points in H1 2005) which was 72.3% (H1 2005: 71.6%). The expense ratio has maintained its previous low level. The reported ratio for the first half is 14.7%, down from 14.9% in the first half of 2005 and 15.1% for 2005 as a whole. Excluding regulatory levies, the ratio is consistent between half years at around 12%. The expense ratio is reconciled to the figures included in the income statement in note 6 to the interim financial statements, whilst the underwriting result is reconciled later in this review. Combined ratio development The Group's reported combined ratio (being the aggregation of the loss and expense ratios above) is 87.0%, up from 86.5% in H1 2005 (84.9% for 2005 as a whole). This continues to compare very favourably to estimated market levels. 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. Profit commission - co-insurance The principal source of profit commission is the long-term co-insurance contract with Great Lakes. £6.2m was recognised in the first half of 2006, up from the £5.0m recognised in the same period last year. A further £2.0m of profit commission (H1 05: £0.1m) relating to earlier underwriting year (2000 - 2002) contracts with Hibernian Re (100% reinsured into Swiss Re) has also been recognised in these results. No further material amounts are anticipated relating to these contracts due to the relative maturity of the underwriting results of these years. Profit commission - quota share reinsurance £1.4m of commission has been recognised in respect of quota share arrangements - up from £0.6m in the first half of 2005. Net other income 6 months ended: Year ended: June June December 2005 2006 2005 £000 £000 £000 Ancillary contribution 32,929 29,630 59,092 Confused.com contribution 8,747 2,314 6,882 Aggregate interest receipts 2,066 2,268 4,176 Instalment income 2,459 1,657 3,768 Gladiator contribution 979 900 1,871 Other expenses and share scheme costs (1,587) (1,578) (3,391) _________________________________________ Net other income 45,593 35,191 72,398 ========================================= Confused.com earns a proportion of its revenue from Group brands from commission charged at normal commercial rates. Previously an adjustment was made for these intra-group sales. The impact of this adjustment on the 2005 H1 figures was to decrease Confused contribution by £0.6m (2005 full year: £1.9m) Ancillary contribution & instalment income This primarily involves income earned on sales of insurance products complementing the motor policy, but which are underwritten by external parties. Net contribution from these sales grew by 11% in H1 2006 - largely in line with the growth in premium and policies sold. Average gross ancillary income per motor policy was consistent across all periods at £56. Instalment income represents charges for payment by instalments on motor policies sold which are paid for over the course of the policy life by direct debit. Confused.com Confused.com has continued to grow and has recorded a contribution of £8.7m in the first half of the year. Motor quotes rose to 3.8m from 1.7m in H1 2005 (+ 124%). The range of products on which Confused offers prices has increased so that the site now includes home insurance, travel insurance and a range of other financial products in addition to the core motor offering. Confused has also increased its coverage of the motor market. Overseas expansion As reported with the announcement of the 2005 results, the Group plans to launch a direct motor insurance operation in Spain and work has been continuing to this end during 2006. Good progress has been made in all the critical areas and the operation now has all key senior managers in place at a permanent location in Seville. Work is also well progressed on IT systems, and the business plans to launch late this year or early in 2007. A long-term quota share reinsurance contract has been signed with Munich Re (Germany) under which 65% of the Spanish motor insurance business will be ceded. The contract is effective from when the business commences trading. Earnings per share (EPS) Basic EPS has increased by 22% to 18.5p from 15.2p (2005 full year 32.7p). This is broadly in line with the increase in pre-tax profit (24%) noted above (the difference relates to a lower effective rate of corporation tax in H1 2005 resulting from utilisation of losses). Financial investments, cash and investment return At the end of the period, the Group held a total of £408.4m in cash and financial investments - up 11% on the £366.7m held at the end of June 2005. This increase is after distributions to shareholders of £38.7m during the first half of 2006 (£24.0m in 2005). The total balance is made up as follows: 6 months ended: Year ended: June June December 2005 2006 2005 £000 £000 £000 Liquid funds in underwriting companies: Government and sovereign bond holdings 114,059 68,188 83,071 Corporate bonds and similar instruments 164,922 179,330 172,866 Deposits with credit institutions 17,243 21,799 40,646 Cash at bank 73,606 46,711 39,824 _________________________________________ 369,830 316,028 336,407 Liquid funds held outside underwriting companies: Cash at bank 38,600 50,666 69,682 _________________________________________ 408,430 366,694 406,089 ========================================= Net investment return fell sharply in relative and actual terms during the first half of 2006 compared to the same period last year. The fall was due to marked increases in gilt and bond yields resulting from changes in the market's view of future interest rates and the negative impact such increases have on capital values of fixed income securities. Dividends There has been no change in dividend policy, which is based on the principle of returning excess cash to shareholders. The Directors expect to make a normal distribution of at least 45% of post-tax profits each half-year, and will regularly review the Group's available cash to determine whether it is appropriate for the Company to pay a further special dividend. In line with this policy, the Directors have declared an interim dividend for 2006 of 12.1p per share, which is made up of 8.4p per share normal element, plus 3.7p per share special distribution based on the Group's resources at the end of the period. The ex-dividend date is 20 September 2006, the record date 22 September 2006, with payment following on 18 October 2006. The interim dividend declared in respect of 2005 was 9.7p, split 6.8p normal, 2.9p special. (Final dividend for 2005: 14.9p - normal 7.8p, special 7.1p) Reconciliation of underwriting profit 6 months ended: Year ended: June June December 2005 2006 2005 £000 £000 £000 Net insurance premium revenue 74,863 63,833 139,454 Net insurance claims (55,600) (47,294) (100,526) Net expenses related to insurance contracts (9,525) (7,896) (17,909) Investment return 3,736 6,087 11,342 ___________________________________________ Underwriting profit 13,474 14,730 32,361 =========================================== Reconciliation of loss ratios reported 6 months ended: Year ended: June June December 2005 2006 2005 £000 £000 £000 Net insurance claims from income statement 55,600 47,294 100,526 Deduct: claims handling costs (1,470) (1,611) (3,202) ___________________________________________ Adjusted net insurance claims 54,130 45,683 97,324 Net premium revenue 74,863 63,833 139,454 Loss ratio 72.3% 71.6% 69.8% =========================================== Consolidated income statement 6 months ended Year ended 30 June 2006 30 June 2005 31 December 2005 Note £000 £000 £000 Insurance premium revenue 2 92,614 84,865 176,214 Insurance premium ceded to 2 reinsurers (17,751) (21,032) (36,760) _________________________________________ Net insurance premium revenue 74,863 63,833 139,454 Other revenue 3 61,470 44,769 93,405 Profit commission 4 9,639 5,666 14,735 Investment and interest income 5 5,802 8,355 15,518 _________________________________________ Net revenue 151,774 122,623 263,112 Insurance claims and claims handling expenses (70,029) (61,334) (121,123) Insurance claims and claims handling expenses recovered from reinsurers 14,429 14,040 20,597 _________________________________________ Net insurance claims (55,600) (47,294) (100,526) Expenses 6 (26,405) (18,457) (40,492) Share scheme charges 22 (420) (125) (438) _________________________________________ Total expenses (82,425) (65,876) (141,456) Operating profit 69,349 56,747 121,656 Finance charges 9 (643) (1,160) (2,162) _________________________________________ Profit before tax 68,706 55,587 119,494 Taxation expense 10 (20,613) (16,316) (34,774) _________________________________________ Profit after tax attributable to equity holders of the Company 48,093 39,271 84,720 ========================================= Earnings per share: Basic 11 18.5p 15.2p 32.7p ========================================= Diluted 11 18.4p 15.1p 32.7p ========================================= ________________________________________________________________________________________________________ Dividends paid (total) 12 38,666 24,049 49,190 Dividends paid (per share) 12 14.9p 9.3p 19.0p ________________________________________________________________________________________________________ Consolidated balance sheet As at: 30 June 2006 30 June 2005 31 December 2005 Note £000 £000 £000 ASSETS Intangible assets 13 66,192 66,754 66,490 Property, plant and equipment 14 6,741 2,986 4,636 Financial assets 15 415,354 366,875 378,747 Reinsurance assets 16 68,660 60,699 54,166 Trade and other receivables 17 11,749 29,604 9,392 Cash and cash equivalents 18 129,449 119,176 150,152 _______________________________________ Total assets 698,145 646,094 663,583 ======================================= EQUITY Share capital 22 261 259 260 Share premium account 23 13,145 13,145 13,145 Retained earnings 23 178,617 146,792 167,990 Other reserves 23 17 17 17 _______________________________________ Total equity 192,040 160,213 181,412 ======================================= LIABILITIES Insurance contracts 16 281,688 241,628 254,130 Financial liabilities 19 - 29,471 22,000 Deferred income tax 20 904 6,377 3,550 Current tax liabilities 23,263 18,339 19,556 Trade and other payables 21 200,250 190,066 182,935 _______________________________________ Total liabilities 506,105 485,881 482,171 ======================================= Total equity and total liabilities 698,145 646,094 663,583 ======================================= Consolidated statement of recognised income and expense No separate consolidated statement of recognised income and expense has been prepared. The profit for the period of £48.1m (2005: H1 £39.3m; full year: £84.7m) represents all recognised income and expenses for all periods. Consolidated cash flow statement 6 months ended Year ended 30 June 30 June 2005 31 December 2005 2006 Note £000 £000 £000 Profit after tax 48,093 39,271 84,720 Adjustments for non-cash items: - Depreciation 1,092 867 1,824 - Amortisation of software 234 476 896 - Unrealised losses / (gains) on investments 893 (2,476) 893 - Share scheme charge 1,200 357 1,247 Loss on disposal of property, plant and equipment and software - 504 503 Change in gross insurance contract liabilities 27,558 25,521 38,023 Change in reinsurance assets (14,494) 5,438 11,971 Change in trade and other receivables, including from policyholders (15,760) (35,364) (18,693) Change in trade and other payables, including tax and social security 17,918 25,834 18,041 Interest expense 643 1,160 2,162 Taxation expense 20,613 16,316 34,774 __________________________________________ Cash flows from operating activities, before movements in investments 87,990 77,904 176,361 Net cash flow into investments held at fair value (23,937) (41,624) (53,413) __________________________________________ Cash flows from operating activities, net of movements in investments 64,053 36,280 122,948 Interest payments (643) (1,144) (2,617) Taxation payments (19,551) (6,023) (26,090) __________________________________________ Net cash flow from operating activities 43,859 29,113 94,241 Cash flows from investing activities: Purchases of property, plant and equipment and software (3,293) (1,333) (3,999) Proceeds from sales of property, plant and equipment - 8 - __________________________________________ Net cash used in investing activities (3,293) (1,325) (3,999) Cash flows from financing activities: Repayments of borrowings (22,000) (3,667) (10,667) Capital element of new finance leases 1,789 1,097 1,201 Repayment of finance lease liabilities (2,392) (1,194) (635) Equity dividends paid (38,666) (24,049) (49,190) __________________________________________ Net cash used in financing activities (61,269) (27,813) (59,291) Net decrease in cash and cash equivalents (20,703) (25) 30,951 Cash and cash equivalents at 1 January 150,152 119,201 119,201 Cash and cash equivalents at end of 18 period 129,449 119,176 150,152 __________________________________________ Notes to the interim 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 interim financial statements comprise the results and balances of the Company and its subsidiaries (the Group) for the two six month periods ended 30 June 2005 and 2006 and the year ended 31 December 2005. 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. In accordance with IAS 24, transactions or balances between Group companies that have been eliminated on consolidation are not reported as related party transactions. The comparative figures for the financial year ended 31 December 2005 are not the Group's Report and Accounts for that financial year, but are derived therefrom. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified and did not include any reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The accounting policies applied by the Group in these consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2005. Significant estimates 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 and to 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. 2. Net insurance premium revenue 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Total motor insurance premiums before co- insurance 293,998 268,462 533,616 ==================================== Group gross premiums written after co-insurance 102,899 93,962 186,989 Outwards reinsurance premiums (29,966) (14,075) (28,052) ____________________________________ Net insurance premiums written 72,933 79,887 158,937 Change in gross unearned premium provision (10,285) (9,097) (10,775) Change in reinsurers' share of unearned premium provision 12,215 (6,957) (8,708) ____________________________________ Net insurance premium revenue 74,863 63,833 139,454 ==================================== The insurance business written is direct private motor insurance written in the United Kingdom. The Group's share of the 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. 3. Other revenue 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Ancillary revenue 40,141 35,954 72,470 Instalment income earned 2,459 1,657 3,768 Revenue from Confused.com 15,840 4,614 12,044 Revenue from Gladiator Commercial 3,030 2,544 5,123 ____________________________________ Total other revenue 61,470 44,769 93,405 ==================================== Ancillary revenue primarily constitutes income from sales of insurance products that complement the motor policy, but which are underwritten by external parties. 4. Profit commission 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Total profit commission 9,639 5,666 14,735 ==================================== 5. Investment and interest income 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Net investment return 3,736 6,087 11,342 Interest receivable 2,066 2,268 4,176 ____________________________________ Total investment and interest income 5,802 8,355 15,518 ==================================== 6. Expenses 30 June 2006 30 June 2005 Insurance Other Total Insurance Other Total contracts contracts £000 £000 £000 £000 £000 £000 Acquisition of insurance contracts 3,476 - 3,476 3,287 - 3,287 Administration and marketing costs 6,049 16,880 22,929 4,609 10,561 15,170 ___________________________ ______________________________ Sub-total 9,525 16,880 26,405 7,896 10,561 18,457 Share scheme charges - 420 420 - 125 125 ___________________________ ______________________________ Total expenses 9,525 17,300 26,825 7,896 10,686 18,582 =========================== ============================== 31 December 2005 Insurance Other Total contracts £000 £000 £000 Acquisition of insurance contracts 6,888 - 6,888 Administration and marketing costs 11,021 22,583 33,604 _____________________________ Sub-total 17,909 22,583 40,492 Share scheme charges - 438 438 _____________________________ Total expenses 17,909 23,021 40,930 ============================= The £6,049,000 (2005 H1: £4,609,000; Full year: £11,021,000) administration and marketing costs allocated to insurance contracts is principally made up of salary costs. Analysis of other administration and marketing costs: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Ancillary sales expenses 7,212 6,324 13,378 Confused.com operating expenses 7,093 2,300 5,162 Gladiator Commercial operating expenses 2,051 1,644 3,252 Central overheads 327 293 791 Costs associated with overseas expansion 197 - - ___________________________________ Total 16,880 10,561 22,583 =================================== Reconciliation of expenses related to insurance contracts to reported expense ratio: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Insurance contract expenses from above 9,525 7,896 17,909 Add: claims handling expenses 1,470 1,611 3,202 ___________________________________ Adjusted expenses 10,995 9,507 21,111 Net insurance premium revenue 74,863 63,833 139,454 Reported expense ratio 14.7% 14.9% 15.1% =================================== 7. Staff costs and other expenses Staff costs and other expenses, before co-insurance arrangements are as follows: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Salaries 17,036 14,166 29,955 Social security charges 1,568 1,314 2,782 Pension costs 253 226 490 Share scheme charges (see note 22) 1,200 357 1,247 ___________________________________ Total staff expenses 20,057 16,063 34,474 =================================== Depreciation charge: - Owned assets 197 306 446 - Leased assets 895 561 1,378 Operating lease rentals: - Buildings 1,428 1,377 2,969 Auditor's remuneration: - Statutory audit fees 94 110 210 - Other audit fees - - 18 - Other services 65 84 91 Loss on disposal of property, plant and equipment - 504 503 =================================== Analysis of fees paid to the auditor for other services: Indirect tax consultancy 13 60 61 Corporate tax services 52 24 24 Other - - 6 ___________________________________ Total as above 65 84 91 =================================== 8. Staff numbers (including directors) Average for the period: 30 30 31 June June December 2006 2005 2005 Direct customer contact staff 1,506 1,309 1,377 Support staff 383 320 339 ___________________________________ Total 1,889 1,629 1,716 =================================== 9. Finance charges 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Term loan interest 150 896 1,520 Finance lease interest 378 154 388 Letter of credit charges 115 110 221 Other - - 33 ___________________________________ Total finance charges 643 1,160 2,162 =================================== 10. Taxation 30 30 31 June June December 2006 2005 2005 £000 £000 £000 UK Corporation tax Current charge at 30% 23,259 14,777 36,051 Under provision relating to prior periods - corporation tax - - 11 __________________________________ Current tax charge 23,259 14,777 36,062 Deferred tax Current period deferred taxation movement (2,646) 1,539 (654) Over provision relating to prior periods - deferred tax - - (634) __________________________________ Total tax charge per income statement 20,613 16,316 34,774 =================================== Factors affecting the tax charge are: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Profit before taxation 68,706 55,587 119,494 Corporation tax thereon at 30% 20,613 16,676 35,848 Utilisation of brought forward tax losses - (360) (421) Adjustments in respect of prior year insurance technical provisions - - (161) Expenses and provisions not deductible for tax purposes - - 152 Other timing differences - - (21) Adjustments relating to prior periods - - (623) __________________________________ Tax charge for the period as above 20,613 16,316 34,774 =================================== 11. Earnings per share 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Profit for the period after taxation 48,093 39,271 84,720 Weighted average number of shares - basic 260,257,778 258,595,400 258,987,515 Earnings per share - basic 18.5p 15.2p 32.7p ======================================= Weighted average number of shares - diluted 260,698,278 259,861,400 259,387,515 Earnings per share - diluted 18.4p 15.1p 32.7p ======================================= 12. Dividends Dividends were declared and paid as follows: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 March 2005 (9.3p per share, paid May 2005) - 24,049 24,049 September 2005 (9.7p per share, paid October 2005) - - 25,141 March 2006 (14.9p per share, paid May 2006) 38,666 - - _____________________________________ Total dividends 38,666 24,049 49,190 ===================================== The dividend declared in March 2005 represents the final dividend paid in respect of the 2004 financial year (September 2005 - interim payment for 2005). The dividend declared in March 2006 was the final distribution in respect of 2005. 13. Intangible assets Goodwill Deferred Software Total acquisition costs £000 £000 £000 £000 Carrying amount: At 1 January 2005 62,354 2,794 1,319 66,467 Additions - 3,727 317 4,044 Amortisation charge - (3,281) (476) (3,757) ____________________________________________________ At 30 June 2005 62,354 3,240 1,160 66,754 ==================================================== At 1 January 2005 62,354 2,794 1,319 66,467 Additions - 7,407 385 7,792 Amortisation charge - (6,873) (896) (7,769) ____________________________________________________ At 31 December 2005 62,354 3,328 808 66,490 Additions - 3,307 96 3,403 Amortisation charge - (3,467) (234) (3,701) ____________________________________________________ At 30 June 2006 62,354 3,168 670 66,192 ==================================================== 14. Property, plant and equipment Improvements to Computer Office Furniture Motor Total short leasehold equipment equipment and fittings vehicles buildings Cost At 1 January 2005 1,931 6,792 2,978 1,627 12 13,340 Additions 340 555 71 43 - 1,009 Disposals (1,818) - (512) (404) - (2,734) ________________________________________________________________________ At 30 June 2005 453 7,347 2,537 1,266 12 11,615 ________________________________________________________________________ Depreciation At 1 January 2005 1,554 4,424 2,467 1,545 1 9,991 Charge for the year 122 534 183 26 2 867 Disposals (1,351) (1) (501) (376) - (2,229) ________________________________________________________________________ At 30 June 2005 325 4,957 2,149 1,195 3 8,629 ________________________________________________________________________ Net book amount At 30 June 2005 128 2,390 388 71 9 2,986 ======================================================================== Cost At 1 January 2005 1,931 6,792 2,978 1,627 12 13,340 Additions 567 2,742 155 150 - 3,614 Disposals (1,818) - (510) (405) - (2,733) ________________________________________________________________________ At 31 December 2005 680 9,534 2,623 1,372 12 14,221 ________________________________________________________________________ Depreciation At 1 January 2005 1,554 4,424 2,467 1,545 1 9,991 Charge for the year 226 1,179 355 61 3 1,824 Disposals (1,352) - (502) (376) - (2,230) ________________________________________________________________________ At 31 December 2005 428 5,603 2,320 1,230 4 9,585 ________________________________________________________________________ Net book amount At 31 December 2005 252 3,931 303 142 8 4,636 ======================================================================== Cost At 1 January 2006 680 9,534 2,623 1,372 12 14,221 Additions 808 902 1,151 336 - 3,197 Disposals - (5) - - - (5) ________________________________________________________________________ At 30 June 2006 1,488 10,431 3,774 1,708 12 17,413 ________________________________________________________________________ Depreciation At 1 January 2006 428 5,603 2,320 1,230 4 9,585 Charge for the year 34 869 138 49 2 1,092 Disposals - (5) - - - (5) ________________________________________________________________________ At 30 June 2006 462 6,467 2,458 1,279 6 10,672 ________________________________________________________________________ Net book amount At 30 June 2006 1,026 3,964 1,316 429 6 6,741 ======================================================================== The net book value of assets held under finance leases is as follows: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Computer equipment 3,510 2,414 2,380 Office equipment 271 736 767 ___________________________________ 3,781 3,150 3,147 =================================== 15. Financial assets The Group's financial assets can be analysed as follows: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Investments held at fair value 278,981 247,518 255,937 Receivables - amounts owed by policyholders 136,373 119,357 122,810 ___________________________________ Total financial assets 415,354 366,875 378,747 =================================== All receivables from policyholders are due within 12 months of the balance sheet date. Analysis of investments held at fair value: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Fixed income securities: Government bonds 114,059 68,188 83,071 Other listed securities 151,475 168,640 156,071 Variable interest securities: Other listed securities 13,447 10,690 16,795 ___________________________________ 278,981 247,518 255,937 =================================== 16. Reinsurance assets and insurance contract liabilities A) Analysis of recognised amounts: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Gross: Claims outstanding 187,490 159,392 170,216 Unearned premium provision 94,198 82,236 83,914 ___________________________________ Total gross insurance liabilities 281,688 241,628 254,130 =================================== Recoverable from reinsurers: Claims outstanding 43,865 46,367 41,585 Unearned premium provision 24,795 14,332 12,581 ___________________________________ Total reinsurers' share of insurance liabilities 68,660 60,699 54,166 =================================== Net: Claims outstanding 143,625 113,025 128,631 Unearned premium provision 69,403 67,904 71,333 ___________________________________ Total insurance liabilities - net 213,028 180,929 199,964 =================================== B) Analysis of net claims reserve 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. Six months ended 30 31 December 30 June 2005 June 2006 2005 £000 £000 £000 Underwriting year: 2000 370 - 370 2001 1,483 3,560 692 2002 1,937 3,229 1,937 2003 1,387 3,235 2,311 2004 - 2,076 4,091 2005 - - 437 ______________________________ Total net release 5,177 12,100 9,838 Net premium revenue 63,833 75,621 74,863 Release as % of net premium revenue 8.1% 16.0% 13.1% Financial year ended 31 December 2001 2002 2003 2004 2005 £000 £000 £000 £000 £000 Underwriting year: 2000 3,923 6,188 5,176 1,480 370 2001 - 2,490 7,938 2,967 5,043 2002 - - 2,975 3,229 5,166 2003 - - - 1,513 4,622 2004 - - - - 2,076 __________________________________________________ Total net release 3,923 8,678 16,089 9,189 17,277 Net premium revenue 84,135 81,336 79,327 107,501 139,454 Release as % of net premium revenue 4.7% 10.7% 20.3% 8.5% 12.4% C) Reconciliation of movement in net claims reserve: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Net claims reserve at start of period 128,631 98,120 98,120 Net claims incurred 54,130 45,683 97,324 Net claims paid (39,136) (30,778) (66,813) ____________________________________ Net claims reserve at end of period 143,625 113,025 128,631 ==================================== D) Reconciliation of movement in net unearned premium provision: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Net unearned premium provision at start of period 71,333 51,850 51,850 Written in the period 73,499 80,539 160,244 Earned in the period (75,429) (64,485) (140,761) _____________________________________ Net unearned premium provision at end of period 69,403 67,904 71,333 ===================================== 17. Trade and other receivables 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Trade debtors 9,739 27,955 6,905 Prepayments and accrued income 2,010 1,649 2,487 _____________________________________ Total trade and other receivables 11,749 29,604 9,392 ===================================== 18. Cash and cash equivalents 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Cash at bank and in hand 112,206 97,377 109,506 Cash on short term deposit 17,243 21,799 40,646 ____________________________________ Total cash and cash equivalents 129,449 119,176 150,152 ===================================== 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. 19. Financial liabilities 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Interest bearing bank loans - 29,471 22,000 ===================================== Analysis of borrowings: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Repayments falling due within 12 months - 11,471 - Repayments falling due after 12 months - 18,000 22,000 _____________________________________ - 29,471 22,000 ===================================== The Group's £30m debt facility is an unsecured revolving credit arrangement. Interest is charged on amounts drawn down based on LIBOR plus a margin. The facility was repaid during February 2006, as the funds were not required. Funds continue to be available under the facility, which expires in 2008. 20. Deferred income tax liability 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Brought forward at start of period 3,550 4,838 4,838 Movement in period (2,646) 1,539 (1,288) ____________________________________ Carried forward at end of period 904 6,377 3,550 ==================================== The net balance provided at the end of the current period is made up of a gross deferred tax liability of £1,170,000 (2005 H1: £6,671,000, full year: £3,816,000) relating to the tax treatment of Lloyd's Syndicates, and a deferred tax asset of £266,000 (2005 H1: £294,000, full year; £266,000) in respect of other timing differences. 21. Trade and other payables 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Trade payables 3,516 3,475 4,423 Amounts owed to co-insurers and reinsurers 111,502 105,325 98,054 Finance leases due within 12 months 1,796 1,696 1,963 Finance leases due after 12 months 450 491 886 Other taxation and social security liabilities 4,809 3,943 4,174 Other payables 11,023 13,294 10,066 Accruals and deferred income (see below) 67,154 61,842 63,369 ____________________________________ Total trade and other payables 200,250 190,066 182,935 ==================================== Analysis of accruals and deferred income: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Premium receivable in advance of policy 33,644 31,626 30,471 inception Accrued expenses 24,949 22,067 24,559 Deferred income 8,561 8,149 8,339 ____________________________________ Total accruals and deferred income as above 67,154 61,842 63,369 ==================================== Analysis of finance lease liabilities: At 30 June 2006 At 30 June 2005 Minimum Interest Principal Minimum Interest Principal lease lease payments payments £000 £000 £000 £000 £000 £000 Less than one year 275 20 255 760 34 726 Between one and five years 2,059 68 1,991 1,754 293 1,461 _______________________________________________________________________ 2,334 88 2,246 2,514 327 2,187 ======================================================================= At 31 December 2005 Minimum Interest Principal lease payments £000 £000 £000 Less than one year 2,171 208 1,963 Between one and five years 921 35 886 ________________________________ 3,092 243 2,849 ================================ 22. Share capital 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Authorised: 500,000,000 ordinary shares of 0.1p 500 500 500 ================================== Issued, called up and fully paid: 260,720,271 ordinary shares of 0.1p 261 - - 258,595,400 ordinary shares of 0.1p - 259 - 259,861,965 ordinary shares of 0.1p - - 260 __________________________________ 261 259 260 ================================== During the first half of 2006, 858,306 new ordinary shares of 0.1p were issued to the trusts administering the Group's share schemes. 330,306 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. 528,000 were issued to the Admiral Group Employee Benefit Trust for the purposes of the Admiral Group Senior Executive Restricted Share Plan. 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): 30 30 31 June June December 2006 2005 2005 £000 £000 £000 SIP charge (note i) 217 54 263 UFSS charge (note ii) 203 71 175 _________________________________ Total share scheme charges 420 125 438 ================================= (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 the first half of each year is £1,500 and £3,000 for the full year per employee. For maximum awards to be made, the Group's profit must exceed budget by 11.5 per cent. Employees must remain in employment until the vesting date (three years from the date of award), otherwise the shares will be forfeited (unless they are classed as a 'good leaver'). 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 Unapproved Free Share Scheme (the UFSS) Employees are eligible to receive an award of shares at no charge. Staff must remain in employment until the vesting date (which is three years from the award date) in order for the shares to vest. For an award to vest under the 2005 scheme, the total shareholder return (TSR) of Admiral Group plc shares over the three years 2005 to 2007 must be at least equal to the TSR of the FTSE 350 index, of which the Company is a constituent. If the Company's TSR does not meet this target, no awards will vest under the 2005 UFSS scheme. This hurdle has been removed for awards made under the 2006 UFSS scheme. If this initial hurdle is overcome, 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: • If the growth in EPS is less than the RFR, no awards vest • EPS growth is equal to RFR - 10% of maximum award vests • To achieve the maximum award, EPS growth has to be 36 points higher than RFR over the three year period Between 10% and 100% of the maximum awards, a linear relationship exists. Awards under the UFSS 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. Number of free share awards committed at 30 June 2006: Awards Vesting outstanding date SIP H1 05 scheme 581,565 September 2008 SIP H2 05 scheme 330,306 March 2009 SIP H1 06 scheme (estimated) 440,500 September 2009 UFSS 2005 scheme 759,697 June 2008 UFSS 2006 scheme 603,209 April 2009 __________ Total awards committed 2,715,277 ========== This reflects the maximum number of awards expected to be made before accounting for staff attrition. Of the 2,715,277 share awards outstanding above, 2,142,871 have been issued to the trusts administering the schemes, and are included in the issued share capital figures above. 23. Analysis of movements in capital and reserves Share Share Capital Retained Total equity capital premium profit and account redemption loss reserve £000 £000 £000 £000 £000 At 1 January 2005 259 13,145 17 131,213 144,634 Retained profit for the period - - - 39,271 39,271 Dividends - - - (24,049) (24,049) Share scheme charges - - - 357 357 _________________________________________________________ As at 30 June 2005 259 13,145 17 146,792 160,213 ========================================================= At 1 January 2005 259 13,145 17 131,213 144,634 Retained profit for the period - - - 84,720 84,720 Dividends - - - (49,190) (49,190) Issues of share capital 1 - - - 1 Share scheme charges - - - 1,247 1,247 _________________________________________________________ As at 31 December 2005 260 13,145 17 167,990 181,412 Retained profit for the period - - - 48,093 48,093 Dividends - - - (38,666) (38,666) Issues of share capital 1 - - - 1 Share scheme charges - - - 1,200 1,200 _________________________________________________________ As at 30 June 2006 261 13,145 17 178,617 192,040 ========================================================= 24. Financial commitments The Group was committed to obligations under operating leases on land and buildings as follows: 30 30 31 June June December Operating leases expiring: 2006 2005 2005 £000 £000 £000 Within one years 22 308 434 Within two to five years 30 62 52 Over five years 2,475 1,056 2,820 ___________________________________ Total commitments 2,527 1,426 3,306 =================================== In addition, the Group had contracted to spend the following on property, plant and equipment at the end of each period: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Expenditure contracted to 1,021 75 1,342 =================================== Independent review report to Admiral Group plc Introduction We have been engaged by the Company to review the financial information for the six months ended 30 June 2006, which comprise the Group Income Statement, the Group Balance Sheet, the Group statement of recognised income and expense, the Group cash flow statement and the related notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Listing Rules of the Financial Services Authority. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual financial statements except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 Review of interim financial information issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2006. KPMG Audit plc, Cardiff, 4 September 2006. This information is provided by RNS The company news service from the London Stock Exchange

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