Admiral Group PLC : Admiral Group plc Results for the Year Ended 31 December 2012 6 March 2013

 Admiral Group PLC : Admiral Group plc Results for the Year Ended 31 December
                              2012 6 March 2013

iral Group plc announces a strong annual result with profit before tax of £345
million for the year to December 2012, an increase of 15% over the previous
year. The Board is proposing a final dividend for 2012 of 45.5 pence per
share, to be paid on 24 May 2013.

2012 Preliminary Results Highlights

  *Group profit before tax up 15% at £345 million (2011: £299 million)
  *Earnings per share up 16% at 95.1 pence (2011: 81.9 pence)
  *Final dividend of 45.5 pence per share bringing the 2012 total dividend to
    90.6 pence per share up 20% (2011: 75.6 pence per share)
  *Return on capital of 60% (2011: 59%)
  *Group turnover* up 1% at £2.22 billion (2011: £2.19 billion)
  *Group vehicle count up 6% to 3.55 million (2011: 3.36 million)
  *International car insurance turnover* up 33% to £163 million with
    customers up 42% to 436,000 (2011: £122 million and 306,000 customers)
  *6,500 staff will receive Free Shares worth £3,000 in the Employee Share
    Scheme; £1,500 worth of shares based on the H1 2012 result, in addition to
    a further £1,500 worth of shares awarded in accordance with the full-year

* Turnover is defined as total premiums written (including co-insurers'
share) and other revenue

Comment from Alastair Lyons, Group Chairman
"We are pleased to report profit before tax up 15% at £345 million, and to
propose an increase in total dividends for the year of 20% to 90.6 pence per
share. This represents 95% of after-tax earnings, testament to the strength
of Admiral's capital-efficient and cash generative business model."

Comment from Henry Engelhardt, Group Chief Executive Officer
"2012 was Admiral's 20^th and most successful year to date. Looking back over
the last 20 years, I want to thank everyone who has helped us to create such a
robust business. Alongside our financial achievements we were proud to be
named the best large UK workplace by the Great Place to Work Institute and
also recently named theUK's 11^th Best Company to Work For by the Sunday

The Directors have proposed a final dividend of 45.5 pence (21.4 pence normal
and 24.1 pence special) per share, to be paid on 24 May 2013. The ex-dividend
date is 1 May 2013 and the record date 3 May 2013.

Management presentation
Analysts and investors will be able to access the Admiral Group management
presentation which commences at 08:30 GMT on Wednesday 6 March 2013 by
dialling + 44 (0)20 3059 8125. A copy of the presentation slides will be
available at

For more information, please contact:


Louise O'Shea - Investors & Analysts +44 (0)7791 443 732

Louisa Scadden - Media +44 (0)2920 434 394

Chairman's statement
In my statement last year I commented that I was very confident, given the
quality of our management and our staff, that 2012 would demonstrate their
capability and commitment to put the 2011 issue of higher than expected claims
behind us and restore lost shareholder value. This confidence has, I believe,
been fully justified with pre-tax profits 15% higher at £345m; reserve
releases from the 2010 and 2011 years; and a share price that was 36% higher
at the end of the year than the start. 

This level of profitability delivered a 60% return on capital employed and
supported total dividends of 90.6 pence per share, which represents a
distribution of 95% of our earnings. Our normal dividend, growing in line with
our growth in profits based on a 45% pay-out ratio, amounted to 42.7 pence per
share, whilst our available surplus, after taking into account our required
solvency, provision for our overseas expansion plans, and a margin for
contingencies, made possible a further special dividend of 47.9 pence per

Our UK Business
UK motor insurance is cyclical. As rates harden and profitability improves so
too interest in growth increases amongst insurers, raising marketing spend;
developing new offerings; and, in turn, leading to lower prices to grow share.
This phase continues until the market recognises that the new business it is
attracting is unprofitable for most, leading to a further turn. It makes good
economic sense to grow in the up-cycle and refrain from chasing the market
down in the down-cycle. This is even more the case for a player such as
Admiral that has a significant combined ratio advantage over the market as a
whole and can, therefore, afford to raise rates less quickly than the market
as a whole when the cycle turns up. The UK market reached its low point in
2009, a year that saw a totally unsustainable overall market combined ratio of
127%, and then raised rates significantly over the subsequent two years to
reflect the increasing cost of claims, in particular those relating to bodily
injury. By contrast, in 2009 Admiral had achieved a combined ratio of 94% and
was, therefore, able to take advantage of these market conditions to add
material growth to its UK motor book, finishing 2011 almost 60% larger than
two years previously. Similarly in 2012, as the second largest UK private
motor insurer, we have not sought to add to the downward pressure on prices
but have been content to hold our share broadly steady.

Admiral has always had a low appetite for risk. This is demonstrated by the
fact that we reinsure 75% of our book either through co-insurance or quota
share; we only invest in the highest quality assets with no equity exposure;
and when we enter new markets we do so slowly through organic growth, adopting
a test and learn approach. Nowhere is this low risk appetite more evident than
our approach to reserving against motor claims. We establish initial reserves
at the prudent end of potential outcomes, reviewing how claims develop in
subsequent years and releasing parts of the reserve to profit as and when
justified. In our reserving we seek to reflect not only what we know but what
may happen, such as potential changes to discount rates and increasing numbers
of periodic payment orders. Our approach to reserving is conservative; how
conservative will vary with our assessment of the level of uncertainty and
volatility to which our business is exposed.

Currently the UK motor market is undergoing significant change - the
implementation of the EU gender directive; the OFT referral to the Competition
Commission; the banning of referral fees; and the emergence of telematics
offerings are all potentially disruptive events. Admiral has, however, built
its business to embrace and profit from change, rather than fear it and we
have been as transparent as we can as to the likely effects of these changes
on our business. The management team has developed a flexible, responsive,
low-cost, data-rich business model that allows the effect of change to be
identified quickly, measured accurately, and responded to effectively. By
seeking to minimise bureaucracy, encourage individual managers to use their
initiative, and avoid management by committee which leads to an absence of
decision-taking and the abrogation of responsibility, we aim to react more
quickly than our competitors to changes in our environment. Through our
all-employee Free Share scheme we seek to motivate all of our people to work
together to achieve the best outcome for what is their business, creating a
total alignment between their interests and those of our shareholders. We
were, therefore, delighted to be named best large UK workplace by the Great
Places to Work Institute in 2012.

The customer is at the centre of everything we do. We design our products and
processes in order to meet their needs better than our competitors, and we are
now pleased to be able to offer our UK customers household insurance alongside
motor insurance. We seek feedback after every interaction in order to learn
how we can improve our service. Last year we received over 140,000 individual
items of feedback - in the critical area of claims processing over 90% of
those claiming under their policy said that they would take motor insurance
from us again. All departments have quality scores against their relevant key
performance indicators, and compete to win Quality Awards. For customer-facing
departments these quality measures underpin the regulatory assessment of our
compliance with the principles of Treating Customers Fairly. We fully support
initiatives that can reduce the overall cost of providing motor insurance, in
turn making possible a reduction in the premiums insurers have to charge their
customers. Minimising the potential for fraudulent claims and reducing
incidental claims costs both have their part to play.

Admiral Overseas
We have continued to grow our overseas businesses at the measured pace
dictated by a strategy of organic growth and within the constraints of the
challenging economic environment, particularly as affects southern Europe. We
are still very much at the stage of learning how best to compete in each of
these markets and shall focus in the near term on building the businesses that
we have established over the past six years. When each year I visit our
international operations I always know that I am in Admiral, testament to the
effectiveness with which our can-do culture, management ethos, and approach to
our customers and employees have been exported.

We are already seeing the results of investing in price comparison in new
markets in order to kick start the process of change to more active switching
of car insurance provider by consumers. Market data shows price comparison
growth in Italy, Spain and France and we are delighted to see others being
attracted by our initiative to establish their own price comparison sites in
markets where we provide motor insurance - the launch of Les Furets in France
is a case in point. The more impact price comparison can have, the stronger
the potential for direct insurance in these markets.

Our Board
Over the past couple of years we have added to our Board beyond its normal
size in anticipation of three of our Non-Executive Directors reaching the end
of the nine years following which they are no longer regarded as independent
under the UK Corporate Governance Code. By structuring this overlap we aim to
maintain the continuity of Board process and the strength of personal
interaction which underlies the effectiveness of the Board as a team. The
first of these, Keith James, stood down at our 2012 AGM although he continues
to bring his knowledge of our business and his wise counsel to bear through
his chairmanship of our principal UK-regulated operating subsidiaries. May I
take this opportunity to thank Keith for everything that he added to our
debate during his time on the Board.

I would  also  like  to extend  this  thanks  more generally  to  all  of  our 
Non-Executives for the  time they  give and the  commitment they  make to  our 
business. As our business expands and  broadens, and against the backdrop  of 
challenging economics and a demanding regulatory environment, what is expected
of Non-Executives, and in particular  Committee Chairs, bears little  relation 
to the position  that existed when  Admiral floated in  2004. During 2012  all 
Non-Executives visited at least one of our overseas businesses in addition  to 
the normal  Board process.  It is  only  by such  active engagement  with  the 
business and the opportunity to spend time with management across many  levels 
that Non-Executives can gain a real understanding of its underlying health and
potential. In a business that has sustained profitable growth as its objective
the depth and breadth of management is both the key enabler and the  potential 
greatest inhibitor. Our Board,  therefore, aims to assess  not only the  plans 
for immediate  succession but,  at least  as, if  not more,  importantly,  the 
emerging bench strength for 5  to 10 years time.  Throughout 2012 we have  had 
three senior managers  join the  Board in  each of  its meetings  in order  to 
broaden their  understanding of  the Group's  strategy and  Board process  and 
contribute actively to Board deliberations.

Thank You
A business is only as good as its people and every individual has their
particular contribution to the success of the whole. It is, therefore,
everyone in Admiral across all the various markets and functions that now make
up our Group that I must thank for what has been achieved in 2012. Whilst
there are many elements to why Admiral is different, for me the most
significant is that the management team has been successful in designing a
business where the overwhelming majority of those I meet enjoy coming to work
and through enjoying what they do, and the environment within which they work,
are more successful in what they do. It is, therefore, no surprise that the
average length of service of our 20 most senior UK managers is 13 years in a
company that is itself just 20 years old. I am confident that this depth of
focused knowledge and commitment within a supportive environment will lead to
a continued strong performance within our markets.

Alastair Lyons, CBE
5 March 2013

Chief Executive's statement

We've done the heavy lifting: the first 20 years. We've put the hole in the
ground and we've got the cranes in place. All that's left to do is to build
the metaphorical skyscraper. 

We've had our ups and downs, good moments and, well, less good moments, over
the first 7,304 days (we started on 2 January 1993 and there have been five
leap years along the way, but who's counting?). In 20 years, we've done a lot
of car insurance (totalturnover?£13 billion, our combined ratio over the
first 20 years? 84%), we've had a lot of laughs, lost (quite) a few hairs and
gained a few pounds. But the net result is my belief that the next 20 years
will make the first 20 seem downright pedestrian for Admiral Group. And if I
do my job well, then when the next wave of management takes over, it will
inherit a very strong foundation upon which to construct their skyscraper. 

Before we attack the next 20 years, let's take a look at the 20^th!    

In 2012 the return to form of the UK business was heart-warming to all of us.
We enjoyed substantial reductions in the actuarial view of best estimate for
the back years, which has in turn allowed us to release some reserves and
increase the reserve stock for the future. The upshot of all this is a 15%
increase in profits at Group level. Nice.

In addition, we did not chase growth. A common misconception seems to surround
the question of policyholder growth and profit growth. If one tries to make a
simple link between these two it would completely miss the third part of the
triangle: margin. Prices in the market fell more than 10% in 2012. We chased
it some of the way down but not all the way down. As a result we kept some
integrity with regard to margin. We believe that to have chased the market
further, such that we could present greater year-end policyholder growth,
would have meant sacrificing profit in both the short- and long-term. 

The UK car insurance market has, historically, been violently cyclical; some
profitable years followed by big losses. There is no reason to believe that
the market will stop being cyclical, although the extent of the future
violence is as yet unknown. Therefore there will be far better opportunities
to grow at the next turn in the cycle, when rates begin going up faster than
claims inflation. 

Admiral is in the enviable position of being profitable throughout the cycle.
This allows us to choose when we grow and how much we grow and what margins we

It was also a good sign that, for the first time in four years,
made more profit than the year before. However, the trading environment for
Confused will be even more challenging in 2013. The rate of aggregator growth
in the market is slowing. This isn't a surprise for two reasons: first, so
many people are already using price comparison that there aren't that many new
people left! Secondly, as rates tumble in the market consumers get renewal
notices with premiums lower than last year. This only serves to dampen their
enthusiasm for shopping. Confused is doing a lot of interesting things however
to try and insulate itself from the vagaries of the car insurance market. It
has, for example, a very sophisticated offering of credit cards and it has
developed a very nifty app to help drivers find parking wherever they're at in
the UK. 

2012 saw Admiral take a big but small step. After 19 years, 11 months and 16
days of having car insurance as the only stand-alone, underwritten product, we
launched household insurance in the UK on 18 December, 2012. It's a big step
because we have, for the first time, diversified the product range which we
underwrite. It's a small step because the business is intended to be very
small in the first year or two. Test and learn, test and learn...

The results outside the UK were mixed.

The insurance businesses made some strides towards their goal of being
growing, profitable, sustainable businesses - however, these strides were not
as long as anticipated. Overall the opportunities are well worth the
investment but we do need to pick up our game and make more progress, more

The non-UK price comparison businesses each had a good year. The results for
Rastreator and LeLynx, in Spain and France respectively, were better than
expected. These two businesses are poised for great things, but achieving
greatness is never easy.

Following on from the success of Rastreator and LeLynx, just after the end of
the year we launched the beta version of a price comparison site in the US, Until now no one has done European-style price comparison in
the US, and so Comparenow will plough new ground. Comparenow is attempting to
change normal shopping patterns on a big scale and success is sure to be
challenging and exciting in equal parts. 

Admiral Group's strategy is not complicated. Based on the premise that the
internet is an irresistible force, our strategy is to continue to progress in
the UK market while taking what we know and do well, which is internet and
telephone delivery of car insurance, beyond the UK. Translation: keep doing
what we're doing but do it better than we did it last year. 

And that in itself will be challenging because the bar was raised again in
2012 with a new record for profits (which we've done every year since we went
public in 2004 and actually a few years before) and a return on capital of

Financial milestones are great but one of the most rewarding moments of the
first 20 years came in 2012 when we were named the best large company to work
for in the UK and the 4^th best multinational company to work for in Europe,
by the Great Places to Work Institute. We have a simple philosophy at Admiral:
if people like what they do, they'll do it better. So we go out of our way to
make this a good place to work. The result: happier staff, record profits. 

Finally, it was a year marked by a long-overdue action. In the last half of
December David Stevens, co-founder and COO, several other senior managers and
I went through an entry-level sales training course and then got on the phones
with customers. So after 19 years and 50 weeks, I made my first sale! 

This experience was a real eye-opener. We all learned a great deal about our
business doing this but the biggest learning point was first-hand knowledge of
how great the people who work for us are. It was a pleasure to be trained by
them, helped by them, play games with them and learn from them. We all came
away with a huge respect for our staff's ability to tackle the challenges
created by a complicated product, systems, regulation, etc. and still give
great customer service every day. We also came away reinforced in our belief
that if you treat customers well they appreciate it and will treat you well

In sum, 2012 was the year of the kangaroo: it bounced around a little bit but
it turns out to be pretty big, strong and energetic, with the babies protected
in the mother's pouch. 

Great. We're off to a good start. Let's get on with the next 20 years. 

Henry Engelhardt, CBE
Chief Executive Officer
5 March 2013

UK Car Insurance Review

Twenty years ago, Admiral launched on a  grey Saturday in Wales - the  seventh 
of what ultimately became a couple of dozen Direct Line "clones"; new  players 
and subsidiaries  of big,  established insurers,  copying the  over-the-'phone 
"cut out the middle man" model. For such a superficially dull industry, those
twenty years have seen an astonishing pace of change.

For a start, of the  top five private car insurers  in 1993, only one made  it 
into the top five in 2011 (Royal,  Sun Alliance, AGF, Eagle Star, Direct  Line 
in 1993..Direct Line, Admiral, Aviva , LV & Axa in 2011).

Back in 1993, one in five customers made  a claim each year and almost all  of 
those were for bent metal or car theft. Twenty years on, it's heading towards
one in  ten making  a claim,  but most  of the  cost of  those claims  is  now 
attributable to  "bodily injury".  Of course,  most strikingly,  none of  the 
business in 1993 came via the internet,  and only a minority over the  'phone. 
Now, almost  three quarters  of  new customers  start  their journey  on  the 

But some things don't  change. The market average  expense ratio in 1993  was 
26%. Last year, after two decades of industry consolidation, I.T. investment,
adaption of direct  distribution, exploitation of  the internet, the  industry 
average expense ratio was  26%. Admiral's was  13%; delivering an  eighteenth 
year of  better-than-industry  average expense  ratio,  and a  tenth  year  of 
beating it by over ten percentage points.

Our claims  ratio has  also bettered  industry averages,  at least  since  the 
millennium. Our rapid rise up the league tables to be the UK's second largest
car insurer,  by vehicles  covered, is  all down  to this  sustained  superior 
underwriting performance over many years.

But that's history. What does the  future hold? The headlines (unusually  in 
the popular press, as well  as the trade press)  are dominated by the  current 
slew  of  actual  and  potential  legislative  and  regulatory  change  -  the 
Competition Commission,  hot on  the heels  of the  OFT enquiry,  the  Jackson 
reforms,  possible  further  changes  to  the  administration  of,  and  costs 
associated with bodily injury claims, the banning of gender-based rating,  the 
newly-formed Financial Conduct Authority's focus  on value for money  add-ons. 
But it's  not  the ultimate  outcome  of  this frenetic  activity  that  will 
determine the health  of Admiral's core  UK operation in  twenty years'  time. 
Current and proposed  changes, as  long as they're  implemented and  enforced 
even-handedly  and  universally  across  the  market,  don't  affect  relative 
competitive strength,  over anything  but the  very short-term.  Nor do  they 
affect overall industry  profitability. It  is, as  it has  always been,  the 
ability to execute better than others in dozens of individually insignificant,
but collectively important,  ways, and  to respond  to fundamental  underlying 
changes more quickly and more adeptly than competitors that will be the key to
future success.

Late last year, we launched our  first major product extension ever, with  the 
launch of household  insurance. One  question we will  be able  to answer  in 
twenty  years,   or   possibly  sooner,   is   whether  we've   developed   an 
industry-beating competence in a second  £6 billion market without losing  our 
edge in the ever more massive car insurance market.

In terms of concrete future guidance on household, all I can really say is "so
far, so good". Ten weeks in. For what that's worth.

David Stevens, CBE
ChiefOperating Officer
5 March 2013

Group financial highlights and key performance indicators

£m                       2010      2011      2012
Turnover*           £1,584.8m £2,190.3m £2,215.1m
Net revenue           £640.8m   £870.3m   £984.3m
Number of customers     2.75m     3.36m     3.55m
Loss ratio              69.4%     78.9%     78.9%
Expense ratio           19.9%     16.8%     17.7%
Combined ratio          89.3%     95.7%     96.6%
Profit before tax     £265.5m   £299.1m   £344.6m
Earnings per share      72.3p     81.9p     95.1p
Dividends per share     68.1p     75.6p     90.6p
Return on capital         59%       59%       60%

*Turnover comprises total premiums written and other revenue

Admiral Group grew pre-tax profits in 2012 by 15% to £344.6 million (2011:
£299.1 million) and earnings per share by 16% to 95.1 pence (2011: 81.9

Turnover increased slightly to £2,215.1 million (2011: £2,190.3 million),
whilst net revenue rose 13% to £984.3 million (2011: £870.3 million).
Customer numbers were 6% higher at the end of 2012 at 3.55 million (2011:
3.36 million).

UK Car Insurance delivered a profit of £372.8 million - up 19% on 2011's
result of £313.6 million, primarily driven by higher net insurance premium
revenue and an improved combined ratio (along with associated profit
commission). Turnover for this core business accounted for 87% of the Group
total (2011: 90%) and 85% of customers (2011: 88%). Growth in the UK was
moderated in 2012 in response to conditions in the UK market.

Admiral's international car insurance businesses continue to develop, with
turnover rising 33% to £162.9 million (2011: £122.1 million) and customer
numbers reaching 435,900 - an increase of 42% on a year earlier. The combined
loss from the operations was, however, higher, at £24.5 million (2011: loss of
£9.5 million). This was predominantly a result of growth in the younger
businesses and some strengthening of back year claims reserves in the more
mature businesses.

The Group's UK price comparison business,, delivered a pre-tax
profit of £18.2 million - around £2 million higher than 2011's result, on 7%
higher revenue. Outside the UK, Admiral's international price comparison
businesses ( in Spain and in France) made a combined
loss of only £0.2 million (2011: loss of £5.6 million) whilst combined revenue
increased by nearly 70%. The Group sold its Italian price comparison
business,, in April 2012.

Admiral's capital-efficient and highly profitable business model led to return
on capital employed of 60% (2011: 59%). A key feature of the business model
is the extensive use of co- and reinsurance across the Group. During the
first half of 2012 Admiral announced extensions to its UK reinsurance
arrangements until at least the end of 2014. Admiral's long-term UK
co-insurance agreement (covering 40% of the business) runs to at least the end
of 2016. 

Other Group key performance indicators include:

  *Group loss ratio of 78.9% in line with 2011 (an improved UK loss ratio
    offsetting a higher international ratio)
  *Group expense ratio 17.7%, up from 16.8% in 2011 (an improved UK ratio
    offset by a higher international ratio)
  *Group combined ratio at 96.6% (2011: 95.7%)

Total dividends paid and proposed for the financial year amount to 90.6 pence
per share (£245 million), an increase of 20% on the previous year (2011: 75.6
pence; £203 million). The final dividend proposed is 45.5 pence per share
(25% higher than the final 2011 dividend of 36.5 pence).

UK Car Insurance
Non-GAAP*1 format income statement

£m                                    2010    2011    2012
Turnover*2                         1,419.7 1,966.0 1,936.2
Total premiums written*3           1,237.6 1,728.8 1,748.7
Net insurance premium revenue        269.4   418.6   455.6
Investment income                      8.3    10.6    13.9
Net insurance claims               (192.6) (335.5) (355.1)
Net insurance expenses              (32.4)  (46.7)  (50.0)
Underwriting profit                   52.7    47.0    64.4
Profit commission                     67.0    61.8   108.4
Net ancillary income                 142.4   181.5   170.9
Instalment income                     13.7    23.3    29.1
UK Car Insurance profit before tax   275.8   313.6   372.8

*1 GAAP = Generally Accepted Accounting Practice
*2 Turnover (a non-GAAP measure) comprises total premiums written and other
*3 Total premiums written (non-GAAP) includes premium underwritten by

Split of 2012 underwriting profit

£m                  Motor Ancillary Total
Underwriting profit  59.6       4.8  64.4

Key performance indicators

                                    2010   2011   2012
Reported motor loss ratio          68.3%  77.3%  76.1%
Reported motor expense ratio       15.2%  14.0%  13.6%
Reported motor combined ratio      83.5%  91.3%  89.7%
Written basis motor expense ratio  14.4%  13.2%  13.0%
Claims reserve releases           £23.5m £10.3m £17.6m
Vehicles insured at year-end       2.46m  2.97m  3.02m
Other revenue per vehicle            £84    £84    £79

UK Car Insurance - Co-insurance and Reinsurance

Admiral (in the UK and internationally) makes significant use of proportional
risk sharing agreements, where insurers outside the Group underwrite a
majority of the risk generated, either though co-insurance or quota share
reinsurance contracts. These arrangements include profit commission terms
which allow Admiral to retain a significant portion of the profit generated.

The two principal advantages of the arrangements are:

- Capital efficiency - The majority of the capital supporting the underwriting
is held outside the Group. As Admiral is typically able to retain much of the
profit generated via profit commission, the return on Group capital is higher
than in an insurance company with a standard business model.

- Risk mitigation - Co- and reinsurers bear their proportional shares of
claims expenses and hence provide protection should results worsen

Arrangements for 2012 to 2014

In early 2012 the Group was pleased to announce extensions to its arrangements
such that capacity is fully placed until the end of 2014. The underwriting
splits can be summarised as follows:

                        2012    2013    2014
Admiral                25.00%  25.00%  25.00%
Great Lakes (Munich Re) 40.00%  40.00%  40.00%
New Re                  13.25%  13.25%  13.25%
Hannover Re             8.75%   8.75%   8.75%
Swiss Re                7.50%   7.50%   9.00%
Mapfre Re               3.00%   3.00%   4.00%
XL Re                   2.50%   2.50%  -
Total                   100.00% 100.00% 100.00%

The proportion underwritten by Great Lakes (a UK subsidiary of Munich Re) is
on a co-insurance basis, such that 40% of all motor premium and claims for the
2012 year accrues directly to Great Lakes and does not appear in the Group's
income statement. Similarly, Great Lakes reimburses the Group for its
proportional share of expenses incurred in acquiring and administering the
motor business.

That contract will run until at least the end of 2016, and will see Great
Lakes co-insure 40% of the UK business for the remaining period. Admiral has
committed to retain at least 25% for the duration, whilst the allocation of
the balance is at Admiral's discretion.

All other agreements are quota share reinsurance.

The European and US arrangements are explained below in the International Car
Insurance section.

UK Car Insurance Financial Performance

Commentary on Admiral's UK Car Insurance business result and its market is
contained in Chief Operating Officer David Stevens' review above.

As noted in the Group's interim 2012 results, the UK Car Insurance market
became substantially more price competitive in 2012 than it had been during
2010 and 2011, over which period Admiral grew its business significantly.
Whilst the number of customers continued to grow, the rate of growth was
slowed significantly as Admiral opted to preserve margin rather than chase

Total premium written in 2012 was broadly flat compared to 2011 at just over
£1.7 billion, whilst the number of customers rose 2% year-on-year to 3.02
million at 31 December 2012. Vehicle count in the second half of the year was
flat. Across new business and renewals, Admiral cut its rates by around 6% in
2012. Average written premium for the year was around £580, down 9% on 2011,
due in part to the rate cuts and in part to portfolio changes (notably a shift
in favour of renewal business).

Profit from UK Car Insurance increased by 19% to £372.8 million (2011: £313.6

UK Car Insurance Underwriting Result and Profit Commission

The UK combined ratio improved by around two percentage points in 2012 as

UK Car Insurance Combined Ratio        2011  2012
Loss Ratio excluding reserve releases 79.8% 80.0%
Reserve releases                       2.5%  3.9%
Loss Ratio net of releases            77.3% 76.1%
Expense Ratio                         14.0% 13.6%
Combined Ratio                        91.3% 89.7%

The loss ratio before releases was broadly flat in the year, though larger
reserve releases (3.9% of net earned premium compared to 2.5%) led to an
improved net loss ratio of 76.1%.

The higher level of releases compared to 2011 reflected the more positive
development during the year in projected ultimate outcomes on prior
underwriting years (notably 2011 and 2010). Claims development in general
during 2012 was encouraging; with no repeat of the spike in large bodily
injury claims that occurred during H2 2011. 

The projected ultimate combined ratio for Admiral for the 2012 accident year
is 83%, compared to 82% for the 2011 year. The reported combined ratio for
the UK market for 2011 was 105%.

Claims Reserving

Admiral's reserving policy (both within the claims function and in the
financial accounts) is initially to reserve conservatively, above internal and
independent projections of ultimate loss ratios. This is designed to create a
margin held in reserves to allow for unforeseen adverse development in open
claims and typically results in Admiral making above industry average reserve

As profit commission income is recognised in the income statement in line with
loss ratios accounted for on Admiral's own claims reserves, the reserving
policy also results in profit commission income being deferred and released
over time.

The improved combined ratio, along with the significant growth in the size of
the business since 2009, has led to a material increase in profit commission
income recognised in 2012 - at £108.4 million compared to £61.8 million
(though the comparative figure was subdued by the disappointing claims
experience in 2011). Note 4c) to the financial statements analyses profit
commission income by underwriting year.

Total profit from car insurance underwriting and profit commission increased
significantly, by 54% to £168.0 million from £108.8 million.

UK Car Insurance Other Revenue - Analysis of Contribution:

£m                              2010   2011   2012
Ancillary contribution         168.3  213.9  205.2
Underwritten ancillary profit      -      -    4.8
Instalment income               13.7   23.3   29.1
Other revenue                  182.0  237.2  239.1
Internal costs                (25.9) (32.4) (34.3)
Net other revenue              156.1  204.8  204.8
Other revenue per vehicle        £84    £84    £79

Admiral generates other revenue from a portfolio of insurance products that
complement the core car insurance product, and also fees generated over the
life of the policy. There is also some (less significant) income from other
products unconnected to car insurance.

The most material contributors to net other revenue are:

  *Profit earned from motor policy upgrade products underwritten by Admiral,
    including breakdown, car hire and personal injury covers
  *Profit from other insurance products, not underwritten by Admiral
  *Vehicle Commission (refer below)
  *Fees - administration fees, wasted leads and referral income (refer below)
  *Instalment income - interest charged to customers paying for cover in

Vehicle Commission

With effect from 1 April 2012, Admiral no longer earns Other Revenue from the
sale of legal protection policies. In addition, the Group began charging its
panel of co- and reinsurers a vehicle commission. Admiral's car insurance
policies will continue to include legal protection as an integral feature and
there has been no impact on customers in the level of cover or cost of
policies as a result of this change. The planned overall economic impact of
these two changes is not significant.

However, the accounting recognition and treatment of vehicle commission
results in Other Revenue per vehicle in 2012 being reduced by approximately £6
(£16 million in total). Further detail on the intra-group element of vehicle
commission is set out in note 3. 

Referral Fees

As previously noted, personal injury referral fees will be banned with effect
from 1 April 2013. In 2012 Admiral earned approximately £6 per vehicle
insured (£18.6 million) from personal injury referral fees. 

In additional, in 2012 Admiral earned around £5 per vehicle in credit hire
referral fees (£13.6 million). Admiral notes that the UK Competition
Commission has recently embarked upon a review of the car insurance market and
a potential outcome of the review is a further ban on credit hire referral

International Car Insurance Financial Performance
Non-GAAP format income statement^*1

£m                              2010   2011   2012
Turnover                        77.6  122.1  162.9
Total premiums written          71.0  112.5  148.5
Net insurance premium revenue   18.7   27.2   43.3
Investment income                0.1    0.2    0.1
Net insurance claims          (15.9) (28.3) (49.4)
Net insurance expenses        (16.5) (16.2) (27.4)
Underwriting result           (13.6) (17.1) (33.4)
Net ancillary income             5.3    8.0    8.9
Other revenue and charges        0.3  (0.4)      -
Non-UK Car Insurance result    (8.0)  (9.5) (24.5)

Note - Pre-launch costs excluded

Key Performance Indicators^*1

£m                           2010    2011    2012
Reported loss ratio           85%    104%    114%
Reported expense ratio        88%     60%     63%
Reported combined ratio      173%    164%    177%
Vehicles insured          195,000 306,000 436,000
Other revenue per vehicle     £34     £32     £25

*1 Figures include AdmiralDirekt (sold in January 2011)

International Car Insurance Co-insurance and Reinsurance

Reinsurance arrangements for the 2012 year remained the same as 2011 in all
countries, with Admiral retaining 35% (Spain and Italy), 30% (France) and one
third (USA) of the underwriting risk respectively.

The arrangements for 2013 will remain the same, other than in Spain, where
Admiral will retain 30% of the risk, down from 35% in 2012. The balance of
70% will be shared equally between Munich Re and Swiss Re.

All contracts are subject to certain caps on the reinsurers' exposures and all
contracts have profit commission terms that allow Admiral to receive a
proportion of the profit earned on the underwriting once the business reaches
cumulative profitability. The contracts include proportional sharing of
ancillary profits.

International Car Insurance Financial Performance

Admiral's international insurance businesses (in aggregate and individually)
continued to grow, adding 130,000 customers and ending 2012 42% larger than a
year earlier. Turnover grew 33% to £162.9 million (2011: £122.1 million). 

Growth in the younger businesses, along with some adverse prior year claims
development in the more mature operations, led to a higher combined ratio
however, which increased to 177% from 164%. The higher combined ratio, in
conjunction with higher net insurance premium revenue led to a higher loss, of
£24.5 million in 2012, up from £9.5 million in 2011.

As the Group's new insurance operations grow, it is expected that they will
make losses until appropriate scale has been achieved. Although the 2012 loss
was higher than anticipated, the Group is satisfied with the progress each
business continues to make towards the goal of becoming a sustainable,
growing, profitable operation.

Price Comparison Financial Performance
Non-GAAP format income statement

£m                                       2010   2011   2012
Car insurance price comparison           59.6   72.2   82.5
Other                                    16.1   18.2   21.0
Total                                    75.7   90.4  103.5
Operating expenses                     (63.6) (79.9) (85.5)
Operating profit                         12.1   10.5   18.0 profit                      16.9   16.1   18.2
International Price Comparison result*  (4.8)  (5.6)  (0.2)

                                         12.1   10.5   18.0

* excludes pre-launch costs. Figures include results of, which
was sold in April 2012. The disposal did not have material impact on the
income statement.

UK Price Comparison - continues to operate in the very competitive UK price comparison
market, which has been dominated by four businesses for a number of years.
Media spend remained high, though growth in the number of car insurance
policies distributed via the channel in 2012 was lower than in prior years.

Against this backdrop, delivered an improved result, with revenue
7% higher at £82.7 million (2011: £77.6 million) and profit up £2.1 million to
£18.2 million (2011: £16.1 million). Market share in car insurance price
comparison was stable.

Revenue from non-car insurance comparison sources increased in actual terms
and continued to represent around one fifth of total revenue.'s
operating margin improved slightly to 22% (2011: 21%).

International Price Comparison

Following the sale of the Italian price comparison operation (Chiarezza)
during H1 2012 and the launch in Q1 2013 of a new operation in the USA,
Admiral now operates three price comparison businesses outside the UK; in
Spain (Rastreator), France (LeLynx) and the USA (

The combined revenue from the operations in 2012 (on a like-for-like basis)
increased by 67% to £21 million, with 29% more quotes delivered. Both
Rastreator and LeLynx both have strong positions and brands in their
respective markets.

The combined result for International Price Comparison was a loss of £0.2
million - notably improved from a £5.7 million loss in 2011. 

The disposal of Chiarezza had an insignificant impact on the income statement.

In March 2013, Admiral launched a new price comparison operation in the USA
(based in Virginia), trading as The initial investment in the
new business is not expected to be material in the context of the Group.
Pre-launch costs are included in Other Group Items, below.

Other Group Items

£m                           2010   2011   2012
Gladiator operating profit    2.7    2.8    2.5
Group net interest income     1.1    2.9    1.9
Share scheme charges       (15.0) (18.6) (20.6)
Expansion costs             (1.1)  (0.8)  (2.1)
Other central overhead      (2.1)  (1.8)  (3.4)


Gladiator is a commercial vehicle insurance broker offering van insurance and
associated products, typically to small businesses. Distribution is via
telephone and internet (including price comparison websites).

Non-GAAP income statement and key performance indicators

£m                 2010   2011   2012

Revenue            11.8   11.7   12.5
Expenses          (9.1)  (8.9) (10.0)

Operating profit    2.7    2.8    2.5

Operating margin    23%    24%    20%
Customer numbers 94,500 87,900 94,800

The van insurance broking market remained competitive during 2012, and
although Gladiator increased revenue to £12.5 million (2011: £11.7 million),
operating margin was lower at 20% and resulting operating profit fell to £2.5
million from £2.8 million.

Gladiator increased its customer base by around 8% to 94,800.

Share Scheme Charges

These costs relate to the Group's two share schemes, further detail on which
is set out in the notes to the financial statements. The increase in the
charge relates to a higher number of shares awarded in 2012 compared to 2011
(resulting from increased headcount across the Group). 

UK Household Insurance

In December 2012, the Group launched a UK household insurance product,
underwritten within the Group and based in the Group's Cardiff offices.
Common with other launches, initial plans are modest, and the business is
supported by proportional reinsurance covering 70% of the underwriting risk
(shared between Munich Re, 40% and Swiss Re, 30%).

Investments and Cash
Investment Strategy

Admiral maintained a low-risk investment strategy throughout the year, with a
broadly consistent allocation of funds to the three main asset categories
(cash at bank, cash deposits and money market funds) as in recent years. 

The key focus of the Group's investment strategy is capital preservation, with
additional priorities including low volatility of returns and high levels of

The Group's Investment Committee continues to perform regular reviews of the
strategy to ensure it remains appropriate.

Cash and Investments Analysis

                                            31 December 2012
                               UK Car           Car      Price
                            Insurance     Insurance Comparison Other   Total
                                   £m            £m         £m    £m      £m
Money market funds and
short-dated debt securities   1,074.5          76.7          -  74.6 1,225.8
Cash deposits                   370.5           5.3          -     -   375.8
Cash                            125.0          50.2       25.4  16.0   216.6
Total                         1,570.0         132.2       25.4  90.6 1,818.2
                                            31 December 2011
                               UK Car           Car      Price
                            Insurance     Insurance Comparison Other   Total
                                   £m            £m         £m    £m      £m
Money market funds              761.1          66.0          -  35.0   862.1
Cash deposits                   290.7           6.3          -     -   297.0
Cash                            117.8          38.9        8.8  59.1   224.6
Total                         1,169.6         111.2        8.8  94.1 1,383.7

The only notable change in asset allocation during 2012 was a higher
proportion invested in money market funds and short-dated debt securities and
a move away from cash compared to 2011. All investment objectives continue to
be met.

Investment and interest income in 2012 was £15.9 million, up 16% on 2011
(£13.7 million). The rate of return was similar to 2011, at slightly less
than 1%.

The Group continues to generate substantial amounts of cash, and its capital
efficient business model enables the distribution of the majority of post-tax
profits as dividends.

£m                                                      2010    2011    2012
Operating cash flow, before transfers to investments   522.0   779.1   742.0
Transfers to financial investments                   (240.8) (493.9) (441.9)

Operating cash flow                                    281.2   285.2   300.1
Tax and interest payments                             (69.5)  (95.3)  (79.7)
Investing cash flows (capital expenditure)            (11.1)  (13.2)  (10.9)
Financing cash flows (largely dividends)             (164.9) (197.8) (214.8)
Foreign currency translation impact                    (0.8)   (1.0)   (2.7)

Net cash movement                                       34.9  (22.1)   (8.0)

Net increase in cash and financial investments         276.9   473.8   434.5

The main items contributing to the significant operating cash inflow are as

£m                                               2010  2011  2012

Profit after tax                                193.6 221.3 258.4

Change in net insurance liabilities             129.7 244.3 200.0
Net change in trade receivables and liabilities 101.4 203.7 163.0
Non-cash income statement items                  25.4  32.0  34.4
Tax and net interest expense                     71.9  77.8  86.2

Operating cash flow, before transfers to
investments                                     522.0 779.1 742.0

The key features to note are:

  *Total cash plus investments increased by £435 million or 31% (2011: £474
    million, 52%), the lower rate of growth resulted from lower growth in the
    UK business; somewhat offset by higher growth internationally

  *The net change in actual cash balances was small, as funds were
    transferred into investments 

Other Financial Items

The taxation charge in the income statement is £86.2 million (2011: £77.8
million), which equates to 25.0% (2011: 26.0%) of profit before tax. The
average rate of UK Corporation Tax in 2012 was 24.5%.

Earnings Per Share

Basic earnings per share rose by 16% to 95.1 pence from 81.9 pence. The
change is in line with profit growth.


The Directors have proposed a final dividend for the financial year of 45.5
pence per share. Total dividends for the year amount to 90.6 pence per share,
20% higher than the 75.6 pence per share distributed in respect of 2011.

The final dividend is made up of a 21.4 pence normal element based on the
stated dividend policy of distributing 45% of post-tax profits, and a further
special element of 24.1 pence. The special dividend is calculated with
reference to distributable reserves after considering capital that is required
to be held a) for regulatory purposes; b) to fund expansion activities; and c)
as a further prudent buffer against unforeseen events.

The payment date is 24 May 2013, ex-dividend date 1 May and record date 3 May.

Capital Structure, Financial Position

The Group continues to manage its capital to ensure that all entities within
the Group are able to continue as going concerns and also to ensure that
regulated entities comfortably meet regulatory capital requirements  Excess
capital above these levels within subsidiaries is paid up to the Group holding
company in the form of dividends on a regular basis.

Capital continues to be held in equity form, with no debt.

The majority of the Group's capital requirement is derived from its European
insurance operations, Admiral Insurance (Gibraltar) Limited (AIGL) and Admiral
Insurance Company Limited (AICL). The minimum capital requirements and
surplus position at the end of the 2012 for those companies, along with the
overall Group position was as follows:

£m                                           AIGL AICL Group
Net assets less goodwill                    £170m £85m £395m
Minimum capital requirement                  £78m £25m £122m
Surplus over minimum requirement             £92m £60m £273m
Total regulatory capital requirement                   £240m
Surplus over regulatory capital requirement            £155m

The Directors note the delay in the progress towards implementing the Solvency
II regulatory regime in the EU. As previously noted, the Directors do not
believe, based on current guidance, that there will be a material change in
the level of the Group's capital surplus under the new regime.

Consolidated income statement

                                                                Year ended:
                                                       31 December 31 December
                                                              2012        2011
                                             Note:              £m          £m
Insurance premium revenue                                  1,156.5       959.7
Insurance premium ceded to reinsurers                      (657.6)     (513.9)
Net insurance premium revenue                  4             498.9       445.8
Other revenue                                  6             361.1       349.0
Profit commission                              4             108.4        61.8
Investment and interest income                 5              15.9        13.7
Net revenue                                                  984.3       870.3
Insurance claims and claims handling
expenses                                                   (929.1)     (785.9)
Insurance claims and claims handling
expenses recoverable from reinsurers                         524.6       422.1
Net insurance claims                                       (404.5)     (363.8)
Operating expenses                             7           (214.6)     (188.8)
Share scheme charges                           7            (20.6)      (18.6)
Total expenses                                             (639.7)     (571.2)

Profit before tax                                            344.6       299.1

Taxation expense                               8            (86.2)      (77.8)

Profit after tax                                             258.4       221.3

Profit after tax attributable to:

Equity holders of the parent                                 258.4       221.2
Non-controlling interests                                        -         0.1

                                                             258.4       221.3

Earnings per share:
Basic                                         10             95.1p       81.9p

Diluted                                       10             94.9p       81.7p

Dividends declared and paid (total)           10             219.3       198.8
Dividends declared and paid (per share)       10             81.6p       74.6p

Consolidated statement of comprehensive income

                                                           Year ended:
                                                       31 December 31 December
                                                              2012        2011
                                                                £m          £m
Profit for the period                                        258.4       221.3
Other comprehensive income
Exchange differences on translation of foreign
operations                                                  (2.7)       (1.0)
Other comprehensive income for the period, net of
income tax                                                   (2.7)       (1.0)
Total comprehensive income for the period                    255.7       220.3
Total comprehensive income for the period attributable
Equity holders of the parent                                 255.9       220.2
Non-controlling interests                                    (0.2)         0.1
                                                             255.7       220.3

Consolidated statement of financial position

                                                            As at:
                                                       31 December 31 December
                                                              2012        2011
                                        Note:                   £m          £m

Property and equipment                    9                   16.5        17.6
Intangible assets                         9                   92.5        87.5
Deferred income tax                       8                   15.2        10.3
Reinsurance assets                        4                  803.0       639.8
Trade and other receivables              5, 9                 55.3        52.1
Financial assets                          5                2,005.1     1,583.0
Cash and cash equivalents                 5                  216.6       224.6

Total assets                                               3,204.2     2,614.9


Share capital                             10                   0.3         0.3
Share premium account                                         13.1        13.1
Other reserves                                                 0.7         3.2
Retained earnings                                            443.0       377.3

Total equity attributable to equity holders of the
parent                                                       457.1       393.9

Non-controlling interests                                      3.6         0.5

Total equity                                                 460.7       394.4


Insurance contracts                       4                1,696.9     1,333.7
Trade and other payables                 5, 9              1,006.5       856.6
Current tax liabilities                                       40.1        30.2

Total liabilities                                          2,743.5     2,220.5

Total equity and total liabilities                         3,204.2     2,614.9

These financial statements were approved by the Board of Directors on 5 March
2013 and were signed on its behalf by:

Kevin Chidwick
Admiral Group plc
Company Number: 03849958

Consolidated cash flow statement

                                                        Note       31       31
                                                             December December
                                                                 2012     2011
                                                                   £m       £m

Profit after tax                                                258.4    221.3
Adjustments for non-cash items:
- Depreciation                                                    6.6      6.1
- Amortisation of software                                        4.1      3.3
- Change in unrealised gains on investments                     (0.6)    (1.9)
- Other gains and losses                                          0.6      0.9
- Share scheme charges                                   7       23.7     23.6
Change in gross insurance contract liabilities                  363.2    527.1
Change in reinsurance assets                                  (163.2)  (282.8)
Change in trade and other receivables, including from
policyholders                                                    13.1   (88.4)
Change in trade and other payables, including tax and
social security                                                 149.9    292.1
Taxation expense                                                 86.2     77.8

Cash flows from operating activities, before movements
in investments                                                  742.0    779.1

Net cash flow into investments                                (441.9)  (493.9)
Cash flows from operating activities, net of movements
in investments                                                  300.1    285.2
Taxation payments                                              (79.7)   (95.3)

Net cash flow from operating activities                         220.4    189.9

Cash flows from investing activities:

Proceeds from investing activities                                  -      3.9
Purchases of property, equipment and software                  (10.9)   (16.8)

Net cash used in investing activities                          (10.9)   (12.9)

Cash flows from financing activities:

Non-controlling interest capital contribution                     4.6        -
Capital element of new finance leases                               -      1.0
Repayment of finance lease liabilities                          (0.1)    (0.3)
Equity dividends paid                                    10   (219.3)  (198.8)

Net cash used in financing activities                         (214.8)  (198.1)

Net decrease in cash and cash equivalents                       (5.3)   (21.1)

Cash and cash equivalents at 1 January                          224.6    246.7
Effects of changes in foreign exchange rates                    (2.7)    (1.0)

Cash and cash equivalents at end of period               5      216.6    224.6

Consolidated statement of changes in equity

                                  Share  Foreign   Retained       Non-
                          Share premium exchange profit and ontrolling    Tota
                        capital account   eserve       loss  interests  equity
                             £m      £m       £m         £m         £m      £m

At 1 January 2011           0.3    13.1      4.2      332.7        0.4   350.7

Profit for the period         -       -        -      221.2        0.1   221.3

Other comprehensive
Currency translation
differences                   -       -    (1.0)          -          -   (1.0)

Total comprehensive
income for the period         -       -    (1.0)      221.2        0.1   220.3

Transactions with
Dividends                     -       -        -    (198.8)          - (198.8)
Share scheme credit           -       -        -       23.6          -    23.6
Deferred tax charge on
share scheme credit           -       -        -      (1.4)          -   (1.4)

Total transactions with
equity-holders                -       -        -    (176.6)          - (176.6)

As at 31 December 2011      0.3    13.1      3.2      377.3        0.5   394.4

At 1 January 2012           0.3    13.1      3.2      377.3        0.5   394.4

Profit for the period         -       -        -      258.4          -   258.4

Other comprehensive
Currency translation
differences                   -       -    (2.5)          -      (0.2)   (2.7)

Total comprehensive
income for    the
period                        -       -    (2.5)      258.4      (0.2)   255.7

Transactions with
Dividends                     -       -        -    (219.3)          - (219.3)
Share scheme credit           -       -        -       23.7          -    23.7
Deferred tax credit on
share scheme credit           -       -        -        1.5          -     1.5
Transactions with
interests                     -       -        -        1.4        3.3     4.7

Total transactions with
equity-holders                -       -        -    (192.7)        3.3 (189.4)

As at 31 December 2012      0.3    13.1      0.7      443.0        3.6   460.7

Notes to the financial statements

1.  General information and basis of preparation

General information

Admiral Group plc is a Company incorporated in England and Wales. Its
registered office is at Capital Tower, Greyfriars Road, Cardiff CF10 3AZ and
its shares are listed on the London Stock Exchange.

The consolidated financial statements have been prepared and approved by the
Directors in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union (EU). The Company has elected to
prepare its Parent Company financial statements in accordance with UK
Generally Accepted Accounting Practice (GAAP).

Adoption of new and revised standards

The Group has applied all adopted IFRS and interpretations endorsed by the EU
at 31 December 2012, including all amendments to extant standards that are not
effective until later accounting periods.

There are a number of standards, amendments to standards and interpretations
that were issued by 31 December 2012 but have either yet to be endorsed by the
EU, or were endorsed shortly after the year end. These are as follows:

  *IFRS 9 Financial Instruments
  *Government Loans (Amendments to IFRS 1)
  *Improvements to IFRSs 2009-2011
  *Transition guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12)
  *Investment entities (Amendments to IFRS 10, IFRS 12 and IAS 27)

None of these standards, amendments to standards or interpretations of current
standards above will have a material impact on the Group's financial
statements in future periods.

In addition, none of the standards or interpretations adopted for the first
time in the year have had a material impact on the consolidated financial
results or position of the Group for the year ended 31 December 2012.

Basis of preparation

The accounts have been prepared on a going concern basis. In considering the
appropriateness of this assumption, the Board have reviewed the Group's
projections for the next twelve months and beyond, including cash flow
forecasts and regulatory capital surpluses. The Group has no debt. 

The directors have a reasonable expectation that the company has adequate
resources to continue in operational existence for the foreseeable future.
Thus they continue to adopt the going concern basis in preparing the annual
financial statements.

Further information regarding the company's business activities, together with
the factors likely to affect its future development, performance and position,
is set out in the business review above. Further information regarding the
financial position of the company, its cash flows, liquidity position and
borrowing facilities are described in the Business Review above. In addition
notes 5 and 10 to the financial statements include the company's objectives,
policies and processes for managing its capital; its financial risk management
objectives; details of its financial instruments; and its exposures to credit
risk and liquidity risk.

The accounting policies set out in the notes to the financial statements have,
unless otherwise stated, been applied consistently to all periods presented in
these Group financial statements.

The financial statements are prepared on the historical cost basis, except for
the revaluation of financial assets classified as at fair value through profit
or loss.

Subsidiaries are entities controlled by the Group. Control exists when the
Group has the power, directly or indirectly, to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.
In assessing control, potential voting rights that are currently exercisable
or convertible are taken into account. The financial statements of
subsidiaries are included in the consolidated financial statements from the
date that control commences until the date that control ceases.

The preparation of financial statements in conformity with adopted IFRS
requires management to make judgements, estimates and assumptions that affect
the application of policies and reported amounts of assets and liabilities,
income and expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making the judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the year in which the estimate is reviewed if this
revision affects only that year, or in the year of the revision and future
years if the revision affects both current and future years. To the extent
that a change in an accounting estimate gives rise to changes in assets and
liabilities, it is recognised by adjusting the carrying amount of the related
asset or liability in the period of the change.

2.  Critical accounting judgements and estimates


In applying the Group's accounting policies as described in the notes to the
financial statements, management has primarily applied judgement in the
classification of the Group's contracts with reinsurers as 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
each such contract, and if necessary obtains the opinion of an independent
expert at the negotiation stage in order to be able to make this judgement.

Estimation techniques used in calculation of claims provisions:

Estimation techniques are used in the calculation of the provisions for claims
outstanding, which represent a projection of the ultimate cost of settling
claims that have occurred prior to the balance sheet date and remain unsettled
at the balance sheet date.

The key area where these techniques are used relates to the ultimate cost of
reported claims. A secondary area relates to the emergence of claims that
occurred prior to the balance sheet date, but had not been reported at that

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

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 reserves are subject to independent review by the Group's actuarial
advisors. Management's reserving policy is to reserve at a level above best
estimate assumptions to allow for unforeseen adverse claims development. For
further detail on objectives, policies and procedures for managing insurance
risk, refer to note 4 of the financial statements.

Future changes in claims reserves also impact profit commission income, as the
recognition of this income is dependent on the loss ratio booked in the
financial statements, and cash receivable is dependent on actuarial
projections of ultimate loss ratios.

3.  Group consolidation and operating segments

3a)  Accounting policies

(i)    Group consolidation

The consolidated 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 2012 and comparative figures for the year ended 31 December
2011. The financial statements of the Company's subsidiaries are consolidated
in the Group financial statements. The Company controls 100% of the voting
share capital of all its principal subsidiaries, except Limited
and Inspop USA LLC. 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 in the consolidated financial

(ii)    Foreign currency translation

Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ('the functional currency'). The consolidated financial
statements are presented in millions of pounds sterling, which is the Group's
presentation currency.

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

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

The financial statements of foreign operations whose functional currency is
not pounds sterling are translated into the Group presentation currency
(sterling) as follows:

  *Assets and liabilities for each balance sheet presented are translated at
    the closing rate at the date of that balance sheet;

  *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

  *All resulting exchange differences are recognised in other comprehensive
    income and in a separate component of equity. 

On disposal of a foreign operation, the cumulative amount recognised in equity
relating to that particular operation is recognised in the income statement.

3b)  Segment reporting

The Group has four reportable segments, as described below. These segments
represent the principal split of business that is regularly reported to the
Group's Board of Directors, which is considered to be the Group's chief
operating decision maker in line with IFRS 8, Operating Segments.

UK Car Insurance:

The segment consists of the underwriting of car insurance and other products
that supplement the car insurance policy. It also includes the generation of
ancillary income from underwriting car insurance in the UK. The Directors
consider the results of these activities to be reportable as one segment as
the activities carried out in generating the income are not independent of
each other and are performed as one business. This mirrors the approach taken
in management reporting.

International Car Insurance:

The segment consists of the underwriting of car insurance and the generation
of ancillary income from underwriting car insurance outside of the UK. It
specifically covers the Group operations Admiral Seguros in Spain, ConTe in
Italy, L'olivier Assurances in France and Elephant Auto in the USA. None of
these operations are reportable on an individual basis, based on the threshold
requirements in IFRS 8.

Price Comparison:

The segment relates to the Group's price comparison websites Confused in the
UK, Rastreator in Spain and LeLynx in France. The Group's price comparison
operation in Italy, Chiarezza was sold in 2012. Each of the Price Comparison
businesses are operating in individual geographical segments but are grouped
into one reporting segment as LeLynx and Rastreator do not individually meet
the threshold requirements in IFRS 8.


The 'other' segment is designed to be comprised of all other operating
segments that do not meet the threshold requirements for individual reporting.
Currently there is only one such segment, the Gladiator commercial van
insurance broking operation, and so it is the results and balances of this
operation comprises the 'other' segment.

The Group launched a UK Household insurance product at the end of 2012. There
are no transactions relating to household insurance within any of the segments
reported below.

Taxes are not allocated across the segments and, as with the corporate
activities, are included in the reconciliation to the Consolidated Income
Statement and Consolidated Statement of Financial Position.

An analysis of the Group's revenue and results for the year ended 31 December
2012, by reportable segment are shown below. The accounting policies of the
reportable segments are consistent with those presented in the notes to the
financial statements for the Group.

                                                              31 December 2012
                   UK Car International      Price  Other Eliminations Segment
                Insurance Car Insurance Comparison                       total
                       £m            £m         £m     £m           £m      £m

Turnover*         1,936.2         162.9      103.5   12.5            - 2,215.1
Net insurance
revenue             455.6          43.3          -      -            -   498.9

Other revenue
and profit
commission          342.7          10.8      103.5   12.5            -   469.5

Investment and
income               13.9           0.1          -      -            -    14.0

Net revenue         812.2          54.2      103.5   12.5            -   982.4
Net insurance
claims            (355.1)        (49.4)          -      -            - (404.5)

Expenses           (84.3)        (29.3)     (85.5) (10.0)            - (209.1)

Segment profit
/ (loss)
before tax          372.8        (24.5)       18.0    2.5            -   368.8

Other central revenue and expenses, including share
scheme charges                                                          (26.1)
income                                                                     1.9

Consolidated profit
before tax                                                               344.6
expense                                                                 (86.2)
Consolidated profit after
tax                                                                      258.4

Other segment
expenditure           6.1           3.1        0.9    0.1            -    10.2
Amortisation         28.8          26.2        1.0    0.3            -    56.3

*Turnover is a non-GAAP measure and consists of total premiums written
(including co-insurers share) and other revenue.

Revenue and results for the corresponding reportable segments for the year
ended 31 December 2011 are shown below.

                                                              31 December 2011
                    UK Car International      Price Other Eliminations Segment
                 Insurance Car Insurance Comparison                      total
                        £m            £m         £m    £m           £m      £m

Turnover*          1,966.0         122.2       90.4  11.7            - 2,190.3

Net insurance
revenue              418.6          27.2          -     -            -   445.8

Other revenue
and profit
commission           299.0           9.7       90.4  11.7            -   410.8

Investment and
income                10.6           0.2          -     -            -    10.8

Net revenue          728.2          37.1       90.4  11.7            -   867.4

Net insurance
claims             (335.5)        (28.3)          -     -            - (363.8)

Expenses            (79.1)        (18.3)     (79.9) (8.9)            - (186.2)

Segment profit
/ (loss)
before tax           313.6         (9.5)       10.5   2.8            -   317.4

Other central revenue and expenses, including share
scheme charges                                                          (21.2)
income                                                                     2.9

Consolidated profit before
tax                                                                      299.1

expense                                                                 (77.8)

Consolidated profit after
tax                                                                      221.3

Other segment
expenditure           12.4           2.9        1.1   0.4            -    16.8
Amortisation          37.8          11.8        1.2   0.3            -    51.1

*Turnover is a non-GAAP measure and consists of total premiums written
(including co-insurers share) and other revenue.

Segment revenues

The UK and International Car Insurance reportable segments derive all
insurance premium income from external policyholders. Revenue within these
segments is not derived from an individual policyholder that represents 10% or
more of the Group's total revenue.

The total of Price Comparison revenues from transactions with other reportable
segments is £13.0m (2011: £14.9m). These amounts have not been eliminated on
consolidation as the Directors consider that not doing so results in a better
overall presentation of the financial statements. The impact on the financial
statements in the current and prior period is not material. There are no other
transactions between reportable segments.

Within the UK Car Insurance segment, transactions between the Group's
intermediary and the Group's insurance companies relating to vehicle
commission totalling £7.0m have not been eliminated (from the insurance
expenses and other revenue lines in the income statement) in order to ensure
consistency between the financial statements and key performance indicators
quoted in the business review. There is no profit impact of the

Revenues from external customers for products and services is consistent with
the split of reportable segment revenues as shown above.

Information about geographical locations

All material revenues from external customers, and net assets attributed to a
foreign country are shown within the International Car Insurance reportable
segment shown above. The revenue and results of the two International Price
Comparison businesses, Rastreator and LeLynx are not yet material enough to be
presented as a separate segment.

Segment assets and liabilities

The identifiable segment assets and liabilities at 31 December 2012 are as

                                                              31 December 2012
                  UK Car  International       Price                    Segment
               Insurance  car insurance  Comparison Other Eliminations   total
                      £m             £m          £m    £m           £m      £m
Property and
equipment           11.6            2.8         1.7   0.4            -    16.5

assets              77.6           13.8         1.0   0.1            -    92.5

assets             717.1           85.9           -     -            -   803.0

Trade and
receivables         98.7         (20.6)         9.1   9.5       (41.4)    55.3

assets           1,833.2           97.3           -     -            - 1,930.5

Cash and
equivalents        125.0           50.2        25.4   5.6            -   206.2

assets           2,863.2          229.4        37.2  15.6       (41.4) 3,104.0

liabilities      1,543.0          153.9           -     -            - 1,696.9

Trade and
payables           961.8           31.9         6.5   6.3            - 1,006.5

liabilities      2,504.8          185.8         6.5   6.3            - 2,703.4

segment net
assets             358.4           43.6        30.7   9.3       (41.4)   400.6

Unallocated assets and liabilities                                        60.1

Consolidated net assets                                                  460.7

Unallocated assets and liabilities consist of other central assets and
liabilities, plus deferred and current corporation tax balances. These assets
and liabilities are not regularly reviewed by the Board of Directors in the
reportable segment format.

There is an asymmetrical allocation of assets and income to the reportable
segments, in that the interest earned on cash and cash equivalent assets
deployed in the UK Car Insurance, Price Comparison and International Car
Insurance segments is not allocated in arriving at segment profits. This is
consistent with regular management reporting. 

Eliminations represent inter-segment funding and balances included in trade
and other receivables.

The segment assets and liabilities at 31 December 2011 are as follows.

                                                              31 December 2011
                  UK Car  International       Price                    Segment
               Insurance  car insurance  Comparison Other Eliminations   total
                      £m             £m          £m    £m           £m      £m

Property and
equipment           12.1            3.1         1.8   0.6            -    17.6

assets              78.4            8.5         0.5   0.1            -    87.5

assets             570.3           69.5           -     -            -   639.8

Trade and
receivables        118.7          (5.5)       (0.2)   9.0       (69.9)    52.1

assets           1,464.8           83.2           -     -            - 1,548.0

Cash and
equivalents        117.8           38.9         8.8   4.4            -   169.9

assets           2,362.1          197.7        10.8  14.1       (69.9) 2,514.8

liabilities      1,215.4          118.3           -     -            - 1,333.7

Trade and
payables           816.1           28.3         6.6   5.6            -   856.6

liabilities      2,031.5          146.5         6.6   5.6            - 2,190.2

segment net
assets             330.6           51.2         4.2   8.5       (69.9)   324.6

Unallocated assets and liabilities                                        69.8

Consolidated net assets                                                  394.4

4    Premium, Claims and Profit Commissions

4a)  Accounting policies

(i)    Revenue recognition - premiums:

Premiums relating to insurance contracts are recognised as revenue
proportionally over the period of cover. Premiums with an inception date after
the end of the period are held in the statement of financial position as
deferred revenue. Outstanding collections from policyholders are recognised
within policyholder receivables.

(ii)    Revenue recognition - profit commission:

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 revenue being recognised when loss and expense
ratios used in the preparation of the financial statements, move below an
agreed threshold.

(iii)    Insurance contracts and reinsurance assets:


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


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 (net of deferred acquisition costs)
to meet future claims and related expenses. 


The Group has entered into certain co-insurance contracts under which
insurance risks are shared on a proportional basis, with the co-insurer taking
a specific percentage of premium written and being responsible for the same
proportion of each claim. As the contractual liability is several and not
joint, neither the premiums nor claims relating to the co-insurance are
included in the income statement. Under the terms of these agreements the
co-insurers reimburse the Group for the same proportionate share of the costs
of acquiring and administering the business.

  *Reinsurance assets

Contracts entered into by the Group with reinsurers under which the Group is
compensated for losses on the insurance contracts issued by the Group are
classified as reinsurance contracts. A contract is only accounted for as a
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

4b)  Net insurance premium revenue

                                                                 31       31
                                                           December December
                                                               2012     2011
                                                                 £m       £m

Total motor insurance premiums written before co-insurance  1,897.2  1,841.3

Group gross premiums written after co-insurance             1,167.2  1,128.4
Outwards reinsurance premiums                               (679.1)  (622.0)

Net insurance premiums written                                488.1    506.4

Change in gross unearned premium provision                   (10.7)  (168.7)
Change in reinsurers' share of unearned premium provision      21.5    108.1

Net insurance premium revenue                                 498.9    445.8

The Group's share of the car insurance business was underwritten by Admiral
Insurance (Gibraltar) Limited, Admiral Insurance Company Limited and Elephant
Insurance Company. All contracts are short-term in duration, lasting for 10 or
12 months.

4c)  Profit commission

                               31       31
                         December December
                             2012     2011
                               £m       £m
Underwriting year:
2009 & prior                (2.3)      2.3
2010                          9.4     46.8
2011                         98.1     12.7
2012                          3.2        -

Total profit commission     108.4     61.8

4d)  Reinsurance assets and insurance contract liabilities

(i)    Objectives, policies and procedures for the management of insurance

The Group is involved in issuing motor insurance contracts that transfer risk
from policyholders to the Group and its underwriting partners. 

Insurance risk primarily involves uncertainty over the occurrence, amount or
timing of claims arising on insurance contracts issued. 

The key reserving risk is that the frequency and / or value of the claims
arising exceeds expectation and the value of insurance liabilities

The Board of Directors is responsible for the management of insurance risk,
although as mentioned in note 5, it has delegated the task of supervising risk
management to the Group Risk Committee.

The Board implements certain policies in order to mitigate and control the
level of insurance risk accepted by the Group. These include underwriting
partnership arrangements, pricing policies and claims management and
administration policies.

A number of the key elements of these policies and procedures are detailed

  *Co-insurance and reinsurance

As noted in the business review, the Group cedes a significant amount of the
motor insurance business generated to external underwriters. In 2012, 40% of
the UK risk was shared under a co-insurance contract, under which the primary
risk is borne by the co-insurer. A further 35% of the UK risk was ceded under
quota share reinsurance contracts. Co-insurance and reinsurance contracts are
also used in the International car insurance businesses. Further detail can be
found in the Business review above.

As well as these proportional arrangements, an excess of loss reinsurance
programme is also purchased to protect the Group against very large individual
claims and catastrophe losses.

  *Data driven pricing

The Group's underwriting philosophy is focused on a sophisticated data-driven
approach to pricing and underwriting and on exploiting the competitive
advantages direct insurers enjoy over traditional insurers through:

  *Collating and analysing more comprehensive data from customers;

  *Tight control over the pricing guidelines in order to target profitable
    business sectors; and

  *Fast and flexible responsiveness to data analysis and market trends.

The Group is committed to establishing premium rates that appropriately price
the underwriting risk and exposure. Rates are set utilising a larger than
average number of underwriting criteria. 

The Directors believe that there is a strong link between the increase in
depth of data that the Group has been able to collate over time and the lower
than average historic reported loss ratios enjoyed by the Group.

  *Effective claims management

The Group adopts various claims management strategies designed to ensure that
claims are paid at an appropriate level and to minimise the expenses
associated with claims management. These include:

  *An effective, computerised workflow system (which along with the
    appropriate level of resources employed helps reduce the scope for error
    and avoids significant backlogs);

  *Use of an outbound telephone team to contact third parties aiming to
    minimise the potential claims costs and to ensure that more third parties
    utilise the Group approved repairers;

  *Use of sophisticated and innovative methods to check for fraudulent

Concentration of insurance risk:

The Directors do not believe there are significant concentrations of insurance
risk. This is because, although the Group has historically written only one
line of insurance business, the risks are spread across a large number of
people and a wide regional base.

(ii)  Sensitivity of recognised amounts to changes in assumptions:

The following table sets out the impact on equity and profit or loss at 31
December 2012 that would result from a 1 per cent movement in the UK loss
ratios used for each underwriting year for which material amounts remain

                          Underwriting year
                         2009 2010 2011 2012
Booked loss ratio         77%  75%  76%  84%
Impact of 1% change (£m)  5.3  8.3 12.0  6.0

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.

(iii)    Analysis of recognised amounts:

                                                        31       31
                                                  December December
                                                      2012     2011
                                                        £m       £m


Claims outstanding                                 1,147.7    781.1
Unearned premium provision                           549.2    552.6

Total gross insurance liabilities                  1,696.9  1,333.7

Recoverable from reinsurers:

Claims outstanding                                   487.3    334.2
Unearned premium provision                           315.7    305.6

Total reinsurers' share of insurance liabilities     803.0    639.8


Claims outstanding                                   660.4    446.9
Unearned premium provision                           233.5    247.0

Total insurance liabilities - net                    893.9    693.9

The maturity profile of gross insurance liabilities at the end of 2012 is as

                                  < 1 Year 1 - 3 years > 3 years
                                        £m          £m        £m

Claims outstanding                   344.1       391.7     411.9
Unearned premium provision           549.2           -         -

Total gross insurance liabilities    893.3       391.7     411.9

The maturity profile of gross insurance liabilities at the end of 2011 was  as 

                                  < 1 Year 1 - 3 years > 3 years
                                     £m          £m        £m

Claims outstanding                   234.3       266.6     280.2
Unearned premium provision           552.6           -         -

Total gross insurance liabilities    786.9       266.6     280.2

(iv)  Analysis of UK claims incurred:

The following tables illustrate the development of net UK Car Insurance claims
incurred for the past four financial periods, including the impact of
re-estimation of claims provisions at the end of each financial year. The
first table shows actual net claims incurred, and the second shows the
development of UK loss ratios. Figures are shown net of reinsurance and are on
an underwriting year basis.

                                          Financial year ended 31 December
Analysis of claims incurred (Net
amounts):                                 2009    2010    2011    2012   Total
                                         £m      £m      £m      £m      £m
Underwriting year (UK only):

2009 and earlier                       (132.4)  (53.9)     8.7   (5.5)
2010                                         - (130.2) (128.6)     8.4 (250.3)
2011                                         -       - (203.7) (151.1) (354.8)
2012                                         -       -       - (191.3) (191.3)

UK net claims incurred (excluding
claims handling costs)                 (132.4) (184.1) (323.6) (339.5)
International net claims incurred       (13.6)  (15.9)  (28.3)  (54.2)
Claims handling costs and other
amounts                                  (5.7)   (8.5)  (11.9)  (10.8)

Total net claims incurred              (151.7) (208.5) (363.8) (404.5)

UK loss ratio development:   2009 2010 2011 2012

Underwriting year (UK only):

2007                          72%  70%  69%  69%
2008                          79%  74%  72%  73%
2009                          84%  75%  77%  77%
2010                               78%  77%  75%
2011                                    82%  76%
2012                                         84%

(v)  Analysis of net claims provision releases (UK business only):

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
                                                    2009   2010   2011    2012
                                                      £m     £m     £m      £m
Underwriting year:

2009 & prior                                        31.3   23.5    8.7   (5.5)
2010                                                   -      -    1.6     8.4
2011                                                   -      -      -    14.7

Total net release                                   31.3   23.5   10.3    17.6

Net releases on Admiral net share                  31.3   23.1    7.8    16.3
Releases on commuted quota share reinsurance
contracts^1                                            -    0.4    2.5     1.3
Total net release as above                          31.3   23.5   10.3    17.6

^1 Admiral typically commutes quota share reinsurance contracts in its UK Car
Insurance business 24 or 36 months following the start of the underwriting
year. After commutation, any changes in claims costs on the commuted
proportion of the business are reflected within claims costs and are
separately analysed here.

(vi)  Reconciliation of movement in net claims provision:

                                                          31       31
                                                    December December
                                                        2012     2011
                                                          £m       £m

Net claims provision at start of period                446.9    269.0

Net claims incurred                                    393.7    351.9
Movement in net claims provision due to commutation    102.2     44.0
Net claims paid                                      (282.4)  (218.0)

Net claims provision at end of period                  660.4    446.9

(vii)  Reconciliation of movement in net unearned premium provision:

                                                         31       31
                                                   December December
                                                       2012     2011
                                                         £m       £m

Net unearned premium provision at start of period     247.0    180.6

Written in the period                                 488.1    506.4
Earned in the period                                (501.6)  (440.0)

Net unearned premium provision at end of period       233.5    247.0

5  Investments

5a)  Accounting policies

(i)    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 and interest income on held to maturity

(ii)    Financial assets - investments and receivables:

  *Initial recognition

Financial assets within the scope of IAS 39 are classified as financial assets
at fair value through profit or loss, loans and receivables or held to
maturity investments.

At initial recognition assets are recognised at fair value and classified
according to the purpose for which they were acquired.

The Group's investments in money market liquidity funds are designated as
financial assets at fair value through profit or loss (FVTPL) at inception.

This designation is permitted under IAS 39, as the investments in money market
funds are managed as a group of assets and internal performance evaluation of
this group is conducted on a fair value basis.

The Group's deposits with credit institutions are classified as held to
maturity investments, which is consistent with the intention for which they
were purchased.

  *Subsequent measurement

Financial assets at FVTPL are stated at fair value, with any resultant gain or
loss recognised through the income statement.

Deposits with fixed maturities, classified as held to maturity investments are
measured at amortised cost using the effective interest method. Movements in
the amortised cost are recognised through the income statement, as are any
impairment losses.

Loans and receivables are stated at their amortised cost less impairment using
the effective interest method. Impairment losses are recognised through the
income statement.

  *Impairment of financial assets

The Group assesses at each balance sheet date whether any financial assets or
groups of financial assets held at amortised cost, are impaired. Financial
assets are impaired where there is evidence that one or more events occurring
after the initial recognition of the asset, may lead to a reduction in the
estimated future cashflows arising from the asset.

Objective evidence of impairment may include default on cashflows due from the
asset and reported financial difficulty of the issuer or counterparty.

  *Derecognition of financial assets

A financial asset is derecognised when the rights to receive cashflows from
that asset have expired or when the Group transfers the asset and all the
attaching substantial risks and rewards relating to the asset, to a third

  *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. All cash and cash equivalents are measured at amortised cost.

5b)  Investment and interest income

                                            31       31
                                      December December
                                          2012     2011
                                            £m       £m

Net investment return                     14.0     10.8
Interest receivable                        1.9      2.9

Total investment and interest income      15.9     13.7

Interest received during the year was £1.9m (2011: £2.9m).

5c)  Financial assets and liabilities

The Group's financial instruments can be analysed as follows:

                                                                   31       31
                                                             December December
                                                                 2012     2011
Financial assets:                                                  £m       £m

Investments held at fair value                              1,025.4     862.1
Held to maturity deposits with credit institutions              375.8    297.0
Held to maturity deposits short dated debt securities           200.4        -
Receivables - amounts owed by policyholders                     403.5    423.9

Total financial assets per consolidated statement of
financial position                                            2,005.1  1,583.0

Trade and other receivables                                      55.3     52.1
Cash and cash equivalents                                       216.6    224.6

                                                              2,277.0  1,859.7
Financial liabilities:

Trade and other payables                                      1,006.5    856.6

All investments held at fair value are invested in AAA-rated money market
liquidity funds. These funds target a short term cash return with capital
security and low volatility and continue to achieve these goals.

The approximate fair value of held to maturity deposits plus short dated debt
securities is £562.8m (2011: £280.8m) based on a calculation to discount
expected cashflows arising at the Group's weighted average cost of capital
(WACC). The amortised cost carrying amount of receivables is a reasonable
approximation of fair value.

The maturity profile of financial assets and liabilities at 31 December 2012
is as follows:

                                             On < 1 Year   Between 1 > 2 Years
                                         demand          and 2 years
Financial assets:                            £m       £m          £m        £m

Investments held at fair value          1,025.4        -           -         -
Held to maturity deposits with credit
institutions                                  -    213.8       162.0         -
Held to maturity short dated debt
securities                                    -    200.4           -         -
Receivables - amounts owed by
policyholders                                 -    403.5           -         -

Total financial assets                  1,025.4    817.7       162.0         -

Trade and other receivables                   -     55.3           -         -
Cash and cash equivalents                 216.6        -           -         -

                                        1,242.0    873.0       162.0         -
Financial liabilities:

Trade and other payables                      -  1,006.5           -         -

The maturity profile of financial assets  and liabilities at 31 December  2011 
was as follows:

                                              O < 1 Year   Between 1 > 2 Years
                                         demand          and 2 years
Financial assets:                            £m       £m          £m        £m

Investments held at fair value            862.1        -           -         -
Held to maturity deposits with credit
institutions                                  -    175.3        79.2      42.5
Receivables - amounts owed by
policyholders                                 -    423.9           -         -

Total financial assets                    862.1    599.2        79.2      42.5

Trade and other receivables                   -     52.1           -         -
Cash and cash equivalents                 224.6        -           -         -

                                        1,086.7    651.3        79.2      42.5
Financial liabilities:

Trade and other payables                      -    856.6           -         -

Objectives, policies and procedures for managing financial assets and

The Group's activities expose it primarily to financial risks of credit risk,
interest rate risk, liquidity risk and foreign exchange risk. The Board of
Directors has delegated the task of supervising risk management and internal
control to the Risk Committee. There is also an Investment Committee that
makes recommendations to the Board on the Group's investment strategy.

There are several key elements to the risk management environment throughout
the Group. These are detailed in full in the Corporate Governance statement.
Specific considerations for the risks arising from financial assets and
liabilities are detailed below.

1.    Credit risk

The Group defines credit risk as the risk of loss if another party fails to
perform its obligations. The key areas of exposure to credit risk for the
Group result through its reinsurance programme, investments, bank deposits and
policyholder receivables.

Economic and financial market conditions have led the Directors to consider
counterparty exposure more frequently and in significant detail.  The
Directors consider that the policies and procedures in place to manage credit
exposure continue to be appropriate for the Group's risk appetite, and during
2012 and historically no material credit losses have been experienced by the

There are no specific concentrations of credit risk with respect to investment
counterparties due to the structure of the liquidity funds which invest in a
wide range of very short duration, high quality securities. Cash balances and
deposits are placed only with highly rated credit institutions. The detailed
holdings are reviewed regularly by the Investment Committee.

To mitigate the risk arising from exposure to reinsurers (in the form of
reinsurance recoveries and profit commissions), the Group only conducts
business with companies of appropriate financial strength ratings. In
addition, most reinsurance contracts are operated on a funds withheld basis,
which substantially reduces credit risk, as the Group holds the cash received
as collateral.

The other principal form of credit risk is in respect of amounts due from
policyholders, largely due to the potential for default by instalment payers.
The impact of this is mitigated by the large customer base and low average
level of balance recoverable. There is also mitigation by the operation of
numerous high- and low-level controls in this area, including payment on
policy acceptance as opposed to inception and automated cancellation
procedures for policies in default.

The Group's maximum exposure to credit risk at 31 December 2012 is £2,221.7m
(2011: £1,807.6m) being the carrying value of financial assets and cash. The
group does not use credit derivatives or similar instruments to mitigate
exposure. The amount of bad debt expense relating to policyholder debt
charged to the income statement in 2011 and 2012 is insignificant.

There were no significant financial assets that were past due at the close of
either 2012 or 2011.

The Group's credit risk exposure to assets with external ratings is as

                                                           31       31
                                                     December December
                                              Rating     2012     2011
                                                           £m       £m
Financial institutions - Money market funds      AAA  1,025.4    862.1
Financial institutions - Credit institutions     AAA     60.1        -
Financial institutions - Credit institutions      AA    169.2    178.2
Financial institutions - Credit institutions       A    506.4     98.0
Financial institutions - Credit institutions     BBB     57.1     20.8
Reinsurers                                        AA    117.8        -
Reinsurers                                         A    196.3     88.3
Reinsurers                                       BBB      6.5        -

2.    Interest rate risk

The Group considers interest rate risk to be the risk that unfavourable
movements in interest rates could adversely impact on the capital values of
financial assets and liabilities. This relates primarily to investments held
at fair value.

As noted above, the Group invests in money market liquidity funds, which in
turn invest in a mixture of very short dated fixed and variable rate
securities, such as cash deposits, certificates of deposits, floating rate
notes and other commercial paper. The funds are not permitted to have an
average maturity greater than 60 days and hence are not subject to large
movements in yield and value resulting from changes in market interest rates
(as longer duration fixed income portfolios can experience). Returns are
likely to closely track the LIBID benchmark and hence while the Group's
investment return will vary according to market interest rates, the capital
value of these investment funds will not be impacted by rate movements. The
interest rate risk arising is therefore considered to be minimal.

During the year the Group has placed funds into two segregated mandates. The
guidelines of the investments retain the credit quality of the money market
liquidity funds, whilst holding the securities on a hold to maturity basis. As
the duration of the securities is short there is no material interest rate
risk relating to these investment.

The Group also holds a number of fixed-rate, longer-term deposits with
strongly-rated credit institutions. These are classified as held to maturity
and valued at amortised cost. Therefore neither the capital value of the
deposits, or the interest return will be impacted by fluctuations in interest

No sensitivity analysis to interest rates has been presented on the grounds of

3.    Liquidity risk

Liquidity risk is defined as the risk that the Group does not have sufficient,
available, financial resources to enable it to meet its obligations as they
fall due, or can only secure them at excessive cost.

The Group is strongly cash-generative due to the large proportion of revenue
arising from non-underwriting activity. Further, as noted above, a
significant portion of insurance funds are invested in money market liquidity
funds with same day liquidity, meaning that a large proportion of the Group
cash and investments are immediately available. 

A breakdown of the Group's financial liabilities - trade and other payables is
shown in note 9. In terms of the maturity profile of these liabilities, all
amounts will mature within 3 - 6 months of the balance sheet date. (Refer to
the maturity profile at the start of this note for further detail.)

In practice, the Group's Directors expect actual cashflows to be consistent
with this maturity profile except for amounts owed to co-insurers and
reinsurers. Of the total amounts owed to co- insurers and reinsurers of
£723.5m (2011: £579.4m), £609.6m (2011: £432.9m) is held under funds withheld
arrangements and therefore not expected to be settled within 12 months.

A maturity analysis for insurance contract liabilities is included in note 4.

The maturity profile for financial assets is included at the start of this
note. The Group's Directors believe that the cashflows arising from these
assets will be consistent with this profile.

Liquidity risk is not, therefore considered to be significant.

4.    Foreign exchange risks

Foreign exchange risks arise from unfavourable movements in foreign exchange
rates that could adversely impact the valuation of overseas assets. 

The Group is exposed to foreign exchange risk through its expanding operations
overseas. Although the relative size of the European and International
operations means that the risks are relatively small, increasingly volatile
foreign exchange rates could result in larger potential gains or losses.
Assets held to fund insurance liabilities are held in the currency of the
liabilities, however surplus assets held as regulatory capital in foreign
currencies remain exposed.

The Group's exposures to net assets held in euros and dollars at the balance
sheet date were £13.3m and £46.7m respectively.

Fair value

For cash at bank and cash deposits, the fair value approximates to the book
value due to their short maturity. For assets held at fair value through
profit and loss, their value equates to level 1 (quoted prices in active
markets) of the fair value hierarchy.

5d)  Cash and cash equivalents

                                       31       31
                                 December December
                                     2012     2011
                                       £m       £m

Cash at bank and in hand            216.6    224.6

Total cash and cash equivalents     216.6    224.6

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.

6  Other Revenue

6a)  Accounting policy

(i)    Ancillary and other revenue:

Ancillary and other revenue includes revenue earned on the sale of ancillary
products, administration and other charges paid by the policyholder, referral
fees, revenue from policies paid by instalments and vehicle commission charges
paid by co- and reinsurers. Revenue 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 revenue is recognised
immediately. An allowance is made for expected cancellations where the
customer may be entitled to a refund of ancillary amounts charged.

Commission from price comparison activities and earned by Gladiator is
credited to revenue on the sale of the underlying insurance policy.

6b)  Ancillary and other revenue

                                31       31
                          December December
                              2012     2011
                                £m       £m

Ancillary revenue            215.7    223.3
Price comparison revenue     103.5     90.4
Other revenue                 41.9     35.3

Total other revenue          361.1    349.0

Refer to the Business Review for further detail on the sources of revenue.

7  Expenses

7a)  Accounting policies

(i)    Acquisition costs, vehicle commission and operating expenses:

Acquisition costs incurred in obtaining new and renewal business are charged
to the income statement over the period in which those premiums are earned.
Vehicle commissions relating to new and renewal business is also recognised
over the period in which those premiums are earned. All other operating
expenses are charged to the income statement in the period that they are

Insurance contract expenses, which comprise of the acquisition costs, vehicle
commissions and operating expenses referred to above are included in the
income statement net of recoveries from co-insurers and re-insurers.

(ii)    Employee benefits:


The Group contributes to 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

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 7e) for further details on share schemes.

7b)  Operating expenses and share scheme charges

                                       31 December 2012       31 December 2011
                                  Insurance Other Total  Insurance Other Total
                                  contracts              contracts
                                         £m    £m    £m         £m    £m    £m

Acquisition of insurance
contracts                              50.6     -  50.6       36.2     -  36.2
Administration and other
marketing costs                        26.7 137.3 164.0       26.7 125.9 152.6

Expenses                               77.3 137.3 214.6       62.9 125.9 188.8
Share scheme charges                      -  20.6  20.6          -  18.6  18.6

Total expenses and share scheme
charges                                77.3 157.9 235.2       62.9 144.5 207.4

Analysis of other administration and other marketing costs:

                                           31       31
                                     December December
                                         2012     2011
                                           £m       £m

Ancillary sales expenses                 35.9     33.8
Price comparison operating expenses      85.5     79.9
Other expenses                           15.9     12.2

Total                                   137.3    125.9

The £26.7m (2011: £26.7m) administration and marketing costs allocated to
insurance contracts is principally made up of salary costs.

Reconciliation of expenses related to insurance contracts to reported Group
expense ratio:

                                              31       31
                                        December December
                                            2012     2011
                                              £m       £m

Insurance contract expenses from above      77.3     62.9
Add: claims handling expenses              10.8     11.9

Adjusted expenses                           88.1     74.8

Net insurance premium revenue              498.9    445.8
Reported expense ratio                     17.7%    16.8%

7c)  Staff costs and other expenses

Included  in  gross  expenses,  before  co-insurance  arrangements,  are   the 

                                                                   31       31
                                                             December December
                                                                 2012     2011
                                                                   £m       £m

Salaries                                                        137.1    114.5
Social security charges                                          13.8     10.3
Pension costs                                                     1.0      1.3
Share scheme charges (see note 7e)                               32.5     30.8

Total staff expenses                                            184.4    156.9

Depreciation charge:
- Owned assets                                                    5.4      5.4
- Leased assets                                                   1.2      0.7
Amortisation charge:
- Software                                                        4.1      3.3
- Deferred acquisition costs                                     48.0     41.8
Operating lease rentals:
- Buildings                                                      10.5      7.9
Auditor's remuneration (including VAT):
- Fees payable for the audit of the Company's annual
accounts                                                            -        -
- Fees payable for the audit of the Company's
subsidiary accounts                                               0.3      0.2
- Fees payable for other services                                 0.3      0.3
Net foreign exchange losses                                         -      0.8

Analysis of fees paid to the auditor for other services:
Tax compliance services                                           0.1      0.1
Tax advisory services                                             0.2      0.2
Other services                                                      -        -

Total as above                                                    0.3      0.3

Refer to the corporate governance report for details of the Audit Committee's
policy on fees paid to the Company's auditor for non-audit services. The
ratio of non-audit fees to audit fees in 2012 was 124%(2011: 119%).

The amortisation of software and deferred acquisition cost assets is charged
to expenses in the income statement.

7d)   Staff numbers (including Directors)

                              Average for the year
                                    2012      2011
                                  Number    Number

Direct customer contact staff      4,991     4,264
Support staff                      1,231     1,060

Total                              6,222     5,324

7e)   Staff share schemes

Analysis of share scheme costs (per income statement):

                                  31       31
                            December December
                                2012     2011
                                  £m       £m

SIP charge (note i)              6.6      6.0
DFSS charge (note ii)           14.0     12.6

Total share scheme charges      20.6     18.6

The share scheme charges reported above are net of the co-insurer's share of
the cost and therefore differ from the gross charge reported in note 7c)
(2012: £32.5m, 2011: £30.8m) and the gross credit to reserves reported in the
consolidated statement of changes in equity (2012: £23.7m, 2011: £23.6m).

The consolidated cashflow statement also shows the gross charge in the
reconciliation between 'profit after tax' and 'cashflows from operating
activities'. The co-insurance share of the charge is included in the 'change
in trade and other payables' line.

(i)    The Approved Share Incentive Plan (the SIP)

Eligible employees qualify for awards under the SIP based upon the performance
of the Group in each half-year period. The current maximum award for each
year is £3,000 per employee. The awards are made with reference to the
Group's performance against prior year profit before tax. Employees must
remain in employment for the holding period (three years from the date of
award) otherwise the shares are forfeited. 

The fair value of shares awarded is either the share price at the date of
award, or is estimated at the latest share price available when drawing up the
financial statements for awards not yet made (and later adjusted to reflect
the actual share price on the award date). Awards under the SIP are entitled
to receive dividends, and hence no adjustment has been made to this fair

(ii)    The Discretionary Free Share Scheme (the DFSS)

Under the DFSS, details of which are contained in the remuneration policy
section of the remuneration report, individuals receive an award of free
shares at no charge. Staff must remain in employment until the vesting date
in order to receive shares. The maximum number of shares that can vest
relating to the 2012 scheme is 2,149,566 (2011 scheme: 1,791,234).

Individual awards are calculated based on the growth in the Company's earnings
per share (EPS) relative to a risk free return (RFR), for which LIBOR has been
selected as a benchmark. This performance is measured over the same
three-year period. For the 2012 and 2011 schemes, 50% of the shares awarded at
the start of the three year vesting period are subject to these performance

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 DFSS are not eligible for dividends (although a discretionary
bonus is currently paid equivalent to the dividend that would have been paid
on the respective shareholding) 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 2012:

                                        Awards        Vesting
                             outstanding (*^1)           date

SIP H209 scheme                        377,641     March 2013
SIP H110 scheme                        352,100    August 2013
SIP H210 scheme                        346,590     March 2014
SIP H111 scheme                        489,170 September 2014
SIP H211 scheme                        598,528     March 2015
SIP H112 scheme                        619,164 September 2015
DFSS 2010 scheme 1^st award         1,542,453     April 2013
DFSS 2010 scheme 2^nd award           121,051    August 2013
DFSS 2011 scheme 1^st award         1,634,732     April 2014
DFSS 2011 scheme 2^nd award           157,312 September 2014
DFSS 2012 scheme 1^st award            181,668     March 2015
DFSS 2012 scheme 2^nd award          1,967,898   October 2015

Total awards committed               8,388,307

*^1 - being the maximum number of awards expected to be made before accounting
for expected staff attrition. 

During the year ended 31 December 2012, awards under the SIP H208 and H109
schemes and the DFSS 2009 scheme vested. The total number of awards vesting
for each scheme is as follows.

Number of free share awards vesting during the year ended 31 December 2012:

                              Original Awards Awards vested
SIP H208 scheme                       477,432       396,549
SIP H109 scheme                       396,200       340,060
DFSS 2009 scheme, 1^st award        1,313,865     1,166,379
DFSS 2009 scheme, 2^nd award          127,020        81,855

8  Taxation

8a)  Accounting policy

Income tax on the profit or loss for the periods presented comprises current
and deferred tax. 

(i)    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

Current tax related to items recognised in other comprehensive income is also
recognised in other comprehensive income and not in the income statement.

(ii)    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 have been enacted or
substantially enacted by the balance sheet date, or 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

The principal temporary differences arise from depreciation of property and
equipment and share scheme charges. 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.

8b)  Taxation

                                                                   31       31
                                                             December December
                                                                 2012     2011
                                                                £m       £m
Current tax
Corporation tax on profits for the year                          88.4     80.3
Under / (over) provision relating to prior periods                1.2    (3.2)
Current tax charge                                               89.6     77.1

Deferred tax
Current period deferred taxation movement                       (2.8)    (0.8)
(Over) / under provision relating to prior periods -
deferred tax                                                    (0.6)      1.5

Total tax charge per income statement                            86.2     77.8

Factors affecting the total tax charge are:

                                                               31       31
                                                         December December
                                                             2012     2011
                                                               £m       £m

Profit before tax                                           344.6    299.1

Corporation tax thereon at effective UK corporation tax
rate of 24.5% (2011: 26.5%)                                  84.4     79.3

Expenses and provisions not deductible for tax purposes       1.4      0.1
Difference in tax rates                                       0.7      0.5
Adjustments relating to prior periods                       (0.4)    (1.7)
Other differences                                             0.1    (0.4)

Total tax charge for the period as above                     86.2     77.8

8c)  Deferred income tax (asset)

                                           31       31
                                     December December
                                         2012     2011
                                           £m       £m

Brought forward at start of period    (10.3)   (12.4)
Movement in period                      (4.9)      2.1

Carried forward at end of period       (15.2)   (10.3)

The net balance provided at the end of the year is made up as follows:

Analysis of net deferred tax (asset):        31       31
                                       December December
                                           2012     2011
                                             £m       £m

Tax treatment of share scheme charges     (3.8)    (3.6)
Capital allowances                        (1.9)    (1.5)
Carried forward losses                    (5.7)    (2.6)
Other differences                         (3.8)    (2.6)

Deferred tax (asset) at end of period    (15.2)   (10.3)

The UK corporation tax rate reduced from 26% to 24% on 1 April 2012. The
average effective rate of tax for 2012 is 24.5% (2011: 26.5%). It will fall
to 23% in April 2013, and is expected to  fall to 22% in April 2014 although
this change has not yet been substantively enacted. Deferred tax has
therefore been calculated at 23% where the temporary difference is expected to
reverse after this date.

The amount of deferred tax (expense) / income recognised in the income
statement for each of the temporary differences reported above is:

Amounts credited to income or expense:                 31       31
                                                 December December
                                                     2012     2011
                                                       £m       £m

Tax treatment of share scheme charges               (1.3)    (1.9)
Capital allowances                                    0.4      0.2
Carried forward losses                                3.1      1.3
Other difference                                      1.2    (0.3)

Net deferred tax credited / (charged) to income       3.4    (0.7)

The difference between the total movement in the deferred tax balance above
and the amount charged to income relates to deferred tax on share scheme
charges that has been credited directly to equity.

9    Other assets and other liabilities

9a)  Accounting policy

(i)    Property and equipment, and depreciation:

All property 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

(ii)    Impairment of property and equipment:

In the case of property 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 fair value of the asset, less costs to sell and the asset's
value in use. Impairment losses are recognised through the income statement.

(iii)    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 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.

(iv)    Intangible assets:


All business combinations are accounted for using the purchase method.
Goodwill has been recognised in acquisitions of subsidiaries, and represents
the difference between the cost of the acquisition and the fair value of the
net identifiable assets acquired.

The classification and accounting treatment of acquisitions occurring before 1
January 2004 have not been reconsidered in preparing the Group's opening IFRS
balance sheet at 1 January 2004 due to the exemption available in IFRS 1
(First time adoption). In respect of acquisitions prior to 1 January 2004,
goodwill is included at the transition date on the basis of its deemed cost,
which represents the amount recorded under UK GAAP, which was tested for
impairment at the transition date. On transition,amortisation of goodwill
has ceased as required by IAS 38.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill
is allocated to cash generating units (CGU's) according to business segment
and is reviewed annually for impairment. 

The Goodwill held on the balance sheet at 31 December 2012 is allocated solely
to the UK car insurance segment.

Impairment of goodwill

The annual impairment review involves comparing the carrying amount to the
estimated recoverable amount (by allocating the goodwill to CGU's) and
recognising an impairment loss if the recoverable amount is lower. Impairment
losses are recognised through the income statement and are not subsequently

The recoverable amount is the greater of the fair value of the asset less
costs to sell 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 9.0% (2011: 11.3%), based on the Group's weighted average cost
of capital, which is in line with the market (source: Bloomberg).

The key assumptions used in the value in use calculations are those regarding
growth rates and expected changes in pricing and expenses incurred during the
period. Management estimates growth rates and changes in pricing based on
past practices and expected future changes in the market.

The headroom above the goodwill carrying value is very significant, and there
is no foreseeable event that would eliminate this margin.

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


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.

9b)  Property and equipment

                        to short
                       leasehold  Computer    Office Furniture and
                       buildings equipment equipment      fittings Total
                              £m        £m        £m            £m    £m
At 1 January 2011            5.2      24.1       8.5           3.4  41.2
Additions                    1.5       4.5       2.9           1.5  10.4
Disposals                      -     (0.3)         -               (0.3)

At 31 December 2011          6.7      28.3      11.4           4.9  51.3

At 1 January 2011            3.5      15.5       6.0           2.6  27.6
Charge for the year          0.9       3.5       1.2           0.5   6.1
Disposals                      -         -         -             -     -

At 31 December 2011          4.4      19.0       7.2           3.1  33.7

Net book amount
At 1 January 2011            1.7       8.6       2.5           0.8  13.6

Net book amount
At 31 December 2011          2.3       9.3       4.2           1.8  17.6

At 1 January 2012            6.7      28.3      11.4           4.9  51.3
Additions                    0.6       3.4       1.5           0.1   5.6
Disposals                      -     (0.1)         -               (0.1)

At 31 December 2012          7.3      31.6      12.9           5.0  56.8

At 1 January 2012            4.4      19.0       7.2           3.1  33.7
Charge for the year          0.9       3.6       1.5           0.6   6.6
Disposals                      -         -         -             -     -

At 31 December 2012          5.3      22.6       8.7           3.7  40.3

Net book amount
At 31 December 2012          2.0       9.0       4.2           1.3  16.5

The net book value of assets held under finance leases is as follows:

                          31       31
                    December December
                        2012     2011
                          £m       £m

Computer equipment       3.0      2.8

9c)  Intangible assets

                    Goodwill       costs Software  Total
                          £m          £m       £m     £m

At 1 January 2011       62.3        14.9      5.7   82.9
Additions                  -        43.3      6.4   49.7
Amortisation charge        -      (41.8)    (3.3) (45.1)
Disposals                  -           -        -      -

At 31 December 2011     62.3        16.4      8.8   87.5

Additions                  -        51.9      5.5   57.4
Amortisation charge        -      (48.0)    (4.1) (52.1)
Disposals                  -           -    (0.3)  (0.3)

At 31 December 2012     62.3        20.3      9.9   92.5

Goodwill relates to the acquisition of Group subsidiary EUI Limited (formerly
Admiral Insurance Services Limited) in November 1999. It is allocated solely
to the UK Car Insurance segment. As described in the accounting policies, the
amortisation of this asset ceased on transition to IFRS on 1 January 2004.
All annual impairment reviews since the transition date have indicated that
the estimated recoverable value of the asset is greater than the carrying
amount and therefore no impairment losses have been recognised. Refer to the
accounting policy for goodwill for further information.

9d)  Trade and other receivables

                                         31       31
                                   December December
                                       2012     2011
                                         £m       £m

Trade receivables                      54.8     51.1
Prepayments and accrued income          0.5      1.0

Total trade and other receivables      55.3     52.1

9e)  Trade and other payables

                                                      31       31
                                                December December
                                                    2012     2011
                                                      £m       £m

Trade payables                                      13.0     12.1
Amounts owed to co-insurers and reinsurers         723.5    579.4
Finance leases due within 12 months                  0.8      0.9
Other taxation and social security liabilities      22.9     21.9
Other payables                                      71.5     51.0
Accruals and deferred income (see below)           174.8    191.3

Total trade and other payables                   1,006.5    856.6

Of amounts owed to co-insurers and reinsurers, £609.6m (2011: £432.9m) is held
under funds withheld arrangements.

Analysis of accruals and deferred income:

                                                         31       31
                                                   December December
                                                       2012     2011
                                                         £m       £m

Premium receivable in advance of policy inception     115.4    110.1
Accrued expenses                                       41.4     55.8
Deferred income                                        18.0     25.4

Total accruals and deferred income as above           174.8    191.3

9f)  Obligations under finance leases

Analysis of finance lease liabilities:

                               At 31 December 2012         At 31 December 2011
                        Minimum Interest Principal  Minimum Interest Principal
                          lease                       lease
                       payments                    payments
                             £m       £m        £m       £m       £m        £m

Less than one year          0.8        -       0.8      0.9        -       0.9
Between one and five
years                         -        -         -        -        -         -
More than five years          -        -         -        -        -         -

                            0.8        -       0.8      0.9        -       0.9

The fair value of the Group's lease obligations approximates to their carrying

9g)  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:      2012     2011
                                  £m       £m

Within one year                  0.2        -
Within two to five years        12.3     12.0
Over five years                 15.5     20.3

Total commitments               28.0     32.3

Operating lease payments represent rentals payable by the Group for its office

In addition, the Group had entered into contracts at the end of 2012 in
relation to the lease and fit-out of new premises in Cardiff and Newport,
which are currently under construction and due for completion in 2014. There
were no equivalent contracts in place at the end of 2011.

10  Share capital

10a)  Accounting policies

(i)    Share capital

Shares are classified as equity when there is no obligation to transfer cash
or other assets.

(ii)    Dividends

Dividends are recorded in the period in which they are declared and paid.

10b)  Dividends

Dividends were declared and paid as follows. 

                                                        31       31
                                                  December December
                                                      2012     2011
                                                        £m       £m

March 2011 (35.5p per share, paid May 2011)              -     94.5
August 2011 (39.1p per share, paid October 2011)         -    104.3
March 2012 (36.5p per share, paid June 2012)          98.0        -
August 2012 (45.1p per share, paid October 2012)     121.3        -

Total dividends                                      219.3    198.8

The dividends declared in March represent the final dividends paid in  respect 
of the 2010 and  2011 financial years. The  dividends declared in August  are 
interim distributions in respect of 2011 and 2012. 

A final dividend of 45.5p per share (£124.5m) has been proposed in respect  of 
the 2012  financial year.  Refer  to the  Chairman's statement  and  business 
review for further detail.

10c)  Earnings per share

                                                       31          31
                                                 December    December
                                                     2012        2011
Profit for the financial year after taxation
attributable to equity shareholders (£m)            258.4       221.2

Weighted average number of shares - basic     271,714,535 269,903,301
Unadjusted earnings per share - basic               95.1p       81.9p

Weighted average number of shares - diluted   272,403,242 270,782,526
Unadjusted earnings per share - diluted             94.9p       81.7p

The difference between the basic and diluted number of shares at the end of
2012 (being 688,707; 2011: 879,225) relates to awards committed, but not yet
issued under the Group's share schemes. Refer to note 7 for further detail.

10d)  Share capital

                                           31       31
                                     December December
                                         2012     2011
                                           £m       £m
500,000,000 ordinary shares of 0.1p       0.5      0.5

Issued, called up and fully paid:
273,523,594 ordinary shares of 0.1p       0.3        -
270,726,075 ordinary shares of 0.1p         -      0.3

                                          0.3      0.3

During 2012 2,797,519 (2011: 2,217,350) new ordinary shares of 0.1p were
issued to the trusts administering the Group's share schemes. 

1,177,519 (2011: 717,350) of these were issued to the Admiral Group Share
Incentive Plan Trust for the purposes of this share scheme. These shares are
entitled to receive dividends.

1,620,000 (2011: 1,500,000) 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. 

10e)  Objectives, policies and procedures for managing capital

The Group manages its capital to ensure that all entities within the Group are
able to continue as going concerns and also to ensure that regulated entities
comfortably meet regulatory requirements.  Excess capital above these levels
within subsidiaries is paid up to the Group holding company in the form of
dividends on a regular basis.

The Group's dividend policy is to make distributions after taking into account
capital that is required to be held a) for regulatory purposes; b) to fund
expansion activities; and c) as a further prudent buffer against unforeseen
events. This policy gives the Directors flexibility in managing the Group's

Capital continues to be held in equity form, with no debt.

10f)  Group subsidiary companies

The Parent Company's subsidiaries are as follows:

Subsidiary             Country of        Class of    % Ownership Principal
                       incorporation     shares held             activity
EUI Limited            England and Wales Ordinary    100         General
EUI (France) Limited   England and Wales Ordinary    100         General
Admiral Insurance      England and Wales Ordinary    100         Insurance
Company Limited                                                  Company
Admiral Insurance      Gibraltar         Ordinary    100         Insurance
(Gibraltar) Limited                                              Company
Able Insurance         England and Wales Ordinary    100         Intermediary
Services Limited Limited     England and Wales Ordinary    100         Internet
Elephant Insurance     United States of  Ordinary    100         Insurance
Company                America                                   Company
Elephant Insurance     United States of  Ordinary    100         Insurance
Services, LLC          America                                   intermediary Limited England and Wales Ordinary    75          Internet
Inspop Technologies    India             Ordinary    100         Internet
Private Limited                                                  technology
                                                                 supplier (France)    England and Wales Ordinary    100         Internet
Limited                                                          insurance
                                                                 intermediary (Italy)     England and Wales Ordinary    100         Internet
Limited                                                          insurance
Admiral Syndicate      England and Wales Ordinary    100         Dormant
Admiral Syndicate      England and Wales Ordinary    100         Dormant
Management Limited
Admiral Life Limited   England and Wales Ordinary    100         Dormant
Bell Direct Limited    England and Wales Ordinary    100         Dormant Limited   England and Wales Ordinary    100         Dormant
Diamond Motor          England and Wales Ordinary    100         Dormant
Insurance Services
Elephant Insurance     England and Wales Ordinary    100         Dormant
Services Limited
Inspop USA LLC         United States of  Ordinary    78.76%      Internet
                       America                                   insurance
                                                                 intermediary         United States of  Ordinary    100         Internet
Insurance Agency LLC   America                                   insurance
Tooley Shelf number 1  England and Wales Ordinary    100         Dormant
Tooley Shelf number 2  England and Wales Ordinary    100         Dormant

For further information on how the Group conducts its business across UK,
Europe and the USA, refer to the business review.

10g)    Related party transactions

(i)    Mapfre:

In 2012, the Group participated in transactions with Mapfre S.A. during the
normal course of its Car Insurance and Price Comparison operations. Mapfre is
a related party of Admiral Group due to its 25% minority interest in Group
subsidiary Limited. Details of the transactions with Mapfre
and balances outstanding as at 31 December in respect of price comparison
business are given in the table below.

                                                      31       31
                                                December December
                                                    2012     2011

Transactions in the course of price comparison
business with                         0.7      0.7
Balances outstanding at 31 December                  0.2      0.1

(ii)    Other:

Details relating to the remuneration and shareholdings of key management
personnel are set out in the remuneration report (audited section). Key
management personnel are able to obtain discounted motor insurance at the same
rates as all other Group staff, typically at a reduction of 15%.

The Board considers that only the Board of Directors of Admiral Group plc are
key management personnel.

11  Statutory information

The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 December 2012 or 2011. Statutory
accounts for 2011 have been delivered to the registrar of companies, and those
for 2012 will be delivered in due course. The auditors have reported on those
accounts; their reports were (i) unqualified, (ii) did not include a reference
to any matters to which the auditors drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under section
498 (2) or (3) of the Companies Act 2006.

Consolidated financial summary

Basis of preparation:

The figures below are as stated in the Group financial statements preceding
this financial summary and issued previously. Only selected lines from the
income statement and balance sheet have been included.

Income statement

                               2012    2011    2010    2009    2008
                                £m      £m      £m      £m      £m
Total premiums                 1,897.2 1,841.3 1,308.6 847.7   716.3
Net insurance premium revenue  498.9   445.8   288.1   211.9   169.8
Other revenue                  361.1   349.0   276.2   232.6   193.9
Profit commission              108.4   61.8    67.0    54.2    34.7
Investment and interest income  15.9    13.7    9.5     8.8     24.4
Net revenue                    984.3   870.3   640.8   507.5   422.8
Net insurance claims           (404.5) (363.8) (208.5) (151.7) (114.6)
Total expenses                 (235.2) (207.4) (166.8) (140.0) (105.7)
Operating profit               344.6   299.1   265.5   215.8   202.5
Balance sheet                 
                               2012    2011    2010    2009    2008
                                £m      £m      £m      £m      £m
Property and equipment         16.5    17.6    13.6    12.1    11.0
Intangible assets              92.5    87.5    82.9    77.0    75.7
Deferred income tax            15.2    10.3    12.4    -       -
Reinsurance assets             803.0   639.8   357.0   212.9   170.6
Trade and other receivables     55.3    52.1    47.9    32.7    25.5
Financial assets               2,005.1 1,583.0 1,004.7 630.9   586.9
Cash and cash equivalents      216.6   224.6   246.7   211.8   144.3
Assets held for sale           -       -       1.5     -       -
Total assets                   3,204.2 2,614.9 1,766.7 1,177.4 1,014.0
Equity                         460.7   394.4   350.7   300.8   275.6
Insurance contracts            1,696.9 1,333.7 806.6   532.9   439.6
Deferred income tax            -       -       -       5.7     10.3
Trade and other payables       1,006.5 856.6   561.0   306.8   270.0
Current tax liabilities        40.1    30.2    48.4    31.2    18.5
Total liabilities              3,204.2 2,614.9 1,766.7 1,177.4 1,014.0


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(ii) they are solely responsible for the content, accuracy and originality of
information contained therein.

Source: Admiral Group PLC via Thomson Reuters ONE
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