Admiral Regulatory News (ADM)

5 Sep 2006 07:02

Admiral Group PLC05 September 2006 Admiral Group plc Results for the 6 months ended 30 June 2006 5 September 2006 Admiral Group plc ("Admiral" or "the Group") today announces its results for thesix months ended 30 June 2006. H1 2006 Highlights • Profit before tax up 24% at £68.7 million (H1 2005: £55.6 million)• Group turnover up 12% at £359.2 million (H1 2005: £319.3 million)• Total motor premiums written up 10% at £294.0 million (H1 2005: £268.5 million)• Net income from products and services not underwritten by the Group up 30% at £45.6 million (H1 2005: £35.2 million)• Combined ratio 87.0% (H1 2005: 86.5%)• Active customers at period-end up 10% to 1,161,000 from 1,057,000 at 30 June 2005• Confused.com made a profit of £8.7 million (H1 2005: £2.3 million)• Interim dividend of 12.1p per share, payable 18 October 2006 - includes special element of 3.7p per share Copies of this statement will be sent to all shareholders and will be availablefrom the registered office. Comment from Alastair Lyons, Chairman Our business has continued strongly profitable and cash generative over the lastsix months, with profit before tax up 24%. We are, therefore, very pleased tobe able to declare dividends that are 25% higher than at the same point lastyear. As we have previously indicated, we have reviewed our future cash needs againstfunds accumulated in the business as at the half year. Accordingly we propose afurther special dividend of 3.7p per share in addition to an 8.4p per sharenormal dividend based on 45% of after-tax profits. Our policy remains only to retain within the business what funds we need toprovide a prudent contingency and support our plans for growth. Since going public in September 2004 Admiral has declared dividends on fouroccasions amounting in total to £119m or 46.0p per share. £67m of normaldividends have been supplemented by £52m of special dividends, these specialsaccounting for 44% of the total amount declared. Comment from Henry Engelhardt, Chief Executive We're very pleased with our results for the first half of 2006. We met theneeds of our customers, made money and had fun doing it. In fact, we set arecord for half-year profitability at £68.7m. Despite high levels ofcompetition in the UK motor insurance market our business continues to grow andgrow profitably. Confused.com, our leading car insurance aggregator, sawsignificant growth in both number of quotes and contribution. Our level of claims releases grew to £9.8m. We are on track to release anamount at least equal to the amount we released last year, however this year webelieve that the releases will not be weighted towards the second half of theyear. Going forward, we plan to maintain our combined ratio advantage over the marketwhile the number of customers we service continues to grow. As part of ourlonger-term strategy we will launch our Spanish operation later this year orearly next year and have already begun looking beyond Spain at otheropportunities. Financial review Key financial highlights Group profit before tax rose 24% in the first half of 2006 compared to the sameperiod in 2005, reaching £68.7m. Profit can be split into the three key elements of the Group's business: 1)underwriting, 2) profit commissions and 3) net other income (most notablyancillary income). 6 months ended: Year ended: June June December 2005 2006 2005 £000 £000 £000 Underwriting profit 13,474 14,730 32,361Profit commissions 9,639 5,666 14,735Net other income 45,593 35,191 72,398 ____________________________________________Profit before tax 68,706 55,587 119,494 ============================================ The Group's low risk business model enables it to grow profit significantly inan environment of worsening loss ratios (both for the Group and the market as awhole) and in a period of low investment returns. The key features of thismodel are: • Limited risk retention (25% of the book, through co-insurance and reinsurance arrangements); • Generation of substantial non-underwriting income from the whole customer base (ownership of which is retained) - the proportion of the Group's profits earned from non-underwriting was 80% in the six months to June 2006 compared to 74% in the first half of 2005 (and 73% in 2005 as a whole) • Strong and growing contribution from other broking activities, primarily Confused.com Group turnover (comprising total premiums written before co-insurance, grossother income and net investment return), which is a measure of the combined sizeof the Group's businesses, also showed good growth (+ 12%): 6 months ended: Year ended: June June December 2005 2006 2005 £000 £000 £000 Total premiums written 293,998 268,462 533,616Gross other income 61,470 44,769 93,405Net investment return 3,736 6,087 11,342 ____________________________________________Group turnover 359,204 319,318 638,363 ============================================ The increase reflected growth in premiums written and a significant increase inrevenue generated from non-underwriting sources (primarily ancillary products,Confused.com and Gladiator Commercial). The key elements of the Group's profits are further analysed below. Underwriting Underwriting structure The Group's underwriting structure is as follows: 65% of the business written continues to be underwritten by Great Lakes (a UKsubsidiary of Munich Re) under a long-term co-insurance contract. 35% of the business is underwritten by the Group through Admiral Insurance(Gibraltar) Limited (AIGL) and Admiral Insurance Company Limited (AICL). 10%(of the total business) is ceded via quota share contracts that qualify fordeductions in required solvency capital (5% to Axis Re Europe and 5% to SwissReinsurance Company UK Limited). This means the Group retains 25% of theunderwriting on a net basis. As well as proportional reinsurance, the Group has also arranged an excess ofloss reinsurance programme with a number of reinsurers to protect itself againstvery large claims. For the 2000 to 2002 underwriting years, the Group's retained share of the motorbusiness was underwritten through the Group's Syndicate (Syndicate 2004) atLloyd's of London. During July 2006, the Group achieved the release of asignificant proportion of the profits earned by the Group's Syndicate -amounting to around £24m, net of amounts retained to meet corporation taxliabilities. Underwriting result Total premium written increased by 10% to £294m from £268m. With premium rateslargely flat, the growth came from a 10% rise in the number of active customers. The underwriting result fell to £13.5m from £14.7m in the first half of 2005.Investment income fell to £3.7m from £6.1m due to adverse conditions in UK bondmarkets, whilst the reported combined ratio was consistent at around 87% forboth half years. The pure year loss ratio has moved to 85% from 80% in the first half of 2005reflecting the ongoing impact of claims inflation compared to flat premiumrates. However, as shown in note 16 to the interim financial statements, backyears continue to release reserves. The six month results include £9.8m of netreleases (compared to £5.2m in H1 2005). The impact of this is equivalent to a13 percentage points reduction in the reported loss ratio (8 points in H1 2005)which was 72.3% (H1 2005: 71.6%). The expense ratio has maintained its previous low level. The reported ratio forthe first half is 14.7%, down from 14.9% in the first half of 2005 and 15.1% for2005 as a whole. Excluding regulatory levies, the ratio is consistent betweenhalf years at around 12%. The expense ratio is reconciled to the figures included in the income statementin note 6 to the interim financial statements, whilst the underwriting result isreconciled later in this review. Combined ratio development The Group's reported combined ratio (being the aggregation of the loss andexpense ratios above) is 87.0%, up from 86.5% in H1 2005 (84.9% for 2005 as awhole). This continues to compare very favourably to estimated market levels. Profit commission The Group earns profit commission through its co-insurance and reinsurancearrangements. The amount receivable is dependent on the volume andprofitability of the insurance business, measured by reference to loss andexpense ratios. Profit commission - co-insurance The principal source of profit commission is the long-term co-insurance contractwith Great Lakes. £6.2m was recognised in the first half of 2006, up from the£5.0m recognised in the same period last year. A further £2.0m of profit commission (H1 05: £0.1m) relating to earlierunderwriting year (2000 - 2002) contracts with Hibernian Re (100% reinsured intoSwiss Re) has also been recognised in these results. No further materialamounts are anticipated relating to these contracts due to the relative maturityof the underwriting results of these years. Profit commission - quota share reinsurance £1.4m of commission has been recognised in respect of quota share arrangements -up from £0.6m in the first half of 2005. Net other income 6 months ended: Year ended: June June December 2005 2006 2005 £000 £000 £000 Ancillary contribution 32,929 29,630 59,092Confused.com contribution 8,747 2,314 6,882Aggregate interest receipts 2,066 2,268 4,176Instalment income 2,459 1,657 3,768Gladiator contribution 979 900 1,871Other expenses and share scheme costs (1,587) (1,578) (3,391) _________________________________________Net other income 45,593 35,191 72,398 ========================================= Confused.com earns a proportion of its revenue from Group brands from commission charged atnormal commercial rates. Previously an adjustment was made for these intra-group sales. Theimpact of this adjustment on the 2005 H1 figures was to decrease Confused contribution by£0.6m (2005 full year: £1.9m) Ancillary contribution & instalment income This primarily involves income earned on sales of insurance productscomplementing the motor policy, but which are underwritten by external parties.Net contribution from these sales grew by 11% in H1 2006 - largely in line withthe growth in premium and policies sold. Average gross ancillary income per motor policy was consistent across allperiods at £56. Instalment income represents charges for payment by instalments on motorpolicies sold which are paid for over the course of the policy life by directdebit. Confused.com Confused.com has continued to grow and has recorded a contribution of £8.7m inthe first half of the year. Motor quotes rose to 3.8m from 1.7m in H1 2005 (+124%). The range of products on which Confused offers prices has increased so that thesite now includes home insurance, travel insurance and a range of otherfinancial products in addition to the core motor offering. Confused has alsoincreased its coverage of the motor market. Overseas expansion As reported with the announcement of the 2005 results, the Group plans to launcha direct motor insurance operation in Spain and work has been continuing to thisend during 2006. Good progress has been made in all the critical areas and theoperation now has all key senior managers in place at a permanent location inSeville. Work is also well progressed on IT systems, and the business plans tolaunch late this year or early in 2007. A long-term quota share reinsurance contract has been signed with Munich Re(Germany) under which 65% of the Spanish motor insurance business will be ceded.The contract is effective from when the business commences trading. Earnings per share (EPS) Basic EPS has increased by 22% to 18.5p from 15.2p (2005 full year 32.7p). Thisis broadly in line with the increase in pre-tax profit (24%) noted above (thedifference relates to a lower effective rate of corporation tax in H1 2005resulting from utilisation of losses). Financial investments, cash and investment return At the end of the period, the Group held a total of £408.4m in cash andfinancial investments - up 11% on the £366.7m held at the end of June 2005.This increase is after distributions to shareholders of £38.7m during the firsthalf of 2006 (£24.0m in 2005). The total balance is made up as follows: 6 months ended: Year ended: June June December 2005 2006 2005 £000 £000 £000 Liquid funds in underwriting companies: Government and sovereign bond holdings 114,059 68,188 83,071Corporate bonds and similar instruments 164,922 179,330 172,866Deposits with credit institutions 17,243 21,799 40,646Cash at bank 73,606 46,711 39,824 _________________________________________ 369,830 316,028 336,407Liquid funds held outside underwriting companies: Cash at bank 38,600 50,666 69,682 _________________________________________ 408,430 366,694 406,089 ========================================= Net investment return fell sharply in relative and actual terms during the firsthalf of 2006 compared to the same period last year. The fall was due to markedincreases in gilt and bond yields resulting from changes in the market's view offuture interest rates and the negative impact such increases have on capitalvalues of fixed income securities. Dividends There has been no change in dividend policy, which is based on the principle ofreturning excess cash to shareholders. The Directors expect to make a normaldistribution of at least 45% of post-tax profits each half-year, and willregularly review the Group's available cash to determine whether it isappropriate for the Company to pay a further special dividend. In line with this policy, the Directors have declared an interim dividend for2006 of 12.1p per share, which is made up of 8.4p per share normal element, plus3.7p per share special distribution based on the Group's resources at the end ofthe period. The ex-dividend date is 20 September 2006, the record date 22September 2006, with payment following on 18 October 2006. The interim dividend declared in respect of 2005 was 9.7p, split 6.8p normal,2.9p special. (Final dividend for 2005: 14.9p - normal 7.8p, special 7.1p) Reconciliation of underwriting profit 6 months ended: Year ended: June June December 2005 2006 2005 £000 £000 £000 Net insurance premium revenue 74,863 63,833 139,454Net insurance claims (55,600) (47,294) (100,526)Net expenses related to insurance contracts (9,525) (7,896) (17,909)Investment return 3,736 6,087 11,342 ___________________________________________Underwriting profit 13,474 14,730 32,361 =========================================== Reconciliation of loss ratios reported 6 months ended: Year ended: June June December 2005 2006 2005 £000 £000 £000 Net insurance claims from income statement 55,600 47,294 100,526Deduct: claims handling costs (1,470) (1,611) (3,202) ___________________________________________Adjusted net insurance claims 54,130 45,683 97,324Net premium revenue 74,863 63,833 139,454Loss ratio 72.3% 71.6% 69.8% =========================================== Consolidated income statement 6 months ended Year ended 30 June 2006 30 June 2005 31 December 2005 Note £000 £000 £000 Insurance premium revenue 2 92,614 84,865 176,214Insurance premium ceded to 2 reinsurers (17,751) (21,032) (36,760) _________________________________________Net insurance premium revenue 74,863 63,833 139,454 Other revenue 3 61,470 44,769 93,405Profit commission 4 9,639 5,666 14,735Investment and interest income 5 5,802 8,355 15,518 _________________________________________Net revenue 151,774 122,623 263,112 Insurance claims and claims handling expenses (70,029) (61,334) (121,123)Insurance claims and claims handling expenses recovered from reinsurers 14,429 14,040 20,597 _________________________________________Net insurance claims (55,600) (47,294) (100,526) Expenses 6 (26,405) (18,457) (40,492)Share scheme charges 22 (420) (125) (438) _________________________________________Total expenses (82,425) (65,876) (141,456) Operating profit 69,349 56,747 121,656 Finance charges 9 (643) (1,160) (2,162) _________________________________________Profit before tax 68,706 55,587 119,494 Taxation expense 10 (20,613) (16,316) (34,774) _________________________________________Profit after tax attributable to equity holders of the Company 48,093 39,271 84,720 ========================================= Earnings per share:Basic 11 18.5p 15.2p 32.7p =========================================Diluted 11 18.4p 15.1p 32.7p ========================================= ________________________________________________________________________________________________________Dividends paid (total) 12 38,666 24,049 49,190Dividends paid (per share) 12 14.9p 9.3p 19.0p________________________________________________________________________________________________________ Consolidated balance sheet As at: 30 June 2006 30 June 2005 31 December 2005 Note £000 £000 £000ASSETS Intangible assets 13 66,192 66,754 66,490Property, plant and equipment 14 6,741 2,986 4,636Financial assets 15 415,354 366,875 378,747Reinsurance assets 16 68,660 60,699 54,166Trade and other receivables 17 11,749 29,604 9,392Cash and cash equivalents 18 129,449 119,176 150,152 _______________________________________Total assets 698,145 646,094 663,583 ======================================= EQUITY Share capital 22 261 259 260Share premium account 23 13,145 13,145 13,145Retained earnings 23 178,617 146,792 167,990Other reserves 23 17 17 17 _______________________________________Total equity 192,040 160,213 181,412 ======================================= LIABILITIES Insurance contracts 16 281,688 241,628 254,130Financial liabilities 19 - 29,471 22,000Deferred income tax 20 904 6,377 3,550Current tax liabilities 23,263 18,339 19,556Trade and other payables 21 200,250 190,066 182,935 _______________________________________Total liabilities 506,105 485,881 482,171 =======================================Total equity and total liabilities 698,145 646,094 663,583 ======================================= Consolidated statement of recognised income and expense No separate consolidated statement of recognised income and expense has beenprepared. The profit for the period of £48.1m (2005: H1 £39.3m; full year:£84.7m) represents all recognised income and expenses for all periods. Consolidated cash flow statement 6 months ended Year ended 30 June 30 June 2005 31 December 2005 2006 Note £000 £000 £000 Profit after tax 48,093 39,271 84,720Adjustments for non-cash items:- Depreciation 1,092 867 1,824- Amortisation of software 234 476 896- Unrealised losses / (gains) on investments 893 (2,476) 893- Share scheme charge 1,200 357 1,247Loss on disposal of property, plant and equipment and software - 504 503Change in gross insurance contract liabilities 27,558 25,521 38,023Change in reinsurance assets (14,494) 5,438 11,971Change in trade and other receivables, including from policyholders (15,760) (35,364) (18,693)Change in trade and other payables, including tax and social security 17,918 25,834 18,041Interest expense 643 1,160 2,162Taxation expense 20,613 16,316 34,774 __________________________________________Cash flows from operating activities, before movements in investments 87,990 77,904 176,361 Net cash flow into investments held at fair value (23,937) (41,624) (53,413) __________________________________________Cash flows from operating activities, net of movements in investments 64,053 36,280 122,948 Interest payments (643) (1,144) (2,617)Taxation payments (19,551) (6,023) (26,090) __________________________________________Net cash flow from operating activities 43,859 29,113 94,241 Cash flows from investing activities:Purchases of property, plant and equipment and software (3,293) (1,333) (3,999)Proceeds from sales of property, plant and equipment - 8 - __________________________________________Net cash used in investing activities (3,293) (1,325) (3,999) Cash flows from financing activities:Repayments of borrowings (22,000) (3,667) (10,667)Capital element of new finance leases 1,789 1,097 1,201Repayment of finance lease liabilities (2,392) (1,194) (635)Equity dividends paid (38,666) (24,049) (49,190) __________________________________________Net cash used in financing activities (61,269) (27,813) (59,291) Net decrease in cash and cash equivalents (20,703) (25) 30,951 Cash and cash equivalents at 1 January 150,152 119,201 119,201Cash and cash equivalents at end of 18 period 129,449 119,176 150,152 __________________________________________ Notes to the interim financial statements 1. General information and basis of preparation Admiral Group plc is a Company incorporated in England and Wales. Itsregistered office is at Capital Tower, Greyfriars Road, Cardiff CF10 3AZ and itsshares are listed on the London Stock Exchange. The interim financial statements comprise the results and balances of theCompany and its subsidiaries (the Group) for the two six month periods ended 30June 2005 and 2006 and the year ended 31 December 2005. The financialstatements of the Company's subsidiaries are consolidated in the Group financialstatements. The Company controls 100% of the voting share capital of all itssubsidiaries. In accordance with IAS 24, transactions or balances between Groupcompanies that have been eliminated on consolidation are not reported as relatedparty transactions. The comparative figures for the financial year ended 31 December 2005 are notthe Group's Report and Accounts for that financial year, but are derivedtherefrom. Those accounts have been reported on by the Company's auditors anddelivered to the Registrar of Companies. The report of the auditors wasunqualified and did not include any reference to any matters to which theauditors drew attention by way of emphasis without qualifying their report anddid not contain a statement under section 237(2) or (3) of the Companies Act1985. The accounting policies applied by the Group in these consolidated interimfinancial statements are the same as those applied by the Group in itsconsolidated financial statements as at and for the year ended 31 December 2005. Significant estimates Estimation techniques used in calculation of claims provisions: Estimation techniques are used in the calculation of the provisions for claimsoutstanding, which represents a projection of the ultimate cost of settlingclaims that have occurred prior to the balance sheet date and remain unsettledat the balance sheet date. The key area where these techniques are used relates to the ultimate cost ofreported claims. A secondary area relates to the emergence of claims thatoccurred prior to the balance sheet date, but had not been reported at thatdate. The estimates of the ultimate cost of reported claims are based on the settingof claim provisions on a case-by-case basis, for all but the simplest of claims. The sum of these provisions are compared with projected ultimate costs using avariety of different projection techniques (including incurred and paid chainladder and an average cost of claim approach) to allow an actuarial assessmentof their likely accuracy and to include allowance for unreported claims. The most significant sensitivity in the use of the projection techniques arisesfrom any future step change in claims costs, which would cause future claim costinflation to deviate from historic trends. This is most likely to arise from achange in the regulatory or judicial regime that leads to an increase in awardsor legal costs for bodily injury claims that is significantly above or below thehistorical trend. The claims provisions are subject to independent review by the Group's actuarialadvisors. 2. Net insurance premium revenue 30 30 31 June June December 2006 2005 2005 £000 £000 £000Total motor insurance premiums before co- insurance 293,998 268,462 533,616 ====================================Group gross premiums written after co-insurance 102,899 93,962 186,989Outwards reinsurance premiums (29,966) (14,075) (28,052) ____________________________________Net insurance premiums written 72,933 79,887 158,937 Change in gross unearned premium provision (10,285) (9,097) (10,775)Change in reinsurers' share of unearned premium provision 12,215 (6,957) (8,708) ____________________________________Net insurance premium revenue 74,863 63,833 139,454 ==================================== The insurance business written is direct private motor insurance written in theUnited Kingdom. The Group's share of the business was underwritten by AdmiralInsurance (Gibraltar) Limited (AIGL) and Admiral Insurance Company Limited(AICL). All contracts are short-term in duration, lasting for 10 or 12 months. 3. Other revenue 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Ancillary revenue 40,141 35,954 72,470Instalment income earned 2,459 1,657 3,768Revenue from Confused.com 15,840 4,614 12,044Revenue from Gladiator Commercial 3,030 2,544 5,123 ____________________________________Total other revenue 61,470 44,769 93,405 ==================================== Ancillary revenue primarily constitutes income from sales of insurance productsthat complement the motor policy, but which are underwritten by externalparties. 4. Profit commission 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Total profit commission 9,639 5,666 14,735 ==================================== 5. Investment and interest income 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Net investment return 3,736 6,087 11,342Interest receivable 2,066 2,268 4,176 ____________________________________Total investment and interest income 5,802 8,355 15,518 ==================================== 6. Expenses 30 June 2006 30 June 2005 Insurance Other Total Insurance Other Total contracts contracts £000 £000 £000 £000 £000 £000 Acquisition of insurance contracts 3,476 - 3,476 3,287 - 3,287Administration and marketing costs 6,049 16,880 22,929 4,609 10,561 15,170 ___________________________ ______________________________Sub-total 9,525 16,880 26,405 7,896 10,561 18,457 Share scheme charges - 420 420 - 125 125 ___________________________ ______________________________Total expenses 9,525 17,300 26,825 7,896 10,686 18,582 =========================== ============================== 31 December 2005 Insurance Other Total contracts £000 £000 £000 Acquisition of insurance contracts 6,888 - 6,888Administration and marketing costs 11,021 22,583 33,604 _____________________________Sub-total 17,909 22,583 40,492 Share scheme charges - 438 438 _____________________________Total expenses 17,909 23,021 40,930 ============================= The £6,049,000 (2005 H1: £4,609,000; Full year: £11,021,000) administration andmarketing costs allocated to insurance contracts is principally made up ofsalary costs. Analysis of other administration and marketing costs: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Ancillary sales expenses 7,212 6,324 13,378Confused.com operating expenses 7,093 2,300 5,162Gladiator Commercial operating expenses 2,051 1,644 3,252Central overheads 327 293 791Costs associated with overseas expansion 197 - - ___________________________________Total 16,880 10,561 22,583 =================================== Reconciliation of expenses related to insurance contracts to reported expenseratio: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Insurance contract expenses from above 9,525 7,896 17,909Add: claims handling expenses 1,470 1,611 3,202 ___________________________________Adjusted expenses 10,995 9,507 21,111 Net insurance premium revenue 74,863 63,833 139,454Reported expense ratio 14.7% 14.9% 15.1% =================================== 7. Staff costs and other expenses Staff costs and other expenses, before co-insurance arrangements are as follows: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Salaries 17,036 14,166 29,955Social security charges 1,568 1,314 2,782Pension costs 253 226 490Share scheme charges (see note 22) 1,200 357 1,247 ___________________________________Total staff expenses 20,057 16,063 34,474 ===================================Depreciation charge:- Owned assets 197 306 446- Leased assets 895 561 1,378Operating lease rentals:- Buildings 1,428 1,377 2,969Auditor's remuneration:- Statutory audit fees 94 110 210- Other audit fees - - 18- Other services 65 84 91Loss on disposal of property, plant and equipment - 504 503 =================================== Analysis of fees paid to the auditor for other services: Indirect tax consultancy 13 60 61Corporate tax services 52 24 24Other - - 6 ___________________________________Total as above 65 84 91 =================================== 8. Staff numbers (including directors) Average for the period: 30 30 31 June June December 2006 2005 2005 Direct customer contact staff 1,506 1,309 1,377Support staff 383 320 339 ___________________________________Total 1,889 1,629 1,716 =================================== 9. Finance charges 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Term loan interest 150 896 1,520Finance lease interest 378 154 388Letter of credit charges 115 110 221Other - - 33 ___________________________________Total finance charges 643 1,160 2,162 =================================== 10. Taxation 30 30 31 June June December 2006 2005 2005 £000 £000 £000 UK Corporation taxCurrent charge at 30% 23,259 14,777 36,051Under provision relating to prior periods - corporation tax - - 11 __________________________________Current tax charge 23,259 14,777 36,062 Deferred taxCurrent period deferred taxation movement (2,646) 1,539 (654)Over provision relating to prior periods - deferred tax - - (634) __________________________________Total tax charge per income statement 20,613 16,316 34,774 =================================== Factors affecting the tax charge are: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Profit before taxation 68,706 55,587 119,494 Corporation tax thereon at 30% 20,613 16,676 35,848Utilisation of brought forward tax losses - (360) (421)Adjustments in respect of prior year insurance technicalprovisions - - (161)Expenses and provisions not deductible for tax purposes - - 152Other timing differences - - (21)Adjustments relating to prior periods - - (623) __________________________________Tax charge for the period as above 20,613 16,316 34,774 =================================== 11. Earnings per share 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Profit for the period after taxation 48,093 39,271 84,720 Weighted average number of shares - basic 260,257,778 258,595,400 258,987,515Earnings per share - basic 18.5p 15.2p 32.7p =======================================Weighted average number of shares - diluted 260,698,278 259,861,400 259,387,515Earnings per share - diluted 18.4p 15.1p 32.7p ======================================= 12. Dividends Dividends were declared and paid as follows: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 March 2005 (9.3p per share, paid May 2005) - 24,049 24,049September 2005 (9.7p per share, paid October 2005) - - 25,141March 2006 (14.9p per share, paid May 2006) 38,666 - - _____________________________________Total dividends 38,666 24,049 49,190 ===================================== The dividend declared in March 2005 represents the final dividend paid inrespect of the 2004 financial year (September 2005 - interim payment for 2005).The dividend declared in March 2006 was the final distribution in respect of2005. 13. Intangible assets Goodwill Deferred Software Total acquisition costs £000 £000 £000 £000 Carrying amount: At 1 January 2005 62,354 2,794 1,319 66,467Additions - 3,727 317 4,044Amortisation charge - (3,281) (476) (3,757) ____________________________________________________At 30 June 2005 62,354 3,240 1,160 66,754 ====================================================At 1 January 2005 62,354 2,794 1,319 66,467 Additions - 7,407 385 7,792Amortisation charge - (6,873) (896) (7,769) ____________________________________________________At 31 December 2005 62,354 3,328 808 66,490 Additions - 3,307 96 3,403Amortisation charge - (3,467) (234) (3,701) ____________________________________________________At 30 June 2006 62,354 3,168 670 66,192 ==================================================== 14. Property, plant and equipment Improvements to Computer Office Furniture Motor Total short leasehold equipment equipment and fittings vehicles buildings CostAt 1 January 2005 1,931 6,792 2,978 1,627 12 13,340Additions 340 555 71 43 - 1,009Disposals (1,818) - (512) (404) - (2,734) ________________________________________________________________________At 30 June 2005 453 7,347 2,537 1,266 12 11,615 ________________________________________________________________________DepreciationAt 1 January 2005 1,554 4,424 2,467 1,545 1 9,991Charge for the year 122 534 183 26 2 867Disposals (1,351) (1) (501) (376) - (2,229) ________________________________________________________________________At 30 June 2005 325 4,957 2,149 1,195 3 8,629 ________________________________________________________________________Net book amountAt 30 June 2005 128 2,390 388 71 9 2,986 ======================================================================== CostAt 1 January 2005 1,931 6,792 2,978 1,627 12 13,340Additions 567 2,742 155 150 - 3,614Disposals (1,818) - (510) (405) - (2,733) ________________________________________________________________________At 31 December 2005 680 9,534 2,623 1,372 12 14,221 ________________________________________________________________________DepreciationAt 1 January 2005 1,554 4,424 2,467 1,545 1 9,991Charge for the year 226 1,179 355 61 3 1,824Disposals (1,352) - (502) (376) - (2,230) ________________________________________________________________________At 31 December 2005 428 5,603 2,320 1,230 4 9,585 ________________________________________________________________________Net book amountAt 31 December 2005 252 3,931 303 142 8 4,636 ======================================================================== CostAt 1 January 2006 680 9,534 2,623 1,372 12 14,221Additions 808 902 1,151 336 - 3,197Disposals - (5) - - - (5) ________________________________________________________________________At 30 June 2006 1,488 10,431 3,774 1,708 12 17,413 ________________________________________________________________________DepreciationAt 1 January 2006 428 5,603 2,320 1,230 4 9,585Charge for the year 34 869 138 49 2 1,092Disposals - (5) - - - (5) ________________________________________________________________________At 30 June 2006 462 6,467 2,458 1,279 6 10,672 ________________________________________________________________________Net book amountAt 30 June 2006 1,026 3,964 1,316 429 6 6,741 ======================================================================== The net book value of assets held under finance leases is as follows: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Computer equipment 3,510 2,414 2,380Office equipment 271 736 767 ___________________________________ 3,781 3,150 3,147 =================================== 15. Financial assets The Group's financial assets can be analysed as follows: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Investments held at fair value 278,981 247,518 255,937Receivables - amounts owed by policyholders 136,373 119,357 122,810 ___________________________________Total financial assets 415,354 366,875 378,747 =================================== All receivables from policyholders are due within 12 months of the balance sheetdate. Analysis of investments held at fair value: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Fixed income securities:Government bonds 114,059 68,188 83,071Other listed securities 151,475 168,640 156,071 Variable interest securities:Other listed securities 13,447 10,690 16,795 ___________________________________ 278,981 247,518 255,937 =================================== 16. Reinsurance assets and insurance contract liabilities A) Analysis of recognised amounts: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Gross: Claims outstanding 187,490 159,392 170,216Unearned premium provision 94,198 82,236 83,914 ___________________________________Total gross insurance liabilities 281,688 241,628 254,130 ===================================Recoverable from reinsurers: Claims outstanding 43,865 46,367 41,585Unearned premium provision 24,795 14,332 12,581 ___________________________________Total reinsurers' share of insurance liabilities 68,660 60,699 54,166 =================================== Net: Claims outstanding 143,625 113,025 128,631Unearned premium provision 69,403 67,904 71,333 ___________________________________Total insurance liabilities - net 213,028 180,929 199,964 =================================== B) Analysis of net claims reserve releases: The following table analyses the impact of movements in prior year claimsprovisions, in terms of their net value, and their impact on the reported lossratio. This data is presented on an underwriting year basis. Six months ended 30 31 December 30 June 2005 June 2006 2005 £000 £000 £000Underwriting year: 2000 370 - 3702001 1,483 3,560 6922002 1,937 3,229 1,9372003 1,387 3,235 2,3112004 - 2,076 4,0912005 - - 437 ______________________________ Total net release 5,177 12,100 9,838 Net premium revenue 63,833 75,621 74,863Release as % of net premium revenue 8.1% 16.0% 13.1% Financial year ended 31 December 2001 2002 2003 2004 2005 £000 £000 £000 £000 £000Underwriting year: 2000 3,923 6,188 5,176 1,480 3702001 - 2,490 7,938 2,967 5,0432002 - - 2,975 3,229 5,1662003 - - - 1,513 4,6222004 - - - - 2,076 __________________________________________________Total net release 3,923 8,678 16,089 9,189 17,277 Net premium revenue 84,135 81,336 79,327 107,501 139,454Release as % of net premium revenue 4.7% 10.7% 20.3% 8.5% 12.4% C) Reconciliation of movement in net claims reserve: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Net claims reserve at start of period 128,631 98,120 98,120 Net claims incurred 54,130 45,683 97,324Net claims paid (39,136) (30,778) (66,813) ____________________________________Net claims reserve at end of period 143,625 113,025 128,631 ==================================== D) Reconciliation of movement in net unearned premium provision: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Net unearned premium provision at start of period 71,333 51,850 51,850 Written in the period 73,499 80,539 160,244Earned in the period (75,429) (64,485) (140,761) _____________________________________Net unearned premium provision at end of period 69,403 67,904 71,333 ===================================== 17. Trade and other receivables 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Trade debtors 9,739 27,955 6,905Prepayments and accrued income 2,010 1,649 2,487 _____________________________________Total trade and other receivables 11,749 29,604 9,392 ===================================== 18. Cash and cash equivalents 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Cash at bank and in hand 112,206 97,377 109,506Cash on short term deposit 17,243 21,799 40,646 ____________________________________Total cash and cash equivalents 129,449 119,176 150,152 ===================================== Cash and cash equivalents includes cash in hand, deposits held at call withbanks, and other short-term deposits with original maturities of three months orless. 19. Financial liabilities 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Interest bearing bank loans - 29,471 22,000 ===================================== Analysis of borrowings: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Repayments falling due within 12 months - 11,471 -Repayments falling due after 12 months - 18,000 22,000 _____________________________________ - 29,471 22,000 ===================================== The Group's £30m debt facility is an unsecured revolving credit arrangement.Interest is charged on amounts drawn down based on LIBOR plus a margin. The facility was repaid during February 2006, as the funds were not required.Funds continue to be available under the facility, which expires in 2008. 20. Deferred income tax liability 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Brought forward at start of period 3,550 4,838 4,838Movement in period (2,646) 1,539 (1,288) ____________________________________Carried forward at end of period 904 6,377 3,550 ==================================== The net balance provided at the end of the current period is made up of a grossdeferred tax liability of £1,170,000 (2005 H1: £6,671,000, full year:£3,816,000) relating to the tax treatment of Lloyd's Syndicates, and a deferredtax asset of £266,000 (2005 H1: £294,000, full year; £266,000) in respect ofother timing differences. 21. Trade and other payables 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Trade payables 3,516 3,475 4,423Amounts owed to co-insurers and reinsurers 111,502 105,325 98,054Finance leases due within 12 months 1,796 1,696 1,963Finance leases due after 12 months 450 491 886Other taxation and social security liabilities 4,809 3,943 4,174Other payables 11,023 13,294 10,066Accruals and deferred income (see below) 67,154 61,842 63,369 ____________________________________Total trade and other payables 200,250 190,066 182,935 ==================================== Analysis of accruals and deferred income: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Premium receivable in advance of policy 33,644 31,626 30,471 inceptionAccrued expenses 24,949 22,067 24,559Deferred income 8,561 8,149 8,339 ____________________________________Total accruals and deferred income as above 67,154 61,842 63,369 ==================================== Analysis of finance lease liabilities: At 30 June 2006 At 30 June 2005 Minimum Interest Principal Minimum Interest Principal lease lease payments payments £000 £000 £000 £000 £000 £000 Less than one year 275 20 255 760 34 726Between one and five years 2,059 68 1,991 1,754 293 1,461 _______________________________________________________________________ 2,334 88 2,246 2,514 327 2,187 ======================================================================= At 31 December 2005 Minimum Interest Principal lease payments £000 £000 £000 Less than one year 2,171 208 1,963Between one and five years 921 35 886 ________________________________ 3,092 243 2,849 ================================ 22. Share capital 30 30 31 June June December 2006 2005 2005 £000 £000 £000Authorised: 500,000,000 ordinary shares of 0.1p 500 500 500 ==================================Issued, called up and fully paid: 260,720,271 ordinary shares of 0.1p 261 - -258,595,400 ordinary shares of 0.1p - 259 -259,861,965 ordinary shares of 0.1p - - 260 __________________________________ 261 259 260 ================================== During the first half of 2006, 858,306 new ordinary shares of 0.1p were issuedto the trusts administering the Group's share schemes. 330,306 of these were issued to the Admiral Group Share Incentive Plan Trust forthe purposes of this share scheme. These shares are entitled to receivedividends. 528,000 were issued to the Admiral Group Employee Benefit Trust for the purposesof the Admiral Group Senior Executive Restricted Share Plan. The Trustees havewaived the right to dividend payments, other than to the extent of 0.001p pershare, unless and to the extent otherwise directed by the Company from time totime. Staff share schemes: Analysis of share scheme costs (per income statement): 30 30 31 June June December 2006 2005 2005 £000 £000 £000 SIP charge (note i) 217 54 263UFSS charge (note ii) 203 71 175 _________________________________Total share scheme charges 420 125 438 ================================= (i) The Approved Share Incentive Plan (the SIP) Eligible employees qualify for awards under the SIP based upon the performanceof the Group in each half-year against budget. The current maximum award forthe first half of each year is £1,500 and £3,000 for the full year per employee. For maximum awards to be made, the Group's profit must exceed budget by 11.5 percent. Employees must remain in employment until the vesting date (three yearsfrom the date of award), otherwise the shares will be forfeited (unless they areclassed as a 'good leaver'). The fair value of shares awarded is either the share price at the date of award,or is estimated at the latest share price available when drawing up thefinancial statements for awards not yet made (and later adjusted to reflect theactual share price on the award date). Awards under the SIP are entitled toreceive dividends, and hence no adjustment has been made to this fair value. (ii) The Unapproved Free Share Scheme (the UFSS) Employees are eligible to receive an award of shares at no charge. Staff mustremain in employment until the vesting date (which is three years from the awarddate) in order for the shares to vest. For an award to vest under the 2005 scheme, the total shareholder return (TSR)of Admiral Group plc shares over the three years 2005 to 2007 must be at leastequal to the TSR of the FTSE 350 index, of which the Company is a constituent.If the Company's TSR does not meet this target, no awards will vest under the2005 UFSS scheme. This hurdle has been removed for awards made under the 2006UFSS scheme. If this initial hurdle is overcome, individual awards are calculated based onthe growth in the Company's earnings per share (EPS) relative to a risk freereturn (RFR), for which LIBOR has been selected as a benchmark. Thisperformance is measured over the same three-year period. The range of awards is as follows: • If the growth in EPS is less than the RFR, no awards vest• EPS growth is equal to RFR - 10% of maximum award vests• To achieve the maximum award, EPS growth has to be 36 points higher than RFR over the three year period Between 10% and 100% of the maximum awards, a linear relationship exists. Awards under the UFSS are not eligible for dividends and hence the fair value offree shares to be awarded under this scheme has been revised downwards to takeaccount of these distributions. The unadjusted fair value is based on the shareprice at the date on which awards were made. Number of free share awards committed at 30 June 2006: Awards Vesting outstanding date SIP H1 05 scheme 581,565 September 2008SIP H2 05 scheme 330,306 March 2009SIP H1 06 scheme (estimated) 440,500 September 2009UFSS 2005 scheme 759,697 June 2008UFSS 2006 scheme 603,209 April 2009 __________Total awards committed 2,715,277 ========== This reflects the maximum number of awards expected to be made before accountingfor staff attrition. Of the 2,715,277 share awards outstanding above, 2,142,871have been issued to the trusts administering the schemes, and are included inthe issued share capital figures above. 23. Analysis of movements in capital and reserves Share Share Capital Retained Total equity capital premium profit and account redemption loss reserve £000 £000 £000 £000 £000 At 1 January 2005 259 13,145 17 131,213 144,634 Retained profit for the period - - - 39,271 39,271Dividends - - - (24,049) (24,049)Share scheme charges - - - 357 357 _________________________________________________________As at 30 June 2005 259 13,145 17 146,792 160,213 =========================================================At 1 January 2005 259 13,145 17 131,213 144,634 Retained profit for the period - - - 84,720 84,720Dividends - - - (49,190) (49,190)Issues of share capital 1 - - - 1Share scheme charges - - - 1,247 1,247 _________________________________________________________As at 31 December 2005 260 13,145 17 167,990 181,412 Retained profit for the period - - - 48,093 48,093Dividends - - - (38,666) (38,666)Issues of share capital 1 - - - 1Share scheme charges - - - 1,200 1,200 _________________________________________________________As at 30 June 2006 261 13,145 17 178,617 192,040 ========================================================= 24. Financial commitments The Group was committed to obligations under operating leases on land andbuildings as follows: 30 30 31 June June DecemberOperating leases expiring: 2006 2005 2005 £000 £000 £000 Within one years 22 308 434Within two to five years 30 62 52Over five years 2,475 1,056 2,820 ___________________________________Total commitments 2,527 1,426 3,306 =================================== In addition, the Group had contracted to spend the following on property, plantand equipment at the end of each period: 30 30 31 June June December 2006 2005 2005 £000 £000 £000 Expenditure contracted to 1,021 75 1,342 =================================== Independent review report to Admiral Group plc Introduction We have been engaged by the Company to review the financial information for thesix months ended 30 June 2006, which comprise the Group Income Statement, theGroup Balance Sheet, the Group statement of recognised income and expense, theGroup cash flow statement and the related notes. We have read the otherinformation contained in the interim report and considered whether it containsany apparent misstatements or material inconsistencies with the financialinformation. This report is made solely to the company in accordance with the terms of ourengagement to assist the Company in meeting the requirements of the ListingRules of the Financial Services Authority. Our review has been undertaken sothat we might state to the Company those matters we are required to state to itin this report and for no other purpose. To the fullest extent permitted bylaw, we do not accept or assume responsibility to anyone other than the Companyfor our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual financial statements exceptwhere any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4Review of interim financial information issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of makingenquiries of management and applying analytical procedures to the financialinformation and underlying financial data and, based thereon, assessing whetherthe accounting policies and presentation have been consistently applied unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance withInternational Standards on Auditing (UK and Ireland) and therefore provides alower level of assurance than an audit. Accordingly, we do not express an auditopinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. KPMG Audit plc, Cardiff, 4 September 2006. This information is provided by RNS The company news service from the London Stock Exchange