Corporate Governance

This report explains key features of the Group's governance structure, how it applies the principles set out in the revised Combined Code on Corporate Governance (the 'Code'), and the extent to which the Company has complied with the provisions of the Code.

The Board complied with the Combined Code in all respects during 2008 except for Code D.1.1, which requires that the Senior Independent Director should attend meetings with a range of shareholders. The Company has a comprehensive programme of meetings and dialogue with institutional investors. The views of investors expressed through this dialogue are communicated to the Board as a whole through the investor relations report. All Directors can, therefore, develop an understanding of issues or concerns of major shareholders should any be raised. Feedback from shareholders suggests that these arrangements for communication between the Company and its shareholders continue to be viewed by them as effective. The Senior Independent Director is always available to meet with individual shareholders on request to ensure the Board is aware of any shareholder concerns that cannot be resolved through the routine mechanisms for investor communications.

The Admiral Group Board

The Board is the principal decision making forum for the Group providing leadership either directly or through its committees of directors and delegated authority. It is responsible to shareholders for setting and achieving the Group’s strategic objectives and for its financial and operational performance. The Board has adopted a formal schedule of matters specifically reserved to it including corporate strategy, approval of budgets and financial results, policies in relation to risk management, health and safety and environmental matters, new Board appointments, proposals for dividend payments, and the approval of major transactions. This schedule is reviewed on an annual basis and was last reviewed on 17 December 2008.

The Board met on eight occasions in 2008. The Board also held a strategy day and visited its operations in Italy. In addition, the non-executive Directors and the Chairman met during the year without the Executive Directors being present. Agendas and papers are circulated to the Board in a timely manner in preparation for Board and Committee meetings. These papers are supplemented by information specifically requested by the Directors from time to time. All Directors are, therefore, able to bring independent judgement to bear on issues such as strategy, performance, and resources. Additional meetings are called when required and there is frequent contact between meetings, where necessary, to progress the Group's business.

All the Directors have access to the advice and services of the Company Secretary. He has responsibility for ensuring that Board procedures are followed and for governance matters. The Company Secretary provides updates to the Board on regulatory and corporate governance issues, new legislation and Directors’ duties and obligations. The appointment and removal of the Company Secretary is one of the matters reserved for the Board.

During the year the Board carried out an evaluation of itself and its committees. The process was facilitated by the Chairman and consisted of the completion of a questionnaire followed by one-to-one discussions between each Director and the Chairman where the Board’s role and structure, process and relationships and any emerging issues were discussed. A final detailed report was circulated to the Board and a number of recommendations agreed. The evaluation concluded that the Board and its Committees performed well during the year and are effective in meeting their objectives and fulfilling their obligations.

The Chief Executive, to whom they report, appraises the performance of the individual executive directors annually. The Chairman, taking into account the views of the other Directors, conducts the performance appraisal of the Chief Executive. The performance of the Chairman is reviewed by the Non-Executive Directors, led by the Senior Independent Non-Executive Director (John Sussens), taking into account the views of the executive directors. John Sussens gave individual feedback to the Chairman and was able to confirm that the performance of the Chairman continues to be effective, and that the Chairman continues to demonstrate commitment to his role.

The number of full Board meetings and Committee meetings attended by each Director during 2008 is provided in the table below.

	Scheduled Board meetings	Audit Committee meetings	Nominations Committee meetings	Remuneration Committee meetings
Total meetings held	8	4	2	5
Alastair Lyons (Chairman)	8		2
Henry Engelhardt (Chief Executive)	7
David Stevens (Chief operating Officer)	8
Kevin Chidwick (Finance Director)	8
Manfred Aldag	8
Martin Jackson	8	4		5
Keith James	8	4	2
Margaret Johnson	8	4		5
Lucy Kellaway	8		2
John Sussens	8			5

The roles of the Chairman and Chief Executive

The Board has approved a statement of the division of responsibilities between the Chairman and the Chief Executive. The Chairman is primarily responsible for the leadership and workings of the Board, setting its agenda and monitoring its effectiveness. The Chairman is not involved in the day-to-day management of the business. Save for matters reserved for decision by the Board, the Chief Executive, with the support of the other executive directors, is responsible for the running of the business, carrying out the agreed strategy adopted by the Board and implementing specific Board decisions relating to the operation of the Group. The statement of division of responsibilities and matters reserved for decision by the Board were reviewed in December 2008.

Board balance and independence

The Board currently comprises ten directors, the Chairman (who was independent on appointment), three executive directors, five independent non-executive directors and one non-executive director who is employed by a significant shareholder and is not, therefore, considered independent. The Board has accepted the Nomination Committee’s assessment of the independence of the five non-executive directors and is not aware of any relationships or circumstances which are likely to affect, or could appear to affect, the judgement of any of them.

Independent non-executive directors are currently appointed for fixed periods of three years, subject to election by shareholders.

The initial three-year period may be extended for one further three-year period and the Board may invite the non-executive director to serve for a further three-year period, subject to re-election by shareholders. Their letters of appointment may be inspected at the Company's registered office or can be obtained on request from the Company Secretary.

In the view of the Board, the independent non-executive directors are of sufficient calibre and number that their views carry significant weight in the Board's decision making.

Details of the Chairman's other commitments are included in the Chairman's biography. The Chairman does perform a number of other non-executive roles outside the Group but the Board is satisfied that these are not such as to interfere with the performance of his duties within the Group.

John Sussens has been appointed as the Senior Independent Non-Executive Director. He is available to shareholders if they have concerns that contact through the normal channels of Chairman, Chief Executive or Finance Director has failed to resolve or for which such contact is inappropriate.

In accordance with the Company's Articles, which provide that a set number of directors retire by rotation and stand for re-election at each AGM, Manfred Aldag, Henry Engelhardt and Kevin Chidwick will retire by rotation and seek re-election by shareholders at the forthcoming AGM.

The Directors are given access to independent professional advice at the Group's expense, should they deem it necessary, to carry out their responsibilities.

Professional development

On appointment, directors take part in a comprehensive induction programme where they receive financial and operational information about the Group, details concerning their responsibilities and duties, as well as an introduction to the Group’s governance and control environment.

This induction is supplemented by visits to the Group's head office in Cardiff and meetings with members of the senior management team and their departments. Throughout their period in office the directors are regularly updated on the Group's business; legal matters concerning their role and duties; the competitive environments in which the Group operates; and any other significant changes affecting the Group and the industry of which it is a part.

The Board receives presentations from senior managers within the various Group companies on a regular basis.

Relations with shareholders

The Investor Relations team has day-to-day primary responsibility for managing communications with institutional shareholders through a combination of briefings to analysts and institutional shareholders, both at the half-year and full year results. Site visits and individual discussions with the executive directors are also arranged throughout the year with individual shareholders. Regular dialogue with shareholders helps to ensure that the Company's strategy is understood and that any issues are addressed in a constructive way.

In fulfilment of the Chairman's obligations under the new Combined Code, the Chairman would give feedback to the Board on issues raised with him by major shareholders, although to date there have been no such issues.

This is supplemented by monthly feedback to the Board on meetings between management and investors. External analyst reports are circulated to all the directors.

The Chairmen of the Audit, Remuneration and Nomination Committees attend the Company's Annual General Meeting along with other directors, and are available to answer shareholders' questions on the activities of the committees they chair.

The Group maintains a corporate website (www.admiralgroup.co.uk) containing a wide range of information of interest to institutional and private investors.

Board Committees

The principal committees of the Board - Audit, Remuneration and Nomination - all comply fully with the requirements of the Combined Code. They are all chaired by an independent director and exclusively comprise, or, in the case of the Nomination Committee (where the Chairman of the Board is a member), have a majority of, independent directors. The committees are constituted with appropriate written terms of reference that are reviewed annually and minutes of the committee meetings are circulated to the Board.

The Audit Committee

Constitution and membership

The membership at the year-end was Martin Jackson (Chairman), Keith James, and Margaret Johnson. The Company Secretary acts as Secretary to the Committee. Appointments to the Committee are for a period of up to three years, which may be extended for two further three year periods, provided the director remains independent. The Committee meets at least three times per year and has an agenda linked to events in the Company’s financial calendar.

The Committee has a formal terms of reference, which were reviewed by the Committee on 19 November 2008 and approved by the Board on 17 December 2008.

The Board considers that the members of the Committee have the appropriate competence and experience to carry out their duties and further considers that Martin Jackson (Committee Chairman) has the appropriate recent and relevant financial experience having held the position of Group Finance Director of Friends Provident Plc between 2001 and 2003 and being a fellow of the Institute of Chartered Accountants, which imposes requirements for Continuing Professional Development. The Committee is kept up to date with changes to Accounting Standards, relevant developments in financial reporting, company law and the various regulatory frameworks through presentations from the Group’s external auditors, Head of Finance and Company Secretary. In addition members are provided with information on seminars and conferences provided by external bodies. The Terms of Reference of the Audit Committee include all the matters suggested by the Code.

Other individuals such as the Finance Director, Chief Operating Officer, Chief Executive, Chairman of the Board, the heads of Risk, Compliance and Internal Audit and representatives of different parts of the Group may be invited to attend all or part of any meeting as and when appropriate. The external auditors are invited to attend meetings of the Committee on a regular basis.

Summary of key activities during 2008

During the year the Committee reviewed the following:-

Annual report and interim results
Reports from the Group’s internal audit department on the effectiveness of the Group’s risk management procedures, details of key audit findings and actions taken by management
Effectiveness of the Group’s system of internal control including within its overseas operations
Reports from the external auditors on their proposed audit scope, fees, audit, and auditor independence
Performance of the internal audit department through self assessment (the internal audit department is subject to external assessment once every five years)
The Group’s ‘whistleblowing’ procedures.

The Committee reviewed its policy on non-audit services that, amongst other things, requires that the Committee approve all proposals for expenditure with the Group’s auditors of over £30,000 on non-audit services. The policy was last reviewed on 19 November 2008. The Group’s auditors, KPMG Audit plc, provide some non-audit services, the majority of which comprise compliance services related to various taxation issues within the Group, and which are not considered by the Committee to compromise their independence as auditors. The level of non-audit fees is reviewed twice a year by the Committee and details are included in the Report and Accounts.

The Head of Internal Audit is invited to all Committee meetings and provides a range of presentations and papers to the Committee, through which the Committee monitors the effectiveness of the Group’s internal controls. Committee members receive copies of all internal audit reports and are given the opportunity to raise questions on the content and recommendations contained within the reports. The Committee approves the internal audit programme at the start of each calendar year and monitors the progress made in achieving the plan.

During the year, the Committee received a presentation from the Group’s auditors on proportionate liability agreements although the Group has not yet entered into any such agreement with its auditors.

The Committee also approves the annual compliance review plan and receives copies of these reports. The Head of Compliance, who has responsibility for the Compliance and Risk management functions, provides the Committee with a quarterly Compliance report summarising the activities in this area.

The Committee has a policy that provision of external audit services be tendered every five years. This was last carried out in 2006 when the decision was made to retain the services of the incumbent external auditors. At the same time the external audit partner was rotated.

The Committees Terms of Reference can be found here.

The Nominations Committee

The membership at the year-end was Keith James (Chairman), Lucy Kellaway, and Alastair Lyons. The Company Secretary acts as Secretary to the Committee. The Committee invites the Chief Executive to attend meetings when it deems appropriate.

The Committee has formal terms of reference, which were last reviewed on 17 December 2008 and approved by the Board on 27 February 2009. The Committee met on two occasions during 2008.

The Committee leads the process for making appointments to the Board or where the appointee is likely to become a Board member. The Committee ensures there is a formal, rigorous and transparent procedure for the appointment of new Directors to the Board through a full evaluation of the skills, knowledge and experience of Directors. The Committee also ensures plans are in place for orderly succession for appointments to the Board, and reviews the plans for other senior management positions. Responsibility for making senior management appointments rests with the Chief Executive.

During 2008, the Committee discussed succession planning across the Group with the Executive team. Planning for the most senior management positions was formerly in place but below this, succession planning within the Group was not fully documented. The People Services Manager has implemented a process of documenting and improving the approach taken by the Group to assess and monitor succession planning throughout the Group through the development of a Talent Management programme.

The Committee reviewed the current Board size, structure, and composition and confirmed that no further changes were required and that the leadership of the organisation was such that the Company could continue to compete effectively in the marketplace in which it operates.

The Committees Terms of Reference can be found here.

Remuneration Committee

The membership at the year-end was John Sussens (Chairman), Martin Jackson, and Margaret Johnson. The Company Secretary acts as Secretary to the Committee. The Committee invites the Chief Executive and Chairman to attend the meetings where it deems appropriate.

The Committee has formal terms of reference, which were last reviewed on 17 December 2008. The Committee met five times during 2008.

During the year the Committee carried out the following activities :-

Reviewed the Group’s overall remuneration policy and strategy
Recommended for approval individual remuneration packages for Executive Directors, and Company Secretary
Reviewed the rules and performance measures of the Group share schemes and recommended for approval the grant, award, allocation or issue of shares under such schemes.

A separate Remuneration Report is included within the Report and Accounts.

During the year the Committee purchased consultancy services from Kepler Associates. In addition, the Company Secretary circulates market survey results as appropriate. to enable it to make judgments on the levels of remuneration for the Directors and to review the remuneration of the Group’s senior executives.

The Committees Terms of Reference can be found here.

Internal control and risk management

The Board is ultimately responsible for the Group’s system of internal control and, through the Audit Committee, has reviewed the effectiveness of these systems. The systems of internal control over business, operational, financial and compliance risks are designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

The Board is of the view that there is an ongoing process for identifying, evaluating and managing the Group’s internal controls; that it has been in place for the year ended 31 December 2008; and that, up to the date of approval of the annual report and accounts, it is regularly reviewed by the Board and accords with the internal control guidance for Directors provided in the Code.

A key element of the control system is that the Board meets regularly with a formal schedule of matters reserved to it for decision and has put in place an organisational structure with clearly defined lines of responsibility. In order to ensure these responsibilities are properly discharged, the Board has delegated the task of supervising risk management and internal control to the Risk Management Committee (RMC).

There are several key elements to the risk management environment throughout the Group. These include the setting of risk management policy at Board level, enforcement of that policy by the Chief Executive, delivery of the policy by the RMC via the Group’s systems of internal control and risk management, and the overall assurance provided by the Audit Committee that the systems operate effectively.

The Board recognises that the day-to-day responsibility for implementing these policies must lie with the management team, whose operational decisions must take into account risk and how this can effectively be controlled. The Head of Compliance and the Risk Officer take responsibility for ensuring management are aware of their risk management obligations, providing them with support and advice, and ensuring that the risk management strategy is properly communicated. The head of each business unit or business area is required, with the support of the Risk Manager, to undertake a full assessment process to identify and quantify the risks that their departments face or pose to the Group and the adequacy of the controls in place to mitigate or reduce those risks. Reports are produced showing the most significant risks identified and the controls in place. Internal Audit and the Compliance function use the risk registers to plan their programme of audits to ensure that the controls described are actually in place.

The RMC receives reports setting out key performance and risk indicators and considers possible control issues brought to their attention by early warning mechanisms that are embedded within the operational units. The RMC and the Audit Committee also receive regular reports from Internal Audit, which include recommendations for improvement in the control and operational environment. The Audit Committee’s role in this area is primarily confined to a high-level review of the arrangements for internal control although at its discretion the Committee may well request more detailed information on specific issues should they arise. The Board’s agenda includes consideration of risk and control as a regular item and receives reports thereon from the RMC and the Audit Committee. The emphasis is on obtaining the relevant degree of assurance and not merely reporting by exception. On 27 February 2009 the Board carried out the annual assessment for the 2008 year by considering documentation from the Audit Committee, taking account of events since 31 December 2008.

The Audit Committee’s ability to provide the appropriate assurance to the Board depends on the provision of periodic and independent confirmation, primarily by Internal Audit, that the controls established by management are operating effectively. The Audit Committee reviews the wider aspects of internal control and risk management, providing a high level challenge to the steps being taken to implement the risk management strategy.

The Board confirms that there were no significant issues arising during the year under review.

The Risk Management Committee

The Committee’s members include the three executive directors, the Head of Compliance (who chairs the meetings), the Risk Officer, and senior management representatives.

One of the Committee’s principal responsibilities is to ensure that the risk management policy approved by the Board is implemented throughout the Group. The Committee has formal terms of reference and is required to manage regulatory issues, assess and monitor reinsurance protection, and ensure that a risk management strategy is effectively employed by the Group. The Committee meets around 8 times a year and each Committee member receives an agenda and papers in a timely manner allowing the Committee to make informed decisions and take appropriate actions.

The Committee develops policies to ensure compliance with regulation and ensures that appropriate action is taken by the management team to implement compliant systems and procedures.

Internal Audit

The Internal Audit function assists management by providing them with timely, independent assurance that the controls established are operating effectively. This includes regular reviews of internal control systems and business processes, including compliance systems and procedures, and identification of control weaknesses and recommendations to management on improvements.

Corporate Information

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