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8 September 2004

Admiral Launches Initial Public Offering

Admiral Group Limited (“Admiral” or “the Company”) announces today the launch of a global offer of existing ordinary shares (“the Global Offer”) through an institutional offering as part of its plans to float on the London Stock Exchange. The indicative price range of the Global Offer is 245 pence to 300 pence per existing ordinary share, which implies an equity value for the Company of between £634 million and £776 million.

Merrill Lynch International (“Merrill Lynch”) is acting as global co-ordinator, sole bookrunner and sponsor. Citigroup Global Markets UK Equity Limited is joint lead manager. Co-lead managers for the Global Offer are Fox-Pitt, Kelton N.V. and Lazard & Co., Limited. Lexicon Partners Limited is joint financial adviser to Admiral with Merrill Lynch.

Highlights

• Existing ordinary shares with a value of £229 million (based upon the mid-point of the indicative price range and prior to any over allotment option granted by existing shareholders) are to be sold pursuant to the Global Offer, representing approximately 32% of the Company’s issued share capital.
  
  
• The existing ordinary shares are being sold by Barclays Private Equity (15%), the management and employees of Admiral (12%) and XL Capital (5%).
  
  
• On completion of the Global Offer, most of the existing shareholders will continue to retain ordinary shares and will be subject to post-transaction lock-ups.
  
  
• Owing to the cash generative nature of Admiral’s business it has no need for primary capital and will not be selling new ordinary shares.
  
  
• The Board of Directors of Admiral (“the Board” or “the Directors”) intends to adopt a progressive dividend policy to reflect the Group’s long-term earnings and cash flow potential and intends to initially target a dividend pay-out ratio of not less than 40% of the Group’s profit for the financial year after tax(1). The Board would also intend to return excess cash to shareholders over time.
  
  
• Admiral is commencing an institutional roadshow across the UK, Europe and the US today. Following a bookbuilding exercise, it expects to price the ordinary shares on 23 September 2004.
  
  
• Unconditional dealing in the ordinary shares of Admiral is expected to begin on the London Stock Exchange on 28 September 2004.

Henry Engelhardt, Chief Executive of Admiral, said:

“Through our focus on fast-growing internet distribution, Admiral is well positioned to achieve its strategy of increasing its share of the private motor insurance market whilst maintaining cash generation and profitability under the intermediary model it has built. We look forward to new investors joining us to take the Company forward to the next stage in its development.”

Alastair Lyons, Chairman of Admiral, said:

“Flotation is a key stage in the Group’s development, enabling us to provide a public market for Admiral shares, increasing the profile of the group and enabling employees to see the direct benefit of their hard work.”

Owen Clarke, a Managing Director of Barclays Private Equity, said:

"As a private equity investor we typically seek to realise the value created by our portfolio companies within around five years of investment. Having backed the management buyout in 1999, our decision to retain a significant shareholding in Admiral is testament to the confidence we have in the Group’s growth outlook.”

For further information, please contact:

Financial Dynamics	020 7269 7200
Robert Bailhache
Caroline Ledosquet
Admiral	020 7269 7200
Henry Engelhardt
Louisa Scadden
Merrill Lynch	020 7628 1000
Rupert Hume-Kendall
Simon Fraser
Henrietta Baldock
Lexicon Partners	020 7653 6000
Andrew Sibbald
Mark Hennessy
www.admiralgroup.co.uk

NOTE TO EDITORS

Overview

Admiral is a fast growing financial services intermediary with a track record of profitability. Admiral principally sells private motor insurance, together with ancillary products such as breakdown cover and cover for legal expenses. Admiral markets directly to the public in the UK through its four core brands, each of which targets specific customer profiles: the Admiral brand (younger drivers, London and the South East), elephant.co.uk (internet users), Diamond (women) and Bell Direct (credit card payers).

Admiral’s private motor insurance is underwritten primarily by third party insurance providers with Admiral controlling all pricing and underwriting decisions and administration. Admiral also retains a proportion (currently 25%, net of quota share reinsurance) of the private motor underwriting for its own account.

Admiral’s revenues comprise:

• Intermediary income primarily received from:
  
  
• the sale of ancillary products underwritten by third parties; and
  
  
• profit commissions based on the volume and profitability of insurance sold on behalf of third party insurance providers; and
  


• Premium income from the proportion of own-account underwriting retained by Admiral.
  

For the year ended 31 December 2003, Admiral generated:

• Aggregate Group turnover of £427.3 million⁽²⁾ (2002: £378.5 million);
  
  
• Adjusted core profits of £77.2 million⁽³⁾⁽⁴⁾ (2002: £55.2 million); and
  
  
• A reported combined ratio of 67.7% (2002: 80.0%).
  

Since 2000, aggregate Group turnover has increased at a compound annual growth rate of 17.5% and adjusted core profits have increased at a compound annual growth rate of 58.5%.

History

The Admiral business was launched in 1993 by Henry Engelhardt, David Stevens and Andrew Probert, the Company’s three executive directors. Growth has been organic and by 30 June 2004 Admiral had more than 900,000 customers and 1,500 employees. Admiral operates from its headquarters in Cardiff and its additional offices in Swansea.

A summary of the key milestones in the Group’s history is set out below:

• In 1993, the business began underwriting motor insurance under the Admiral brand, as the direct motor insurance operation of Brockbank, a Lloyd’s managing agent. Admiral Insurance Services Limited (“AISL”) also started to sell ancillary products, including legal expenses cover, to its policyholders.
  
  
• Admiral added personal accident cover to its ancillary products in 1996.
  
  
• Admiral launched its Diamond and Bell Direct brands in 1997 and embarked on its multi-brand sales strategy.
  
  
• In 1998, Admiral commenced offering commercial motor business as an intermediary through its Gladiator Commercial brand.
  
  
• In 1999, Admiral started offering car hire cover as an ancillary product.
  
  
• In addition, in 1999, the management team formed the Company to acquire the Admiral business from Brockbank with the backing of Barclays Private Equity. In the same year, Admiral entered into co-insurance arrangements with Munich Re and Swiss Re and a quota share reinsurance arrangement with Munich Re.
  
  
• In 2000, Admiral Syndicate Limited started underwriting its business at Lloyd’s. AISL had previously undertaken to service the run-off of the Admiral motor business previously underwritten by the Brockbank Group.
  
  
• In addition, in 2000, Admiral launched elephant.co.uk, its insurance brand focused solely on the internet. The internet insurance quote comparator, Confused.com, was launched in 2001.
  
  
• Also in 2001, Great Lakes (a subsidiary of Munich Re) entered into a co-insurance agreement, extending the existing co-insurance arrangements with the Group until the end of 2008.
  
  
• In 2002, Munich Re acquired a significant shareholding in the Company.
  
  
• Admiral continued to write business at Lloyd’s until the end of 2002 when it chose to withdraw from that market.
  
  
• Admiral incorporated two new insurance companies, Admiral Insurance Company Limited and Admiral Insurance (Gibraltar) Limited, to underwrite its retained business from 2003 onwards.

Competitive Strengths

The Directors believe that Admiral has the following key competitive strengths which have enabled it to grow profitably and deliver loss and expense ratios which have been consistently lower than the market average.

Low cost direct distribution— Admiral’s direct distribution model, combining telesales and the internet channel, allows it to control the sales and distribution process whilst retaining customer ownership. This model is cost effective, keeping acquisition costs low.

Substantial high quality intermediary revenues— Direct customer contact gives Admiral the opportunity to earn commission by selling ancillary products on an agency basis. Admiral also receives profit commission on motor insurance business written for third parties under proportional underwriting arrangements.

Effective multi-brand srategy— Admiral’s marketing strategy using multiple brands means it generates quotes at a lower cost than a single brand model by seeking to optimise the use of lower cost advertising media and builds strong brand awareness within specific market segments.

Extensive data collection and utilisation— The use of extensive proprietary and third party customer data leads to better informed pricing and underwriting decisions and allows Admiral to seek to identify attractive market opportunities.

Efficient use of capital— Admiral limits the proportion of underwriting retained for its own account. This reduces the solvency requirements for the business and gives Admiral the potential to deliver both growth and cash generation.

Limited exposure to underwriting cycle— Admiral’s business model with its substantial intermediary revenues and limited retained underwriting provides a degree of resilience to the underwriting cycle.

Record of innovation— Admiral has a history of introducing innovative practices and products to respond to and create new opportunities identified through its management information.

Proven management track record and company culture— The executive directors and senior management have substantial experience and a successful track record of delivering profitable growth. In 2004, Martin Jackson and John Sussens were appointed non-executive directors of the Group.

Business Strategy

The Directors believe that Admiral’s competitive strengths will help it to achieve its strategy of increasing its share of the private motor insurance market whilst maintaining cash generation and profitability.

The Directors believe that Admiral’s direct distribution model, and, in particular, its focus on the fast-growing internet channel, leaves it well placed to continue gaining market share. In addition, the Directors believe that Admiral’s superior loss and expense ratios give it an advantage against the market and enable Admiral to price its products for both growth and profit. Admiral, therefore, aims to maintain strong market share growth whilst continuing to deliver attractive profits to shareholders, through increased sales of ancillary products, profit commission and premium income.

Admiral intends to retain its flexibility to pursue opportunities as and when they arise in relation to its core business. High quality management information systems provide extensive data which is analysed in order to assist in evaluating trends in the private motor insurance market.

Trading Performance

For the period of six months to 30 June 2004, aggregate Group turnover increased by 30.2% to £269.3 million (H1 2003: £206.8 million) and adjusted core profits increased by 30.5% to £45.3 million (H1 2003: £34.7 million)(5), both of which were ahead of the targets set by the Group in respect of the financial period. A total of two-thirds of the Group’s adjusted core profits for the period of six months to 30 June 2004 were attributable to intermediary income, representing an increase from 60% for the year ended 31 December 2003.

The Group’s business strategy remains unchanged since 30 June 2004. Total premiums written in July and August 2004 were in line with the Group’s expectations and sales of ancillary products increased in line with the Group’s customer base during this period.

Overall, the outlook for the Group’s trading for the full financial year remains in line with the Directors’ expectations and, given trading in the first half of the year, the Directors are confident of the Group’s prospects for the current financial year.

Dividend Policy

The Directors intend to adopt a progressive dividend policy, which will reflect the long-term earnings and cash flow potential of the Group, whilst maintaining an appropriate level of dividend cover. It is envisaged that interim dividends will be paid in November and final dividends will be paid in May of each year, in the approximate proportions of one-third and two-thirds respectively of the total annual dividend. It is expected that the first dividend to be declared by the Company following the Global Offer (which is expected to be declared in March 2005) will be half the usual final dividend, to reflect the position that the Company will only have been listed for three months of the relevant financial year.

Assuming that there are sufficient distributable reserves available at the time and subject to any regulatory capital requirements, the Board intends to initially target a dividend pay-out ratio of not less than 40% of the Group’s profit for the financial year after tax⁽¹⁾⁽⁶⁾.

Notes:

(1) For the purpose of calculating the amount of the annual dividend payable to holders of the Company’s ordinary shares, the target dividend pay-out ratio shall be applied to the Group’s profit for the financial year after tax stated before any deductions for goodwill amortisation and any charges relating to the Employee Share Ownership Trust.

(2) Aggregate Group turnover comprises total premiums written, revenue from ancillary sales, commissions from broker operations, instalment income, gross other income and allocated investment income.

(3) Core profits consist of operating profit and interest receivable and are stated before charging interest payable, goodwill amortisation and any charges relating to the Employee Share Ownership Trust.

(4) Adjusted core profits for the year ended 31 December 2003 include profit commission of £6.0 million attributable to the Group’s agency business and relating to premiums earned in 2003 which only became capable of reliable measurement in 2004 and which was therefore recognised in the six months ended 30 June 2004.

(5) Adjusted core profits for the period of six months to 30 June 2004 exclude profit commission of £6.0 million attributable to the Group’s agency business and relating to premiums earned in 2003 which only became capable of reliable measurement in 2004 and which was therefore recognised in the six months ended 30 June 2004.

(6) For the purpose of calculating the amount of the dividend payable to holders of the Company’s ordinary shares in respect of the current year ending 31 December 2004, in addition to those items referred to in note (1) above, the Group’s profit for the financial year will also be adjusted to reflect the profit commission of £6.0 million attributable to the premiums earned in 2003 as referred to in note (4) above.

This announcement has been issued by and is the sole responsibility of Admiral Group Limited. The contents of this announcement have been approved by Merrill Lynch International ("Merrill Lynch") and Lexicon Partners Limited (“Lexicon”) solely for the purposes of section 21 of The Financial Services and Markets Act 2000. Merrill Lynch and Lexicon are each acting for Admiral Group Limited and no one else in connection with the Global Offer and will not be responsible to anyone other than Admiral Group Limited for providing the protections afforded to clients of Merrill Lynch or Lexicon or for providing advice in relation to the Global Offer.

This announcement does not form part of any offer of securities, or constitute a solicitation of any offer to purchase or subscribe for securities, and any acquisition of or application for shares in the Global Offer should only be made on the basis of information contained in the listing particulars to be issued in due course in connection with the Global Offer and any supplements thereto, which listing particulars will contain certain detailed information about Admiral Group Limited and its management, as well as financial statements and other financial data.

This announcement does not constitute an offer of securities for sale in the United States of America. Neither this announcement nor any copy of it may be taken or distributed into the United States of America or distributed or published, directly or indirectly, in the United States of America. Any failure to comply with this restriction may constitute a violation of US securities law. The securities referred to herein have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States or to or for the benefit of US persons unless they are registered under the Securities Act or pursuant to an available exemption therefrom. No public offering of securities of Admiral Group Limited is being made in the United States of America.

In connection with the Global Offer, Merrill Lynch may over-allocate or effect transactions to stabilise or maintain the market price of Admiral Group Limited's securities at levels above those that might otherwise prevail in the open market. However, there is no obligation on Merrill Lynch to take such action. Such transactions may be effected on the London Stock Exchange, in over-the-counter markets or otherwise and shall be carried out in accordance with applicable rules and regulations. Such transactions, if commenced, may be discontinued at any time.