Positive Admiral profits beat City hopes

Car insurer Admiral said insurance premiums have begun to rise for the first time in three years as it posted better-than-expected half-year profits.

Insurance company Admiral. Picture: Contributed
Insurance company Admiral. Picture: Contributed

The owner of the Diamond and Elephant brands saw pre-tax profits edge 1 per cent higher to £186.1 million in the six months to the end of June.

The insurer increased UK car insurance customers by just under 1 per cent year-on-year to 3.18 million and said the industry had began to feed through small premium rises in the first six months of 2015.

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But despite edging up the cost of policies, its average written premium fell by 3 per cent to £481 due to amount of renewal business it wrote compared to new business.

A recent AA report said car premiums rose by 5.5 per cent in the second quarter of this year across the industry after years of decline after regulators clamped down on fake whiplash claims as well as inflated hire car and garage repair bills that have padded out premiums.

At the time, the managing director of AA Insurance, Janet Connor, warned: “The days of cheap car insurance premiums are over, and price rises are inevitable.”

Rival Esure last week said that it was also planning to drive up the cost of motor cover after a surge in small injury claims.

Esure, which also owns Sheilas’ Wheels and price comparison website Gocompare, said: “The claims environment in the motor market continues to deteriorate and as a consequence we will seek to implement further rate increases in the second half of the year as we look to mitigate against these trends.”

Admiral said its strategy in the UK car insurance market remained to protect premium margins rather than grow market share. The firm also increased its interim dividend by 3 per cent to 5.1p a share, to be paid on 9 October.

Outgoing chief executive Henry Engelhardt said: “A good start to a challenging year. Profits are up, customer numbers are up, earnings per share is up, the dividend is up… you might say it was a pretty ‘up’ first half.”

However, profits at the group’s price comparison website Confused.com tumbled 47 per cent to £4.8m, impacted by “continuing challenging market conditions” and investment in a new marketing campaign.

Engelhardt said in May that he would step down next year after clocking up nearly 25 years at the insurer he co-founded in 1991. He will be replaced by co-founder and chief operating officer David Stevens in May.

Shore Capital analyst Eamonn Flanagan said Admiral’s half-year results came in ahead of its own top of the range forecasts, helped by better-than-forecast levels of profit commissions.

Nevertheless, Flanagan said the broker had reiterated its “sell” rating on the group’s shares due to the “deteriorating claims environment in the UK and the continuing regulatory pressure on both ancillary and instalment income”.

But Engelhardt added: “The UK business turned in a very solid result helped by positive claims cost development, with modest growth accompanying price increases. Overall I’d say, it has been a good first half.”