Admiral: falling motor rates will hit profit margins

Falling UK motor rates will hit Admiral’s profit margins for new business, chief operating officer David Stevens has admitted.

However, he added that this profit erosion could be offset by larger reserve releases from old underwriting years.

He also expects prices to stabilise by year end as “exuberance” over April’s legal reforms wears off.

Speaking to journalists following the release of Admiral’s first-half results this morning, Stevens pointed out that UK motor rates had fallen 8%in the first half of 2013, according to the Confused price index.

He said: “Admiral obviously isn’t immune to the impact of market-wide price changes.

“We have taken our prices down more slowly than the market. Over the past 12 months the Confused index is showing a 15% fall and we fell 7% on new business over that period. But clearly at some point that is going to impact the underlying margins on current business.”

However, he added: “Fortunately, because we have been able to increase our cushion [of reserves] over best estimate over the years, the diminishing profitability of current business may be partly or more than partly compensated for by larger reserve releases, if claims patterns on old years continue to improve.”

A sharp jump in UK motor reserve releases to £29.7m helped Admiral boost its first-half profit after tax by 7%.

Price stabilisation

Stevens also expects UK motor insurance prices to start stabilising by the end of this year.

He said: “Our view is that there is probably a little more reduction to come but we should be approaching a time when people recognise that the business is no longer being written at a very profitable level and some of the exuberance over the claims reforms introduced in April 2013 wears off.

“We would hope that towards the back end of the year we should see some prices stabilising.”