Andrew Cave says he ought to walk the plank over his erroneous view of the Admiral flotation
Sometimes you just have to put up your hand and say you got it wrong and I am having an Admiral moment right now.
Two and a half years ago, as the direct insurer prepared to float on the London Stock Exchange, I co-authored a leader in The Daily Telegraph fretting that it might turn into a bit of a seadog of a stock.
An admiral's job is to see what's on the horizon and prepare his fleet to tackle what's out there and beyond, we argued.
This good ship was steaming ahead, with interim profits and turnover increasing 30% and its combined ratio of 68% was just about the lowest in the industry.
"In seaman's language, that's about as good as the highly cyclical motor insurance market ever gets," we wrote. "It doesn't take a strong telescope to tell the men in the lookout this cannot last. The ship must head for the stock market, so some of this booty can be banked before the tide turns."
What worried us was not that even Admiral group chief executive Henry Engelhardt was forecasting flat premiums for the next two years, but that he and the company's chief operating officer were selling one-fifth of their stakes.
Engelhardt took out £28m and about 1,450 Admiral staff lucked out too, receiving free shares worth an average of £39,000 each.
"Sailors are a superstitious lot and there's an old saying about not investing in a flotation when the executives are selling shares," we concluded.
"Admiral may be listing in the financial, rather than nautical sense of the word, but this rule of thumb has been proved right more often than not. Avoid."
Ouch. The sea has a way of embarrassing poor sailors and, on this occasion, it was we who had lost our financial compass.
Our scepticism was not shared by City investors who piled in at the flotation price of 275p to such an extent that the offering was subscribed seven times over.
Admiral's voyage since then tells the story. The success of the company's elephant.co.uk, diamond and internet broking operation confused.com helped Admiral's last interim pre-tax profits to show a 24% increase to £68.7m on turnover 12% higher at £359m.
And the shares now trade at more than £10, valuing the company at £2.75bn. Admiral's periscope now has the FTSE100 index in view.
Not surprisingly, other insurers are now increasingly tying themselves to the mast of direct operations.
The most notable example is AXA, which pulled the plug on its original direct operation in the UK nearly four years ago, but is venturing back into the market by buying Swiftcover.com, the internet-only personal lines specialist that has made a name for itself with its chicken advertising campaign.
It is 22 years this April since the launch of Direct Line first got brokers worried about the future of personal lines business.
Prophets of doom predicting the instant demise of brokers back then were rather premature, but the explosion of the internet and the emergence of strong online direct insurance brands makes it very hard to look beyond the short-range shipping forecast for traditional brokers in such commoditised lines of business as standard motor insurance.
Then again, I have been known to be wrong about direct insurers. IT
Andrew Cave is the former associate City editor of The Daily Telegraph
