‘Can Admiral prove its detractors wrong?’

Admiral chief executive Henry Engelhardt had a dig at the insurer’s doubters last week. He labelled last year’s criticism as “hyperbole” and practically laughed off those who believe the model was “broken”.

But the fact is that Admiral has its supporters and detractors in equal measure. The believers say Engelhardt is a brilliant businessman who was way ahead of the curve compared to rivals, with his low-cost, aggregator-owning, direct-only model based in Wales. Detractors argue that no one can defy gravity and, to grow the businesses so rapidly, Admiral must have swallowed some underpriced junk, which will cause serious indigestion. Those fears gained momentum following a profit warning in November last year.

But Admiral bounced back strongly last week, with a 13% profit rise in 2011 and a combined operating ratio far superior to rivals, albeit a deteriorated one.

The big questions for Admiral now are: can it continue to remain free of the bodily injury claims curse and can it stay ahead of catching-up rivals? Admiral says last year’s reserving issues were a consequence of larger claims, but we haven’t yet heard about smaller whiplash-type claims, the ones that helped cause death by a thousand cuts to the likes of HSBC Insurance and NIG’s personal lines business. Perhaps Admiral has this well under control.

Then there’s the competition. Rivals are wising up to the need to emulate Admiral’s low-cost operation. Last year, Zurich, Aviva, L&G and Markerstudy all launched their own low-expense, no-frills proposition for the price comparison sites. And there’s the number one player, Direct Line Group, back on form and offering juicy deals to customers as it gears up for flotation.

The model’s not ‘broken’, but it is entering the next chapter of its life, as UK growth peaks and then the vicious fight to maintain its gigantic market share begins.