Full steam ahead as Admiral reports profits up by 21%

Admiral has bucked the trend in the personal motor market by correctly pricing business from aggregators, according to finance director Kevin Chidwick.

The Admiral group as a whole made a profit before tax of £126.9m for the first half of 2010, up 21% on the £105.3m it made in the same period last year.

Admiral’s UK motor book, which accounted for 89% of group turnover in the first half, made a profit of £131.5m, up nearly 30% on the £101.2m profit made in the first half of 2009. The combined ratio was slightly higher than in the first half of 2009 at 82.9% against 82.1%.

The results were a stark contrast to those of many UK insurers’ motor books, which posted declining profits and combined ratios higher than 100%.

Chidwick pointed out that in 2010 aggregators’ market share of new business had grown above 50%.

“That has been tricky business for some people to write because you suffer from winner’s curse,” he said, referring to the fact that the insurer with the lowest price wins the business, but by doing so potentially underwrites a risk unprofitably.

“If your pricing isn’t tight, but you are the cheapest, you are going to suffer some pain. Perhaps the migration from older distribution models to those led more by price comparison has caught a few insurers out.”

He adds, however, that Admiral was an early adopter of price comparison sites. “That is probably one of the key reasons we have not seen a deterioration of our reported combined ratio while still seeing very strong growth,” he said.

Unlike some of its peers, such as Equity Red Star and RBS Insurance, which have been forced to strengthen prior-year reserves, Admiral released £17.3m from its prior-year reserves, improving the loss ratio by 14.8 percentage points.

That is not to say Admiral is unscathed by bodily injury claims. While it said it had not noticed any unusual trends in bodily injury claims over the last 18 months, it conceded that they are making up a growing proportion of the total.

Like its peers, it is having to raise rates to compensate, boosting them 14% in the first half of the year in response to what Chidwick described as the worst soft part of the cycle in 30 years.

“I suspect that’s not enough,” he said. “We are all going to have to see more price increases in the second half of the year and beyond to get us back to the point where the whole market is looking at acceptable returns.”

The company’s performance was slightly marred by that of its aggregator business Confused.com, as profit dipped to £8.8m from £11m on the back of an unsuccessful TV advertising campaign. Chidwick said a new campaign would be launched in the second half of the year.

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