Admiral’s ‘profit over growth’ strategy triumphs in cyclical car insurance market

Well timed growth in a cyclical UK insurance market, unusually large reserves and a strategy to prioritise “profit over growth” saw Admiral’s profit peak at £526m last year.

Admiral previously said that hoped to benefit from the cyclical car insurance market in 2020. 

Group chief executive David Stevens, who announced today that he will be stepping down in a year’s time told Insurance Times in a conference call this morning: “We believe that we are at or approaching a point of highest combined ratios, [and] what we have historically done very well was timed growth, so it fits the cycle.

“But it doesn’t mean that it will always be the right thing to do”, he added.

Meanwhile, when asked about Admiral’s unusually high reserve release, Geraint Jones, Admiral’s chief financial officer said: “We will continue with the strategy reflecting our growth market trade depending on where we are in the cycle.”

“This is because in 2019 the expectation of claims costs improved – hence the large reserve release in its accounts.”

But he added that Admiral is very cautious about how it sets reserve releases.

Stevens also said that the business has a track record of growing year after year.

He continued: “We were knocking on the door of £500m last year, but five years ago we would have been in the £300s – it’s a track record of growing our market share in the businesses that we compete in and entering new markets. Both of which have contributed to a bigger business.”

Damage inflation

In terms of damage inflation, in 2019 Admiral saw a return to normal levels compared to previous years, Stevens said.

“There is some light at the end of the tunnel with damage inflation, with a return to a more normal level than we would have expected to see three or four years ago.

“Obviously there is a degree of uncertainty around [the issue of] the value of sterling, and issues around spare parts because of the Coronavirus, or ultimately because of the messy trade deal with the EU.”

Ultimately Stevens added that the insurer is “more confident on damage inflation” than it was 6 or 12 months ago.

In the closing remarks, Stevens said: “It’s a pleasure to be talking about such a strong set of numbers, and announcing the pay out to our staff of the £500 of the 3600 shares, it’s just as I announce my stepping back in 12 months as group chief executive with my replacement as Milena Mondini.