Rising amount of claims overshadows profit rise at Admiral

A RISING tide of no-win no-fee personal injury claims has overshadowed a record half-year for sales and profits at car insurer Admiral.

A RISING tide of no-win no-fee personal injury claims has overshadowed a record half-year for sales and profits at car insurer Admiral.

The group, which owns Diamond, elephant.co.uk and Confused.com, grew turnover 53% to £1.1bn in the six months to June 30 after the number of vehicles on its books jumped by a third to 3.15 million and its premiums rose by around 11%.

However, shares tumbled more than 8% as investors focused on a sharp rise in claim costs while the company signalled some relief for motorists amid signs the recent surge in premiums may ease.

Premiums have soared after a rise in fraudulent cash-for-crash claims, rising by about 30% on average across the market in 2010, but Admiral said recent surveys had indicated a slowdown in the second quarter as the cycle starts to turn.

The increased claims payouts clipped profits growth to 27% at £160.6m, well below the growth in revenues.

As a proportion of premiums, claims jumped from 67.8% to 77.5%, while the combined ratio, which includes expenses, rose from 89.3% to 94.2%. The lower the figure the higher the profit.

Chief executive Henry Engelhardt said that the company was “not immune“ to the rising level of no-win no-fee injury claims and their related costs.

“As one of the lowest cost providers in a commoditised market we are well-placed for a future, which is shaping up to be the survival of the fittest,” he added.

Kevin Ryan, an analyst an Investec, said the UK insurance underwriting result was worse than forecast and the rising claims were evidence that Admiral’s ability to significantly outperform the market was diminishing.

Nick Johnson at Numis added it was the first time Admiral has highlighted claims cost inflation as an issue.

“Given that future profit commission earnings are linked to recent underwriting margins, the comments are bound to reduce earnings confidence,” he added.

Engelhardt was upbeat despite the higher claims. “All-in-all we’re pleased with the numbers for the first half of 2011,” he said.

Staff members will also benefit with each of its 5,700 staff to receive £1,500 of free shares in the group, worth over £8m in total.

The Cardiff-based group paid out a similar-sized bonus to its workforce at the same time last year, though this is now worth a little less after a flat performance over the past year and the near 9% fall today to 1398p.

The group also upped the interim dividend for shareholders by 20% to 39.1p.

Overseas customers now account for 15% of new UK business, with the combined international business turnover up 45% to £53.9m.

Comparison website subsidiary Confused.com, meanwhile, continued its battle against tough competition.

The cost of a relaunched advertising campaign to take on rival Go Compare’s opera singer and Compare the Market’s talking meerkats, meant Confused’s profits fell 7% to £8.2m despite 10% higher revenues.


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