In an update Admiral revealed that group revenues fell £100 million to £1 billion in the six months to July, despite customer numbers rising 8%, or by 300,000, to 3.9 million.
At the heart of the problem is its UK car business. Written premiums are down 9% year-on-year causing an 8% decline in the division’s revenues to £850 million. Sales in its international car arm remain flat at £100 million.
Admiral sees no evidence growth is returning to the market and expects lower margins in the coming years.
The update hit Canaccord Genuity’s forecasts that Admiral’s loss ratio will improve next year. ‘The cautious outlook for margins beyond 2014 underlines the difficulty in improving margins even as pricing stabilises, as prior year reserve releases reduce.
‘Our forecasts already assume a deterioration in reported combined ratio in coming years, with the underlying loss ratio improving from 2015, but reserve releases falling away more quickly. We see downside risk to these forecasts.’
A more detailed outlook is expected when its interims are reported next month (13 Aug).
Admiral also announced a plan to raise £200 million through a bond issue to strengthen its balance sheet. Not a good sign when revenues are falling.