Motor insurance specialist Admiral (ADM) reports record pre-tax profits of £405.4m for 2017 on Wednesday. Its CEO David Stevens says ‘it’s great to be back in the groove’ after a disappointing 2016 when it was hit by changes to the way large compensation payments were calculated.
These changes to the ‘Ogden discount rate’, how damages for personal injuries are calculated, were addressed last September potentially saving the insurance industry billions of pounds.
On releasing its 2017 full year to 31 December results, Admiral is up 3.1% to £19.91 driven by a 5% pre-tax profits beat versus market forecasts.
The insurer has sold more policies to an increasing number of customers and its price comparison sites have moved into a statutory profit of £5.4m following a £2.9m loss in 2016.
Admiral has also been increasing the number of policies it sales expanding into home and vans cover as well as supplying personal loans.
The company personal loans business made a loss of £4.4m ‘as a result of the high fixed cost relative to the current scale of the business’. Its new van insurance business brought in £120,000 last year.
Its combined ratio for its main business of car insurance hit 80% in 2017, a great improvement on 2016’s 90.8% as anything less than 100% indicates underwriting profitability.
The ratio is between the amount a company receives in premiums and pays out for claims worked out by dividing the amount of losses by the total earned premiums. The 80% was ahead of Edward Morris, analyst at JP Morgan Cazenove, who forecast 85.5%.
The big payout
The company states it ‘believes in returning excess capital to shareholders’ and true to form the company is paying its twenty seventh special dividend since floating in 2004. This brings its full year dividend for 2017 to 114p per share, an 11% increase on 2016 and implies a 5.6% dividend yield. This included two special dividends of 18.1p and 18.5p.
However Russ Mould, investment director at AJ Bell, says ‘there is always a big danger associated with paying special dividends year in, year out. Shareholders get used to this extra cash and the stock would be punished if it stopped paying ‘specials’ in the future’.
Its dividend was 10% ahead of Wajahat Rizvi, analyst at investment bank Deutsche Bank’s forecast and 5% ahead of market predictions.
Using Deutsche Bank’s forecasts, Admiral is trading on 13.6-times 2018’s earnings of 146.5p with an estimated dividend yield of 7% for the year.
Admiral shares have given up modest early gains to trade about 1.5% lower by lunchtime on Wednesday at £19.025.
