Consensus-beating interims have pushed home and car insurer Admiral’s (ADM) shares 5.5% higher to £15.47, but using its reserves to boost profits could put the group under pressure. Cardiff-based Admiral, which also provides pet, travel and life cover, saw its pre-tax profits rise 1% to £186.1 million in the six months to the end of June.
Competition has put general insurers’ premiums under pressure in recent years and its profits were expected to fall to £163 million. The anticipated profit decline was avoided after the group attracted 6% more customers to 4.1 million. Its motor insurance business was another factor with profits improving 6% during the period to £219.2 million. This, however, was the result of higher reserve releases of £50 million - 41.2% higher than a year earlier. This was taken from the cash it has set aside to cover future claims.
Using reserves to boost profits could put insurers under pressure if future claims are higher than expected. Admiral believes its reserves are high enough to cover its liabilities, but analysts at JP Morgan Cazenove have been quoted as saying that the group’s level of reserve releases is 'not sustainable’.
Deciding to release more of its reserves could be the result of Admiral’s combined ratio moving in the right direction. The ratio, which shows the difference between the premiums collected and claims and other costs paid, fell to 82.7% from 85.1% a year earlier.
The group’s comparison website Confused.com lost £4 million during the period as it invested in its US site compare.com.