Home and car insurer Admiral Group (ADM) has reported full year earnings which missed expectations. This was after adjusting for a one-off technicality, but it still saw the share price slump around 5% to £20.84 in early trading, or in other words swiped close on £320m off the market value of the FTSE 100 insurance firm.

Headline pre-tax profits may have increased 18% to a record £493m, but once the positive effect of changes in the Ogden discount rate are accounted for, earnings nudged barely 2% higher to £413m.

That represents a hefty miss on the 10% increase most analysts were forecasting.

The Ogden rate is how much interest people who are awarded compensation by insurers can expect to earn if the money is invested.

The rate was 0.75% but the government cut it to 0% which has boosted pre-tax profits for all the insurers. For Cardiff-based Admiral this meant an increase of £66m in 2018 earnings.

READ MORE ABOUT ADMIRAL HERE

UK GROWTH DISAPPOINTS

Growth in the core UK motor business slowed in the second half of the year as Admiral changed tack and opted for margin over volume in response to increasing claims costs.

The price of car repairs has been rising for the last couple of years due to higher parts and labour costs.

At the same time Admiral signed a long-term deal with Ford to provide car insurance under the car-maker’s name. The theory is that with over 13% of UK motorists driving a Ford there is scope to work more closely with Ford Credit in managing claims.

Household insurance showed an increase in sales but profits were impacted by severe weather and claims for subsidence so the business reported a £3m loss for the year which was also disappointing.

EUROPEAN EXPANSION CONTINUES

Admiral’s European business was a highlight last year, reporting an 18% increase in customers to 1.2m and a 20% increase in sales to £500m.

Its Italian car insurance unit, ConTe, now covers 580,000 vehicles and profits are rising thanks to an improvement in its loss ratios.

Also, ahead of Brexit the firm has established an insurance business in Spain at a cost of €3.5m to support its European operations.

As chief executive David Stevens put it, the cost is ‘relatively trivial to protect the long-term value being created in (our) now-profitable EU ventures’.

MIXED FORTUNES FOR CONFUSED AND COMPARE

Admiral’s well-established UK price-comparison business Confused continues to grow revenues and profits as shoppers hunt for the best online deal.

Meanwhile its Spanish equivalent, Rastreator, had a major overhaul with ‘approximate’ prices being demoted in favour of firm prices to improve the customer experience. This resulted in an immediate improvement in satisfaction scores and should give the platform impetus for 2019.

However the US comparison site Compare has struggled to gain customers and has had to up its advertising spend considerably.

As a result Admiral has taken a £32.9m impairment on the carrying value of its investment and is working on ways to turn it around but it looks as though it will be a long haul.

NO LONGER A GROWTH COMPANY

The view from insurance expert Paul De'Ath at Shore Capital is that Admiral is now 'a mature incumbent rather than a fast-growing challenger' due to its reliance on UK motor premiums.

'Admiral has long traded on a premium to the rest of the UK non-life insurers and remains priced for significant growth, but this does not reflect the medium-term outlook' adds De'Ath.

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Issue Date: 07 Mar 2019