Admiral profits up despite rising personal injury payouts

Insurance company Admiral increased its pre-tax profits by 2 per cent in the first half of the year, despite unexpectedly large increases in personal injury payouts after the UK government this year changed the rate used to calculate them.

Pre-tax profits at the FTSE 100 group rose to £193m for the six months to June, while revenues rose 8 per cent from a year ago to £550m.

However, investors responded gloomily, sending the shares down 8 per cent to £20.04 in early trading.

The group cut its total interim dividend by 11 per cent to 56p, although it noted that last year’s total was boosted by a payout of surplus capital, following the introduction of the Solvency II European insurance regulations.

David Stevens, chief executive, said the “much more modest profit growth . . . reflects the fact that we’re still paying a price for the Ogden [rate] change”.

The Ogden rate is the discount rate used to determine personal injury payouts. In March, the government changed it by an unexpectedly large amount from 2.5 per cent to -0.75 per cent, resulting in higher costs for motor insurers.

Ministers are carrying out a further consultation on the rate. “We think the Ogden change will ultimately increase claims costs in the UK car insurance market by around 10 per cent,” Mr Stevens said, adding that this was compounded by other inflationary effects.

“That will show itself in two ways — we have seen one increase already in the first half and the other will probably take place when the reinsurers change their prices at the end of 2017, and that knocks on for motorists early next year.”

He said he would like changes in how the rate is set, resulting in a partial reversal of the increase ear- lier this year. “Almost universally, there’s an agreement that where we are at doesn’t make sense and doesn’t reflect how people invest lump sum awards. But the challenge is not agreeing a change — it’s the congestion in the government legislative programme,” he said.

The company, which is one of the UK’s largest car insurers, increased the numbers of vehicles it insures in the UK by 7 per cent to 3.77m, although the rise was more modest than last year’s 11 per cent in a fiercely competitive market.

Analysts at Peel Hunt said the group’s capital position was “solid” after more cash than expected was released from reinsurance deals that were commuted, or terminated. Its solvency ratio, a measure of ability to meet long-term financial commitments, was 214 per cent, up 19 per cent from a year ago.

Andreas van Embden, analyst at Peel Hunt, said: “We believe Admiral has a geared business model that benefits from a hardening UK motor market providing the cash to fund international expansion.” But he added that the group’s valuation meant he saw better investment opportunities in the sector.

Admiral meanwhile reduced losses from its US comparison website business, where it is seeking to introduce a European-style insurance comparison service through its Compare.com site. Losses there were down from £10.1m a year ago to £3.4m in the first half.