19th Aug 2015 08:37
LONDON (Alliance News) - Admiral Group PLC on Wednesday beat analyst forecasts to declare an 'up' first half, as the FTSE 100 company lifted its interim dividend by more than expected after reserve releases for prior year claims in its UK car insurance business helped drive its overall profit performance.
Admiral said it made a GBP181.7 million pretax profit in the six months to the end of June, slightly down on the GBP183.3 million reported in the corresponding period the prior year. Excluding minority interests, pretax profit was up 1% to GBP186.1 million. Customer numbers increased by 6% to just shy of 4.2 million.
The insurer increased its interim dividend per share to 51.0 pence from 49.4p, while earnings per shares increased by 4% to 54.8 pence. Thirteen analysts polled by the company had expected a dividend of 45.6p and earnings per share of 47.0p.
Chief Executive Henry Engelhardt, who is spending his last 12 months in the role after giving notice in May, said it was a good first half. He is to be replaced by Chief Operating Officer David Stevens.
"A good start to a challenging year. Profits are up, customer numbers are up, earnings per share is up, the dividend is up...you might say it was a pretty 'up' first half!" Engelhardt said in a statement.
Net insurance premium revenue, which takes into account premiums ceded to reinsurers, slipped slightly to GBP228.9 million in the half, down from GBP231.7 million in the corresponding period the prior year.
Other revenue, largely from insurance products sold alongside car insurance, declined to GBP165.0 million from GBP170.4 million, while profit commission was up to GBP44.2 million from GBP35.8 million, which combined with higher income from investments and interest helped to drive up overall net revenue.
Lower net insurance claims, which fell to GBP101.4 million from GBP124.5 million, helped the overall result.
Car insurance has been a tough market to navigate in the UK, with intense competition and years of premium declines putting pressure on the industry. Admiral said there were indications of "small" price increases in the UK car insurance market in the first half, and said it has maintained its focus on protecting its margins.
The UK car insurance business is the biggest driver of Admiral's profit, and that was no different in the first half, up 6% to GBP219.2 million, mainly the result of higher releases of reserves held to pay for insurance claims made in previous years. The release of reserves totalled GBP92.6 million in the recent half, up from GBP73.1 million in the corresponding period the prior year.
"The UK business turned in a very solid result helped by positive claims cost development, with modest growth accompanying price increases," Engelhardt said.
Reserve releases were brought into focus in November 2014 when the Prudential Regulation Authority - a UK regulator - wrote to insurance bosses to say that prior year reserve releases "should not deplete overall technical provisions" beyond adequate levels. Tough underwriting conditions have coincided with high levels of prior year reserve releases, often to support prior year results.
"Despite the higher reserve releases, Admiral continues to hold a material margin in reserves due to the level of uncertainty in the ultimate costs of claims," Admiral said in a statement.
The margin, expressed as a percentage of actuarial best estimate, was slightly higher at the end of June than six months earlier, according to Admiral, which said that if claims develop as it expects there is likely to be scope for further reserve releases.
Losses at the group's international car insurance business narrowed to GBP11.2 million in the half from GBP15.5 million in the corresponding period the prior year.
Admiral's efforts to diversify from car insurance in the UK have led to increased investment in its price comparison businesses, which swung to a GBP4.0 million loss in the half from a GBP5.9 million profit in the prior year period.
The group said that investment in compare.com in the US offset profits in its European price comparison operations - Rastreator in Spain, LeLynx in France - and lower earnings at compare.com in the UK due to tough competition.
Admiral shares were up 4.4% at 1,531.00 pence on Wednesday morning, the best performers in the blue-chip index. The stock is up about 16% to date in 2015.
By Samuel Agini; [email protected]; @samuelagini
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