17th Aug 2016 08:53
LONDON (Alliance News) - Motor insurer Admiral Group PLC hiked its dividend and posted higher pretax profit for the first half of 2016 on Wednesday, but shares in the company sank amid concerns about a fall in its Solvency II ratio and as pretax profit slightly missed expectations.
Admiral shares were down 9.0% to 2,052.00 pence on Wednesday morning, comfortably the worst performer in the FTSE 100.
The FTSE 100 company said its pretax profit for the half to the end of June was GBP189.5 million, up from GBP181.7 million a year earlier. This was a slight miss against consensus expectations for GBP191.8 million. The company's combined operating ratio, a key measure of underwriting profitability for insurers, was 82.2%, compared to 82.7%.
Admiral declared an interim dividend of 62.90p per share, up 23% year-on-year from 51.0p. The dividend comprises a 36.8p normal dividend, 14.2p special dividend and a further return of 11.9p per share from surplus capital not required for solvency.
But Shore Capital analyst Eamonn Flanagan said the "noise" about the company's Solvency II position, which dipped to 180% at the end of June from 206% at the end of 2015, was a key concern, along with worries around the impact of the UK voting to leave the European Union.
He said these concerns "question the wisdom" of Admiral's capital returns strategy.
Admiral said the market volatility which followed the Brexit vote had hit its Solvency II ratio, due to an increased regulatory valuation of claims liabilities, particularly as regards longer-dated PPO claims, which resulted in reduced capital.
The company said additional risks will also be raised by Brexit, particularly interest rate and exchange rate volatility, and the potential for the protracted exit negotiations the UK government will go through to have an adverse impact on economic conditions in the UK.
Admiral said it will closely monitor the situation and will "take appropriate steps" to deal with any outcomes, though it said it foresees no major hit to its day-to-day operations.
The firm said total revenue grew to GBP1.26 billion from GBP1.06 billion in the first half, up 19% year-on-year. Total revenue in the firm's UK car insurance business grew 16% year-on-year, complemented by 44% growth for its International car insurance arm. Total customers on the company's books increased 15% to 4.82 million, with 11% growth in the UK and 20% growth internationally.
Admiral said its UK business benefited from a good performance in its UK motor arm and continued growth for its home insurance business. The customer growth in its International arm was faster than in recent trading periods, the company said.
Admiral added its Confused.com price comparison service also made progress, with profit nearly doubling thanks to robust growth in Europe and continued traction for its Compare.com service in the US.
"In the core UK car insurance business, we've benefitted from an increasingly rational motor market with evidence of a move towards a less violent cycle. Prices have been rising, and we've used this opportunity to grow our motor book strongly," said Chief Executive David Stevens.
"What a great time to take on the stewardship of Admiral. The last six months have shown the enduring, and indeed increasing, strength of the UK business and has seen a step change upwards in growth from our developing international businesses," he added.
By Sam Unsted; [email protected]; @SamUAtAlliance
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