16th Aug 2023 11:57
(Alliance News) - Admiral Group PLC on Wednesday shared a pleasing set of interim results, with market analysts hailing its pricing strategy and financial "prudence".
Shares in the Cardiff-based insurer were up 5.9% to 2,327.97 pence each in London on Wednesday. It was the best FTSE 100 performer.
In the first half of 2023, insurance revenue climbed 14% to GBP1.61 billion from GBP1.41 billion a year before. Turnover rose 21% to GBP2.24 billion from GBP1.85 billion.
Pretax profit rose by 4.1% to GBP233.9 million from GBP224.6 million.
It noted its UK motor business delivered a profit of GBP298.2 million in the period, from GBP290.9 million a year before. However, given that it increased prices "well ahead of the market" last year, its active vehicle base reduced over the first half of 2023.
Matt Britzman, equity analyst at Hargreaves Lansdown commented: "It's a tough time to be a UK motor insurer as claims cost inflation continues to run hot. To its credit though, Admiral is managing the challenging backdrop well with some pretty serious price hikes now starting to feed through to improved performance. The bad news for consumers is that car insurance is now another inflated cost to try and manage as part of the ever-increasing pressures on income."
According to the Association of British Insurers on Friday, the average price paid for motor insurance has surged by just over a fifth, 21%, or nearly GBP90 in cash terms, over the past year, to reach the highest levels since records started in 2012.
"Some customers have had enough, and Admiral saw a 7% dip in customer numbers over the quarter. But for Admiral, that's a loss worth taking as maintaining profitable insurance contracts is key, even if it means losing a few customers along the way," Britzman continued.
AJ Bell's Russ Mould recalled that motor insurance was "a great place to be" during the Covid-19 pandemic.
"No one was on the road but they still needed to keep their vehicles insured. This meant the premiums piled up while businesses like Admiral were paying out relatively few claims," Mould explained.
However, with the trend reversing, and claims becoming subject to inflationary pressures seen elsewhere, it is "little wonder" Admiral has exercised pricing discipline, he added.
"The company has also had to be more disciplined in terms of capital returns – scaling back dividend payments which will have come as a shock to investors who saw it as a reliable source of dividend growth," Mould said.
Despite the improved performance, Admiral cut its interim dividend to 51.0 pence per share from 60.0p the year before.
Looking ahead, Admiral said it continues to closely review its position in response to ongoing financial market volatility and wider economic uncertainty. It added that it continues to manage these challenges "with a disciplined, long-term approach to pricing, growth and development; and by maintaining a prudent reserving approach to claims."
Britzman considered: "Conditions are likely to remain tough over the rest of the year, but Admiral should be able to continue its string of outperformance versus peers with selective underwriting and strong pricing power. The group's also been very prudent with reserves in recent years, now sitting on a good chunk of excess which should be unwound into profits over the next few years."
By Elizabeth Winter, Alliance News senior markets reporter
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