7th Nov 2014 09:48
LONDON (Alliance News) - Admiral Group PLC Friday reported a 3% fall in third-quarter revenue, hit by a drop in its UK car insurance business, though its expectations for that main profit driver remain on track for the current financial year, thanks to "positive claims development" on its back years, suggesting the group is optimistic on releasing reserves no longer required to cover claims losses.
However, Admiral Chief Executive Henry Engelhardt reiterated previous warnings that future earnings will be hit by the decline in car insurance premiums across the market in recent years, coupled with a return to higher claims inflation.
As Admiral reported revenue of GBP513 million in the quarter ended September 30, compared with GBP528 million in the corresponding quarter last year, Engelhardt remained optimistic on the group's prospects of growth.
"Looking further out, in the UK, Admiral's industry-leading combined ratios mean that we are well placed to grow and continue to deliver strong returns for our shareholders," the CEO said in a statement.
The combined ratio, the sum of Admiral's loss ratio and the expense ratio, is an indication of underwriting profitability. Admiral has previously highlighted the strength of its combined ratio as a key advantage over rivals because when premiums begin to rise again, Admiral will be able to afford to raise rates less quickly than the rest of the market. Until that turn in the cycle, the group expects the short-term to be about releasing reserves from the UK business, while in the long-term Admiral wants to develop its businesses outside the UK.
Despite reporting 3.18 million UK car insurance customers compared with 3.03 million in the corresponding period last year, citing improved retention, Admiral's third-quarter UK car insurance turnover fell to GBP419 million from GBP440 million in the same quarter last year.
Taking into account a 34% rise in other customers to 854,000, which comprise UK household insurance, international car insurance and commercial vehicle insurance broker Gladiator, overall group customers increased by 10% to 4.03 million compared with the corresponding quarter last year.
Engelhardt also said Admiral's four car insurance and three price comparison businesses outside the UK, and its developing UK home insurance operation, all represent opportunities for future growth and creation of value, highlighting US price comparison website Comparenow.com as a business that justifies ongoing investment due to its progress.
Admiral expects to invest in the region of GBP15 million in Comparenow.com in 2014 and projects double that spend in 2015. Admiral owns 68% of the US price comparison website.
But Admiral's competitive challenges are not limited to its UK car insurance business, as Engelhardt cautioned that Confused.com, its UK price comparison website, has come under pressure from competition in the market.
"However, the UK price comparison market remains highly competitive and we expect Confused.com to deliver a lower result in the second half compared to the first half of 2014."
Admiral shares down 0.6% at 1,253.00 pence Friday morning.
By Samuel Agini; [email protected]; @samuelagini
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