Motor book growth of 8% pushes up AA insurance profit as underwriting business breaks even

Roadside assistance firm AA’s insurance services business boosted profit by 9% in the first half of 2017 thanks to a growth in its motor business.

The company’s fledgling underwriting business also broke even for the first time.

The insurance services division, which includes insurance broking, financial services and home emergency, grew trading earnings before interest, tax, depreciation and amortisation (EBITDA) to £38m in the first half of 2017 from £35m in the same period last year.

The AA insurance profit boost was caused by “the growth of our motor book, the focus on growing more profitable business lines and disciplined cost management”, the company said.

The EBITDA margin increased by 2.9 percentage points to 57.6% (H1 2016: 54.7%).

Trading revenue was up 3% to £66m (H1 2016: £64m), mainly because of an 8% growth in motor policies to 616,000 (H1 2016: 572,000).

The company said: “We did well to achieve stable retention despite the challenges of renewal pricing transparency from April, the impact of Ogden on cost of premiums and therefore churn, and IPT increases.”

It added that its new in-house underwriter, which is now in its second year of operation, had brought new business to the company, and its installation of insurer-hosted pricing at two of the members of its insurer panel and its own in-house underwriter had also helped.

The company plans to roll out insurer-hosted pricing to two more panel members “shortly”.

Underwriting unit breaks even

The AA also announced that its underwriting division broke even for the first time, after reporting negative EBNITDA of £1m in both the first half of 2016 and the full 2016 year.

The AA said: “In the second year of its operation, the in-house insurance underwriter has continued to make excellent progress with growth well ahead of our target in both motor policies and home policies, which were launched in August 2016.”

It added: “Trading EBITDA broke even, reversing last year’s loss, and we are confident of the value this business is bringing into the group.”

The underwriting unit brought in revenue of £3m, net of reinsurance, in the first half of 2017, up from £1m in the same period last year.