Company to write add-ons in house in second half

Henry Engelhardt, Admiral

Motor insurer Admiral has had to slow its rate of growth the UK market because of falling premium rates and “competitors seeking to add market share”.

The insurer made the comments in its first-half 2012 results, where UK motor profit before tax rose by 9% to £183.3m (H1 2011: £168.2m). This compares with the 28% year-on-year profit growth the company reported in 2011’s first half.

Total UK motor premiums increased by 5% to £922.8m in the first half of 2012 (H1 2011: £881.7m), while vehicle counts were up 7% to 3.02 million (H1 2011: 2.83 million).

Admiral chief executive Henry Engelhardt said:  “In the UK, following the very significant growth in 2010 and 2011, we continue to slow our rate of growth to a more modest level, which we believe is a sensible response to the increased competition in the market.”

Reserve releases mask claims increase

Admiral’s UK motor underwriting continued to be profitable. Its combined ratio improved by 1.5 percentage points  to 88.9% (H1 2011: 90.4%). However, the ratio was helped by £10.9m of prior-year reserve releases (H1 2011: £4m).

The reported loss ratio was 76.7%, only marginally higher than H1 2011’s 76.3%. However, Admiral noted that without the reserve releases, the H1 2012 loss ratio would have been 81.5%, 3.1 points worse than 78.4% in H1 2011.

Ancillary dip

Admiral’s results also revealed a drop in ancillary income - a key component of the company’s profit.

Ancillary income dropped to £90.1m in H1 2012 from £90.7m in H1 2011. Ancillary income’s contribution to UK motor profits also dipped to 49% from 54%.

The company’s ‘other revenue’ which includes ancillary income increased to £104.4m (H1 2011: £101.2m), but other income per vehicle dropped to £82m from £86m.

Admiral said that since 1 April 2011 it has no longer earned other revenue from the sale of legal protection policies.

There could be further reductions to other income next year. Admiral noted that personal injury referral fees will be banned from April 2013. Admiral makes £7 per vehicle (£21m in total based on current vehicle count) from this source.

In-house add-ons

Admiral also announced its intention to underwrite the majority of add-ons, such as personal injury insurance, breakdown cover and car hire cover,  in-house during the second half of 2012. These products were previously written by external insurers.  

“The advantages of doing this include improved products for customers and increased control and flexibility as regards their features and terms,” the company said. “There is no impact on the income statement in H1 2012, and the full year impact in 2012 is expected to be insignificant.”

Group-wide, Admiral’s profit before tax increased 7% to £171.8m (H1 2011 £160.6m).

Admiral’s H1 2012 UK motor results in £m (compared with H1 2011)

  • Total premiums written:  922.8 (881.7)
  • Net insurance premium revenue: 226.8 (190)
  • Underwriting profit: 31.1 (21.7)
  • Profit commission: 47.8 (45.3)
  • Net ancillary income: 90.1 (90.7)
  • Installment income: 14.3 (10.5)
  • Profit before tax: 183.3 (168.2)
  • Combined ratio (%): 88.9 (90.4)