Analysts concerned about reserve releases and bond issue

Admiral’s share price fell 5.4% during trading yesterday after the motor insurer released its first-half 2014 results.

The shares closed at 1,371p on Wednesday, down from Tuesday’s closing price of 1,450p.

Admiral’s group-wide profit before tax increased by 1% to £183.3m in the first half of 2014, as deepening losses from its international division partly offset an 8% increase in profit at the group’s core UK motor business.

But a large proportion of the company’s profit was made up of £73.1m of releases from prior-year reserves, which has made some equity analysts nervous.

In addition, the company warned that future profit margins would be squeezed by the price cutting in the UK motor market. It also noted that its loss ratio excluding reserve releases had already started to feel the pain from the price cutting, increasing by three percentage points to 85.3%.

Admiral chief operating officer David Stevens told journalists yesterday that the market had “seen the end” of motor price cuts, but that it was difficult to say how quickly rates would rise.

Concerns also remain about the company’s £200m bond issue, which surprised the market and prompted fears that the company needed extra funds to pay its dividend – though Admiral denied this in yesterday’s conference call.

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