Motor insurer reports positive first half results

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Admiral’s UK motor business made a profit before tax of £222.8m in the first half of 2016, up 1.6% on the £219.2m it made in the same period last year.

The UK car combined operating ratio (COR) improved by 1.1 percentage point to 72% (H1 2015: 73.1%).

Admiral UK motor key figures H1 2016


 H1 2016H1 2015change (%/points)
Total premiums written (£m) 899.7 779 15.5
Net premium revenue (£m) 210.7 188.9 11.5
Investment income (£m) 24.5 6.3 288.9
Total reserve releases (£m) 68.7 92.6 -25.8
Underwriting profit (plus profit commission) (£m) 143.9 137.9 4.4
Other income (£m) 69.6 63.3 10.0
Instalment income (£m) 15.3 12 27.5
Profit before tax (£m) 222.8 219.2 1.6
COR (%) 72 73.1 -1.1

But the results were hit by a 25.8% drop in total reserve releases to £68.7m (H1 2015: £92.6m), because of lower releases from the 2014 accident year for business that it had ceded to its reinsurers, in turn because of higher claims from that year.

Admiral is not the only UK motor underwriter to suffer higher claims from the 2014 accident year. Last week, Hastings had to strengthen its reserves because of a higher number of large losses from that year.

Admiral usually exits contracts with its quota-share reinsurers two years after it enters them. It then releases the resulting funds as reserve releases, or uses them to further strengthen reserves if it expects the business to deteriorate.

On exiting its 2014 contracts in the first half of 2016, Admiral decided to strengthen reserves. For prudent reserving purposes Admiral has assumed that the 2014 COR will be in loss-making territory, although it said it ultimately expects the year to be profitable.

In a research note this morning, Shore Capital analyst Eamonn Flanagan highlighted the reserving issue as a concern, saying: “This will need explaining away.”

The action cut reserve releases from exited reinsurance policies to £12.8m (H1 2015: £42.6m). Reserve releases on the business that Admiral does not cede to reinsurers increased to £55.9m (H1 2015: £50m).

Offsetting the reserve hit was a jump in investment income to £24.5m n the first half of 2016 from just £6.3m in the first half of 2015, along with a 10% increase in other income and a 27.5% increase in instalment income (see table).

As a group, Admiral reported a 4% increase in profit before tax to £193m (H1 2015: £186m) and a 0.5 point improvement in COR to 82.2% (H1 2016: 82.7%).

Chief executive David Stevens, who took over from predecessor Henry Engelhardt in May this year, said: “What a great time to take on the stewardship of Admiral. The last six months have shown the enduring, and indeed increasing, strength of the UK business and has seen a step change upwards in growth from our developing international businesses.”

He added that the UK car business had “benefitted from increasingly rational motor market with evidence of a move towards a less violent cycle”.