Admiral sees improved outlook
LONDON, July 30 (Reuters) – British insurer Admiral posted a 16 percent rise in first-half profit on Wednesday, at the higher end of forecasts, and said it was seeing evidence of a long-awaited turn in the UK motor market, boosting its shares.
The insurer said pretax profit for the first six months of the year totalled 100.3 million pounds ($199.5 million), against 86.3 million pounds a year ago. Five analysts polled by the company had forecast average pretax profit of 95.5 million.
Admiral, whose brands include Elephant and price comparison website Confused.com, had warned in March of a tough year, with the UK motor insurance cycle turning “with sloth-like speed”.
But it has since said it is on track to at least meet market estimates for 2008, and executives said on Wednesday the outlook for price rises was “encouraging” after a strong second quarter.
“We are less bearish than we have been in the past because we can now see some real evidence of movement in prices,” Finance Director Kevin Chidwick said on a conference call.
“We have seen some extraordinarily large years of reserve releases in 2006 and 2007 which cannot be sustainable in the long term and may indicate the time has finally come for insurers to finally raise their prices.”
The news boosted Admiral’s shares, which trade at the sector’s highest mulitples but have dropped 25 percent since the start of the year. The stock jumped as much as 15 percent and changed hands at 877-1/2 pence, up 6.4 percent, by 0942 GMT.
“The shares have trod water for 18 months waiting for a cycle turn to provide greater earnings impetus — this is now at hand,” Citigroup analyst Andrew Crean said in a note.
Admiral’s comments echo findings by Britain’s AA, which point to a 6 percent increase in first-half rates.
Though Admiral is seen as relatively defensive, analysts have fretted over the impact of a UK slowdown and possible recession on ancillary income — complementary products like car hire insurance — which is linked to discretionary spending.
But while net revenue rose 15 percent to 204.1 million pounds for the group, Admiral said revenue from products and services it does not underwrite rose 21 percent, with those levels expected to be sustained for the remainder of the year.
“We are confident that we can maintain good ancillary income per policy and per vehicle because we have a good blend in the numbers. Roughly half of that number is not bought by the customer on a discretionary basis,” Chidwick said.
“We don’t see any reason to think it will be any different going forward to where it is today.”
Admiral’s Confused.com unit saw revenue tick higher, but remained under pressure from rivals spending on advertising to recruit customers in a fickle market. Margins came under pressure in the six-month period as it spent more on marketing and profit fell to 15.6 million pounds from 19.7 million.
Chidwick said the frenzied spending across the sector was not sustainable, with Confused expected to emerge as a winner.
Admiral said it would pay an interim dividend of 26p.