- Admiral provides low cost car insurance
- It has gained market share and is the market leader in the UK
Jonathan Mills and Simon Denison-Smith, founders of investment boutique Metropolis Capital and co-managers of Alliance Trust’s (ATST) equity portfolio, explain why they invest in non-life insurance company Admiral (ADM).
“We invested in Admiral in 2012 when we became convinced that it would be a long-term winner in the UK car insurance market. Car insurance is not an industry typically found in the portfolios of quality investors as its customers are generally fickle and price-sensitive. This has been exacerbated by the growth of online price comparison sites.
However, it is this trait that marks Admiral out as a good business because it is the low-cost provider in the market. The more price-sensitive customers are, the more quickly it can gain market share. Our conviction in Admiral’s ability to use its cost advantage to gain market share has played out very well: it is now the market leader in the UK and has started to build solid positions in Spain, Italy and France.
Admiral is a good example of a golden nugget in muddy waters – a good business that earns exceptional returns while operating in an industry where most of its competitors struggle to meet their cost of capital. The position has performed very well, returning 18 per cent a year over the eight years that we have held it.”
Investors' Chronicle rates Admiral as a ‘hold’. The company’s profit before tax increased 20 per cent last year, up from £505.1m in 2019 to £608.2m. Milena Mondini de Focatiis, group chief executive of Admiral, says that this was driven by strong reserve releases and a decrease in claims frequency as people drove less during lockdowns.
As a result of this, Admiral returned £110m to customers last year – its 'Stay at Home Refund'. And broker Peel Hunt believes that “by treating customers well, Admiral’s [customer] retention rates are likely to remain higher than normal”.