Admiral reports significant increase in turnover and profits

This is the first time Admiral (ADM) has reported under the new IFRS 17 accounting standard, so full-year figures reflect material differences in profitability, earnings and return on equity figures from those originally reported under the IFRS 4 standard due to differing movements in reserve strength or the risk adjustment position.

Dreary accounting adjustments aside, we can say that the Cardiff-based insurer delivered an encouraging set of full-year figures against a challenging market backdrop. Overall turnover rose by just under a third, while reported profits increased to £443mn, against £361mn last time around.

In a year characterised by inflationary pressures and increased borrowing costs, the relative resilience of the business model was reflected in the addition of 500,000 new clients, amounting to a 6 per cent year-on-year increase. It probably helps that the insurer can now draw on a broader spread of markets. During the period, the group announced its intention to acquire the renewal rights for RSA’s pet and home direct insurance businesses, and it also saw double-digit growth in its electric vehicle book, although it would be reasonable to assume that the development of the latter market may be constrained by ongoing uncertainties on the underwriting front. Nonetheless, Admiral is an increasingly differentiated beast. The number of policies beyond UK motor were up by 12 per cent, and account for around half of the total customer base.

The figures suggest that Admiral has reacted reasonably efficiently to the insurance market cycle, although there is always an inherent drag in this regard. Premium adjustments were made ahead of the market to counter the impact of inflation on loss adjustments. This negatively impacted the size of the UK motor book – down 7 per cent year on year at the end of June – but this was mitigated by growth in other parts of the business. However, Admiral’s chief executive, Geraint Jones, believes the group’s perspicacity on the underwriting front was justified, as competitors were eventually forced to follow suit, which meant that Admiral’s competitiveness and retention rates improved over the second half, thereby reversing the loss of policies in UK motor.

Underwriting efficiencies are also reflected in the 8 percentage point decline in the group combined ratio, to 88.7 per cent. Expenses were also held firmly in check. At any rate, the group still has plenty of leeway in the premiums it receives relative to its outgoings.

At 19 times FactSet consensus earnings, the shares trade in line with their long-term average, although the forward dividend yield could prove tempting, especially given the potential diversification benefits. A conservative hold.

Last IC view: Buy, 2,310p, 16 Aug 2023