Admiral profits up as motor rates start recovering

Signs of a recovery in the UK motor insurance market had observers paying particularly close attention to half-year results for Admiral (ADM), the UK’s largest single motor insurer. The results yielded enough good news on rate rises for the market to shrug off a cut in the half-year dividend and put the shares among the FTSE 100’s winners on results day. Car insurers, and indeed anyone who has had to service their car recently, have endured fearsome rises in parts prices and second-hand values. Offsetting this was a clear priority, and Admiral pushing through a rate increase of 23 per cent could be the first sign that the market is about to turn and follow the company’s lead.

The rate rises contributed to higher written business for motor insurance in the UK, despite customer numbers falling 7 per cent. Pre-tax profits for the division were 3 per cent higher at £298mn. The motor insurance loss ratio looked relatively stable at 60 per cent, in a sign that the pandemic shock has now faded.

In UK household insurance, customer numbers grew by 14 per cent to 1.67mn, with price increases leading to higher average premiums. Consequently, profits doubled to £8.7mn as prior year capital releases offset a higher current period attrition loss ratio; reserve releases also helped the motor insurance result.

Broker Peel Hunt is forecasting a 2023 price/earnings ratio of 18 for 2023, falling to 14.4 in 2024. That is well below Admiral’s long-term average of 19. If the insurance market follows through with price rises in the second half, the shares will rise to meet them. Buy.

Last IC view: Buy, 2,054p, 8 Mar 2023