Admiral issues trading update

Admiral issues trading update

UK-based insurer Admiral has reported an increase in vehicle count but a decrease in group turnover for the first six months of 2014. In a trading update ahead of its full H1 report, scheduled for August 13, Admiral said that the number of group customers increased year on year to 3.9m from 3.6m, while the UK car insurance vehicle count was up to 3.1m from 3.0m. However, group turnover declined to £1.0bn from £1.1bn, and UK car turnover fell to £0.85bn, from £0.92bn.

There was growth in international car insurance; vehicle count rose to 600,000 from 500,000, while turnover was flat at £100m.

Chief executive Henry Engelhardt said that there were some signs that motor premiums in the UK were no longer falling, but that there was not yet any evidence of an inflection point. "Admiral's rates have been pretty flat over the first half of the year", said Engelhardt, but reductions in 2013 meant that total premiums were down by about 9% compared with H1 2013.

Claims development on 2012 and prior had been positive and Admiral continues to forecast good levels of reserve releases. Expectations for 2014 numbers remain unchanged. That includes a lower expectation of margin than for previous years, mainly because of a decline in premium levels. "Much of the impact of the reduced margin will be reflected in earnings of subsequent years", said Engelhardt.

Meanwhile, Admiral is raising funds through its first bond issue, £200m in 10-year, tier-two, subordinated notes. Chief executive Henry Engelhardt said: "Since Admiral went public in 2004 we have been unleveraged, but we think that, with a favourable market and rates that seem very reasonable, now is the good time to diversify our capital base.

Engelhardt said that now was "an opportune time" to raise funds ahead of the company's "prudent transition into Solvency II in 2016". He added: "The additional capital also sets us up well for the growth we expect from all our businesses in the coming years, whilst being consistent with our existing dividend policy".

The securities will pay a fixed coupon semi-annually.

Fitch rated the debt at 'BBB-', while assigning an 'A+' Insurer Financial Strength Rating to the main operating entities of Admiral. Parent company Admiral has an Issuer Default Rating of 'A-'.

Fitch said that "the ratings reflect Admiral's solid risk-adjusted capitalisation, strong underwriting margins and prudent reserving". However, the ratings are constrained by Admiral's "medium scale and concentrated business profile". It noted that Admiral's level of risk-adjusted capitalisation was "solid for the rating level", given its substantial co-insurance and reinsurance arrangements. "Although the reliance of the business model on these arrangements could be regarded as potentially negative, Fitch currently views these structures as neutral to the ratings, as the programmes are secured under multi-year contracts until 2016 and 2018 respectively."



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