Admiral profits hit by claims inflation

Profits at Admiral have fallen by more than a third after what the insurer described as a year of “navigating stormy waters” of high inflation in its claims costs.

The FTSE 100 company said on Wednesday that full-year pre-tax profits in 2022 had fallen 39 per cent to £469mn, missing analysts’ expectations. As well as highlighting the rising cost of claims, it said that accidents had become more frequent after the pandemic lull. Bad weather also hit its home insurance business.

Shares in the company fell as much as 9 per cent in morning trading on Wednesday.

In the results statement, Admiral’s chief executive Milena Mondini de Focatiis said the company had reacted quickly to a challenging market environment that she likened to sailing “in the middle of a storm”.

“We implemented price increases ahead of others in response to higher inflation whilst maintaining a conservative approach to reserving and capital management,” she added.

Admiral reported a group combined ratio — a closely watched measure of claims and expenses as a proportion of premiums — of 101.7 per cent, representing an underwriting loss, compared with a profitable 85.2 per cent the previous year.

Analysts at Jefferies said the results showed Admiral was “not immune to motor insurance headwinds” both in its international business and in the UK. 

Inflation drives up claims, but underwriting performance also weighs on the profit commission Admiral receives as part of its reinsurance arrangements.

Rising inflation in the cost of claims, as a result of causes ranging from parts shortages to labour costs getting more expensive, has eroded profits at motor insurers. Rival Direct Line, which is due to report results next week, announced the departure of its chief executive in January after a string of profit warnings because of inflation and extreme weather.

Citigroup said the results showed that Admiral’s “material deterioration” in the UK motor market was “not too dissimilar to peers”. 

In a sign that pricing discipline is weighing on its growth, Admiral’s customer numbers in UK motor insurance fell in the second half of the year as it pushed through price rises to protect its underwriting margins. But customer numbers were up 11 per cent over the year across the group.

The home insurance book, a smaller contributor to group numbers, swung from a £21mn profit in 2021 to a £6mn loss as a result of severe weather, including subsidence claims in the UK summer heatwave and then freezing conditions in winter. The US operations delivered a deeper loss because of what Admiral described as “marketwide claims inflation”.

The insurer proposed a smaller final dividend of 52p per share, tracking the fall in pre-tax profits, and taking the overall payout 7 per cent below analysts’ expectations.