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Admiral CEO: Rise of UK motor insurance specialists to stabilize pricing, profit

The rise of listed U.K. motor insurance specialists such as Admiral Group PLC, Esure Group PLC and Hastings Group Holdings PLC will bring greater stability to the price of cover and the sector's profit, Admiral CEO David Stevens said Aug. 15.

Admiral said in slides accompanying its first-half earnings that 43% of the U.K. motor insurance market was controlled by listed personal lines specialists in the U.K. in 2017, up from 28% in 2014. Stevens told analysts on an earnings conference that by the end of 2018, the percentage would be "well over 45% and approaching 50%."

He said his was partly down to more companies listing, with motor specialist Sabre Insurance Group PLC making its debut on the London Stock Exchange in December 2017, but also "above average growth" at Admiral, Esure and Hastings.

Speaking to journalists later the same day, Stevens said that historically, U.K. motor insurers were predominantly divisions of large multinational firms or composite insurers, with U.K. motor comprising only a small part of their overall results. This contributed to volatility in U.K. motor pricing and profits, he said, "with some of those players not being as rational or disciplined or, frankly speaking, competent as emerging specialists like ourselves, Esure, Hastings and of course Direct Line."

He added that the greater stability resulting from specialists controlling more business is good news for both shareholders and buyers of motor insurance "because frankly they don't like the roller-coaster of extreme price increases and decreases that have characterized the U.K. market over a couple of decades."

Price falls to abate

In part because of "more rational players in the market," Admiral is expecting U.K. motor price drops seen in the first half of 2018 to abate, said U.K. insurance CEO Cristina Nestares. The Willis Towers Watson/Confused.com car insurance price index recorded an 11% year-over-year drop in prices in the second quarter, following a 2% fall in the first quarter.

"We believe that the reductions we are seeing in prices are unlikely to continue for much longer," Nestares said, adding that claims inflation and the later-than-expected implementation of whiplash reforms and the increase in the personal injury discount rate, which are both expected to cut claims costs, would also keep price cuts at bay.

The whiplash reforms are now expected to take effect in April 2020, and Admiral said that, assuming the Civil Liabilities Bill passes into law Feb. 1, 2019, the first review of the personal injury discount rate would be completed by mid-September 2019. The rate is used to set the present-day value of long-term compensation awards, and was cut in 2017 to negative 0.75% from positive 2.5%, in a jolt to the insurance industry.

Admiral said it was seeing a continued increase in the inflation of damage claims costs, and also said it had seen an increase in large bodily injury claims costs. Nestares said Admiral had kept its prices flat in the first half and had put through a "small increase" in the third quarter "to reflect the underlying claims pressure."

Buy and sell

Following the news that Bain Capital has offered to buy Esure for £1.21 billion, analysts quizzed Stevens about Admiral's own deal-making ambitions. He said the company has "always grown organically" but "we don't dismiss the possibility we could buy something at some point," for example to speed up growth in non-insurance business lines.

He also did not rule out a sale of the company's price comparison business, which include U.K. website Confused.com, as well as platforms in France, Spain and the U.S. Stevens said Admiral values the business's utility in understanding consumer behavior more than its contribution to profit, but added that price comparison "isn't as core" as insurance and the lending business.

Admiral made a profit after tax attributable to equity holders of £177.2 million in the first half, up from £163.2 million in the same period of 2017. The insurer's share price was up 3.25% at 2,063 pence a share as of just after 2 p.m. London time.