U.K. personal lines insurer Admiral Group PLC may issue a public securitization or debt to fund longer-term growth ambitions of its new loans unit.
Admiral Loans, which was launched in 2017, had outstanding loans of £421 million for the first half of 2019.
Speaking during a presentation for Admiral's first-half 2019 earnings, Admiral Loans CFO Duncan Russell said roughly 60% of the outstanding loan book was funded by a banking warehouse structure. The remaining 40% came from the Admiral group, which in turn has drawn on credit facilities and its insurance asset base.
The company expects the loan book to grow to between £700 million and £900 million in two years' time. Russell said current funding arrangements would be sufficient to meet these short-term needs. Beyond that the company would need a "diversification of funding," probably via a public securitization, he said.
The main barrier to tapping the capital markets is Admiral Loans' lack of track record and data. However, by the time the company needs additional funding it will have built up a four- to five-year track record, Russell said.
Admiral's new loans business has already attracted some third-party support. Admiral's group CEO David Stevens said the company has done its first "relatively small capital efficiency deal" with a reinsurance partner to support the lending business.
The loans business made a loss of £4.3 million in the first half of the year, an improvement over the £6.4 million loss it made in the same period of 2018. Russell said the expectation was for a loss in the "high single-digit area" for the full year, notwithstanding any big changes in the macroeconomic environment.
Stevens said loans was a "difficult market," given it is a commoditized product, there is abundant capacity and it is sensitive to macroeconomic cycles. However, he maintained it is possible to make good returns if you are a "special business." He also noted Admiral's ability to profit in the highly competitive U.K. personal lines motor market.
"[Loans] appears to be a commoditized market but there are often opportunities to tweak a product to slightly differentiate [it]," he said, adding that staple features of the overall Admiral model, such as a low cost base, would also stand the business in good stead.