ii view: Insurer Admiral in record territory

Record profit and a dividend yield of over 6%. What’s not to like at Admiral?

Full-year results to 31 December 2019

• Revenue up 5% to £3.46 billion
• Pre-tax profit up 10% to £522.6 million
• 56.3p per share final dividend and a special dividend of 20.7p per share
• Full-year total dividend up 11% to 140p per share
• Solvency ratio (post dividend) down 2% to 190%

Chief executive David Stevens said:

“It was a year which saw profits exceed £500 million for the first time, on the back of substantial reserve releases. We crossed the million mark in household policyholders, and added 200,000 new car insurance customers overseas. 

“Alongside this rapid progress on many fronts, some data points were stubbornly stable. The number of consecutive years amongst the top performers in the “Best Companies” list only nudged up from 19 years to 20. The percentage of staff saying they are proud to work for Admiral was stuck in a narrow band in the mid-90’s. As was the percentage of customers who said they wanted to renew with Admiral following a claim.”

ii round-up:

Car and home insurer Admiral Group (LSE:ADM) reported a 10% profit increase in these latest results. A stark contrast to the 12% fall posted by rival Direct Line Insurance (LSE:DLG) earlier in the week. 

The return of funds or claim reserves previously set aside to cover personal injuries at its motor insurance division helped drive the profit hike to a record £522 million. 

UK insurance profit jumped by 7%, while a minor loss was again generated for its overseas business. The comparison website division, including Confused.com, also saw profits rise, partly offsetting an ongoing but reduced loss for its relatively new personal loans business. 

The insurer, whose brands also include Elephant and Diamond Car insurance, along with Admiral itself, also announced a decision by its co-founder and current chief executive, David Stevens, to step down in 12 months’ time. 

Founded in the early nineties and now employing over 10,000 people, Admiral is today the biggest general insurer by stock market value in the UK.

Total customer numbers rose by 7% to nearly 7 million, with international car insurance customers jumping by 16% to 1.42 million.

Admiral again rewarded shareholders with a special dividend payment. The share price was little changed in early afternoon UK market trading. 

ii view:

To reduce and efficiently employ capital, the company shares risk with reinsurance partners, a strategy it hopes will generate superior returns on capital for shareholders while also providing financial support if things go wrong. Increased diversification in both its product offering and geographical location add to recent group strategy.  

For investors, in an era of ultra-low interest rates, another special dividend payment leaving the historic dividend yield at over 6% (not guaranteed) cannot be ignored. However, the pending departure of co-founder and current CEO does raise some uncertainty, while factors outside of management’s control, such as bad weather, always need to be remembered when investing in the insurance sector. 

Positives: 

• International car insurance customers up 16%
• Committed to returning excess capital to shareholders

Negatives:

• Dividend payments are not guaranteed, particularly special dividends 
• International car insurance loss of £1 million 

The average rating of stock market analysts:

Weak hold