Admiral Tumbles as Insurer Sets Aside Money for Past Claims

Admiral Group Plc (ADM), the U.K. car insurer that owns the confused.com website, posted first-half pretax profit that missed analyst estimates after it held back more cash to cover claims from previous years. The stock fell.

Pretax profit climbed 27 percent to 160.6 million pounds ($265 million) in the first half, the Cardiff, Wales-based insurer said in a statement today. That missed the 163 million- pound median estimate of eight analysts surveyed by Bloomberg.

Admiral, which has 2 million U.K. customers, has won market share by undercutting rivals’ prices in the last 18 months due to its lower costs and more profitable underwriting record. For every pound of premium, Admiral paid out 90.4 pence in claims in the first half, up from 83 pence in the year-earlier period. The results show that the insurer may be being hurt by rising costs from personal injury claims in past years, analysts said.

“Having dodged the U.K. bodily injury deterioration bullet for a number of quarters, Admiral’s results appear to show that this situation has finally caught up with them,” Joy Ferneyhough, a London-based analyst at Banco Espirito Santo SA, wrote in a note to clients. Holding back cash for the claims “raises plenty of new concerns for investors,” she said.

Shares Drop

Admiral dropped as much as 8.5 percent in London, the most since December 2008, and was down 7.5 percent at 1,420 pence at 9:37 a.m. Before today, the insurer was valued at 21 times this year’s estimated earnings, compared with the average 8.7 price to earnings ratio of the FTSE 350 Insurance Index.

“A potentially lower growth rate would imply a lower stock rating,” said Marcus Barnard, a London-based analyst at Oriel Securities Ltd. with a “hold” rating on the stock.

The amount of capital Admiral released from its reserves dropped to 4 million pounds from 17.3 million pounds in the year-earlier period.

The insurer generates about half of its profit from policy add-ons such as legal cover and referral fees, which are earned by selling customer details to personal-injury lawyers and car- hire firms. About 5 percent of the insurer’s profit comes from referral fees, Finance Director Kevin Chidwick told reporters on a conference call today.

Admiral will pay a first-half dividend of 39.1 pence a share, 20 percent more than the same period in 2010. Chief Executive Officer Henry Engelhardt, who owns 14 percent of the firm, will earn about 15 million pounds from the payout, according to data compiled by Bloomberg.

To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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