Admiral Drops as Insurance Pricing Weighs on Earnings

Admiral Group Plc tumbled to the lowest in more than three months in London trading after the car insurer’s earnings were little changed and the company said prices show no signs of rising.

The stock dropped 5.5 percent to 1,371 pence, the lowest level since April 22. Pretax profit rose 1 percent to 183.3 million pounds ($306 million) in the first half from a year earlier, boosted by the release of 73.1 million pounds of reserves set aside for claims in previous years, the Cardiff, Wales-based company said in a statement.

“The company has become more dependent than ever on releasing prior-year reserves,” said Marcus Barnard, an analyst at Oriel Securities in London with a sell recommendation on the shares. Without reserve releases, “the figures would look dire.”

Admiral said insurance prices were flat over the first six months, with total insurance premiums down about 9 percent from a year earlier. RSA Insurance Group Plc said last week that it had pulled back from U.K. motor insurance because it could not afford to keep writing the same level of unprofitable business.

“Pretty soon the market will reach a point when it’s not writing business at a sustainable level and prices will have to start rising again,” Admiral’s new chief financial officer, Geraint Jones, said in a conference call with journalists. “We are not hugely optimistic, but we see this as a cyclical market that will eventually turn.”

Combined Ratio

Admiral’s combined ratio fell to 85.1 percent from 87.4 percent in the first half, indicating that the insurer paid out less in claims and costs relative to premiums.

Jones said Admiral had started four insurance operations and three price-comparison operations abroad in the past six years to stem its reliance on U.K. car insurance. The company plans to increase investment in the international unit in the second half of the year, including its price comparison website in the U.S.

Jones was appointed CFO and executive director today, replacing Kevin Chidwick, who is also chief executive officer of Admiral’s Elephant Auto Insurance business in the U.S.

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