Now Admiral Eyes Italy As It Posts Record Half-Year Profits

By Sion Barry

Motor insurance group Admiral's appetite for growth was further underlined yesterday when it posted record half-year profits. The stock market company, which has its headquarters in Cardiff, announced a top allowance of free shares to all of its employees worth pounds 1,500. It also confirmed its latest move into the mainland Europe market, with Italy earmarked for 2008. It already operates in Spain and could have its German operation up and running this winter, or at the latest in the first quarter of 2008.

The group's online car insurance price comparison site, Confused.com, also reported a healthy rise in half-year profits.

Admiral, which employs more than 2,000, had been in talks with private equity suitors to sell a minority holding, which had valued Confused.com at between pounds 600m and pounds 650m.

But Admiral said in July it had decided against the sale as the potential bidders were demanding too much boardroom control.

For the six months to June 30 this year Admiral Group reported pre-tax profits of pounds 86.3m, compared to pounds 68.7m in the same period last year - a rise of 26%. Group turnover was up 16%, from pounds 359.2m to pounds 417.8m.

Confused.com, which also offers best deals on travel insurance, saw its pre-tax profits rise from pounds 14.3m to pounds 19.7m.

Admiral chief executive Henry Engelhardt, pictured, said, "We are very pleased to again announce record results for the first half of 2007.

"The UK car insurance market continues to prove challenging, and we are delighted to have once again increased both underwriting and ancillary profits whilst substantially growing the number of vehicles insured [vehicle count up 16% to 1.4 million on 2006].

"As a result of continuing growth in the market for car insurance price comparison, Confused.com enjoyed growth in volumes and revenue in the first half of 2007.

"However, previously we have said that there will be more competition in this sector. Some of this competition went live earlier this year and more competition is on its way."

One rival launched this year is Cardiff-based Go Compare, as well as North Wales-based supermarket.com which floated this summer.

Chicago-born Mr Engelhardt said there would be winners and losers over the next 18 months.

He added, "The market is still growing with more people using the internet for car insurance. There is a lot of competition. However, Confused has clearly been a winner as we have the benefits of first mover advantage and a database that allows us to go to consumers with other product and services. Confused also benefits from having a great affinity, with a quarter of its business coming through costumer referrals."

Mr Engelhardt described Confused.com as a integral part of the Admiral Group.

He said, "We are no longer actively seeking out a partner or sale in anyway. However, if someone knocked on the door anything is potentially for sale, apart from my wife, and we would listen."

City analysts are forecasting full-year profits for Confused.com in the range of pounds 32m-pounds 40m.

Admiral's Spanish car insurance operation Balumba.es has made a strong start in its first few months of trading with 16,000 vehicles insured.

Mr Engelhardt said, "As we reported last time, our new German car insurer, AdmiralDirekt.de, will be launching in late 2007 or early 2008. We are also pleased to announce our plans for the group's next European venture to launch in Italy in 2008."

Admiral also intends to move into the French and US markets, but Mr Engelhardt said it was too early to give any timings or which territory would come first.

During the six months Admiral's premiums, as experienced by the industry generally, increased, with reserves being used to cushion the impact on customers.

Its chief operating officer David Stevens said, "Admiral Group raised rates on average by 5% in the year ending 30 June 2007. Based on our own conversion data this would appear to be in line with the market for this period. Since the end of June we have implemented further, moderate rate increases.

"Whether the rate of premium increases continues at this level, which is roughly equivalent to claims inflation, or whether it accelerates into 2008 will depend heavily on the underlying profitability of the market.

"The headline combined ratio for private motor in 2006 was 104% [anything over a 100 represent claims exceeding the revenue from premiums], which implies an adequate return on capital once investment income and ancillary revenues are taken into account.

"However, this result was flattered by a significant reserve release of 8.4%, which puts the run rate for the year 2006 in excess of 110%, which does not provide an adequate return on capital.

"I believe that the current level of reserve releases for the market is not sustainable in the long-term and that as these releases are expended it will put more pressure on individual insurers to accelerate increases.

"Admiral has continued to grow within this difficult environment and maintain a sizeable combined ratio advantage over the market average.

" It would be our intention to use this economic advantage to continue to offer consumers excellent prices which allows us to grow while continuing to provide attractive returns to our shareholders."

Admiral also announced a half-year dividend for shareholders of 20.6p a year, up 70% on 2006.

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