Admiral reported first-half sales up 21% to £2.24bn, as price hikes across the range of products fed through to higher premiums. Pre-tax profit rose 4% to £234m, gains from UK insurance more than offset losses from international business, though those losses did narrow.
Insurance contracts were a little less profitable, with the group's combined ratio rising from 87.1% to 89.8% (measures costs vs premiums so lower = more profitable).
Customer numbers rose 4%, as growth in UK Household and International offset a drop from UK Motor.
There was a slight dip in the solvency ratio, with measures capital levels compared to requirements, from 185% to 182%. The total interim dividend was down 15% to 51.0p, made up of a normal dividend of 38.0p and a 13.0p special dividend.
The shares rose 5.1% in early trading.
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Our view
First-half performance painted a much better picture than we've seen for a while. Challenges remain, but actions are starting to feed through to results and Admiral looks to be managing the situation well.
UK motor insurance is the core division, which has been a tricky place to operate given the rising cost of servicing claims. But some mammoth price hikes are starting to feed through as customers roll over to contracts at higher rates. That did push some customers away, but it's a price worth paying for Admiral who remain focused on writing business at margins they're happy with rather than chasing volumes.
The net effect was UK Motor profitability trending back in the right direction after a slip at the back end of last year.
International efforts are a drag on profits for now, but positive trends mean the outlook is starting to improve. Customer numbers are growing, and a better grip on costs means profitability metrics are improving. It's an area to watch.
Admiral's business model relies heavily on reinsurance, where an insurer passes on insurance business to a third party who takes on the liability. This is a fairly common practice and allows insurance companies to build their brand by taking on all manner of customers but only being on the hook for risks they want.
Relationships with reinsurers are key, and this strategy allows Admiral to be selective on its risks while funnelling more data to the group's bespoke machine learning tools. It's a recipe that's helped deliver market-leading performance; there's no guarantee it will continue.
Admiral also goes directly to the consumer, unlike competitors who sometimes use a third party to engage with clients. It's a model that helps leverage the analytics capabilities further, as there's no dilution to the data it collects on policyholders. Better data leads to better risk-based decisions, allowing Admiral to favour higher-risk, higher-priced policies.
Dividend growth from here looks attainable, but it's worth remembering the payout ratio is expected to be 90-95% of earnings - so if earnings surprise on the downside return levels are by no means guaranteed. Nonetheless, we think Admiral has several competitive advantages over many of its peers, from bespoke data analytics to strong relationships with reinsurers. No doubt current conditions are tricky, but we support the long-term prospects at current valuations. Of course, there are no guarantees.
Admiral key facts
All figures are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
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