Admiral Insurance (the company that would prefer that you call back tomorrow) issued its interim results today. Group Profit was down 48% compared with the same period last year on turnover that was up 6%. You can access the results announcement at https://admiralgroup.co.uk/sites/default/files_public/rns/2022/08/half-year-results-2022-rns.pdf
I looked hard but I can confirm that they don’t mention their current approach towards not answering the telephone.
Profit on their motor book was over £200m lower at £317.3m (compared with £530.4m for the same period last year). In terms of the explanation, they state:
“UK Motor profit in the first six months of 2022 was £317.3 million, lower than the same period in 2021 (H1 2021: £530.4 million) as a result of the non-repeat of the Covid-impacted favourable performance in 2021 across current year, and prior year claims as well as profit commission. Both 2020 and 2021 (especially H2 2020 and H1 2021) are considered exceptional periods, delivering much lower loss ratios than is the norm as a result of Covid-related factors.
When compared to H1 2019, UK Motor profit has grown by 26% (11% adjusting for the adverse Ogden impact in the first half of 2019). With the reported loss ratio before releases broadly consistent with that in H1 2019, the larger business combined with continued favourable prior period development results in a higher level of profit generated from reserve releases and profit commission.
The business delivered 4% growth in customer numbers year-on-year (all coming in the first half of 2022), primarily as a result of strong customer retention, within a challenging market. After the FCA’s general insurance pricing reforms came into effect at the start of the year, Admiral saw a notable increase in retention and remains well positioned in the market.
As the expected level of claims inflation increased during the period, new business and renewal prices were increased significantly (by around 16% from March to the end of July), and by more than the market average. Admiral will continue to prioritise underwriting profitability over growth in the second half of the year if the current level of inflation persists as expected.
Net insurance premium revenue at £234.8 million is 3% lower than H1 2021, with lower average earned premium reflecting the effects of the FCA pricing reform, a competitive market environment and a shift in mix towards the renewal book. The price increases in the first half are expected to increase average premium over the course of the second half of the year as the premium earns through.
The lower average premium (common with the market), along with continued technology investment resulted in an increase in reported expense ratio (20.7% vs 19.0% in H1 2021). The same drivers led to a similar increase in the written expense ratio (19.5% vs 18.7% in H1 2021).
Investment income in the period was £19.8 million (H1 2021: £20.7 million) with higher underlying investment income being offset by a reduction in income arising from cash held by Admiral relating to the portion of the book that is ceded through quota share reinsurance (£2.3 million reduction; H1 2021: £nil).”
On Claims, Reserve Releases and Profit Commission, they said:
“There are a number of trends impacting UK motor claims in the first half of 2022 which result in the increase in reported loss ratio (39.4% in H1 2021 to 63.1% in H1 2022):
The current period loss ratio increased by 18.4 points which can be primarily attributed to:
Continuing return towards pre-pandemic road usage over the last 12 months (although still below historic levels) and therefore an increase in claims frequency compared to H1 2021, with a partial offset arising from a reduction in frequency for smaller bodily injury claims following the whiplash reforms
Higher than usual levels of inflation in damage claims costs (further detail follows below)
Slightly lower average premium in the period following a shift in portfolio mix towards renewals business
Prior period releases reduced by 5.3 points to 28.2% from the elevated level experienced in H1 2021 (33.5%):
Though lower than in H1 2021, Admiral continues to see favourable development in best estimate reserves, primarily for large bodily injury claims which are initially projected cautiously
This benefit is partially offset by an allowance in the best estimate for the potential effects of excess inflation on bodily injury claims
The margin held above best estimate reserves is broadly consistent with year-end 2021 and remains significant and prudent”
The main highlight though, and we saw this when insurers were pleading poverty in front of the Transport Select Committee because of an alleged increase in fraud in 2009, was the increase in provisioning.
Back in 2009 this presented a very bleak picture for the sector of insurers engaged in the sector whilst making heavy losses. However, as soon as they managed to get their inflation beating rate increases past government (remember David Cameron telling us, as we entered 10 years of austerity, that we were all in it together and had to make sacrifices), and once they had secured their own police force and changes to the legal basis on which personal injury claims could be resisted, those reserves were released yielding super levels of profitability and shareholder dividends. This year they say:
“Admiral’s actuarial reserving team calculates best estimate claims reserves for UK motor claims reserves, using standard actuarial techniques applied to paid and incurred claims data, overlayed with assumptions and judgements where it is considered that the data does not fully reflect potential future trends and developments. The best estimate claims reserves are validated through comparison with projections performed by an independent, external actuarial firm.
Projections show an increase in average ultimate claims cost in the first half of 2022 compared to 2021 of around 11%.
The impact of inflation on third party and own damage claims is observed reasonably quickly, with the elevated levels due to market-wide factors such as high second-hand car values (impacting total loss claims), parts supply chain issues and underlying challenges in supply of labour leading to higher repair costs.
The longer-term impacts of the current inflation spike on bodily injury claims is highly uncertain. Admiral does not currently observe material changes in inflation for bodily injury claims settled in 2022 to date, when compared to 2021. However, an allowance in the best estimate reserve is held to reflect the potential impacts of higher than historic levels of future wage inflation on certain elements of large bodily injury claims reserves.
In addition to the inflationary environment, there continues to be a high level of uncertainty within motor claims across the market arising from (and not limited to), the continued adjustment of claims frequency post Covid (for both road usage trends and the relationship between road usage and claims frequency), the impact of the whiplash reforms on smaller bodily injury claims and the future path of the Ogden discount rate.
As a result of this uncertainty, Admiral continues to hold a significant and prudent margin above best estimate reserves which sits at a broadly consistent confidence level when compared to the end of 2021 and other recent periods.”
Whilst some of what they say is compelling, that “significant and prudent margin above best estimate reserves” is the thing that suppresses the level of reported profitability. And that suppression of profit acts as cover for increasing premiums above the rate of inflation. £10 says that in a year or so they will be releasing over £200m of those reserves and declaring a level of profitability and a dividend flow for shareholders that will be jaw-dropping.