There’s an interesting dichotomy to the coverage regarding insurance company Admiral’s first half results. The national media focuses in on the company’s share price alone, while the trade media puts the spotlight onto its declaration that it isn’t like other motor insurers and has no problem with bodily injury claims inflation.
The Guardian’s Market Forces Blog points the story out with a cheerful headline that Admiral’s staff are likely to cash in after a profit boost; Admiral staff cash in after profit boost, as FTSE edges higher | Business | guardian.co.uk.
However, it reports that analyst recommendations placed Admiral’s stock on the sell list straight away. Two analysts, Charles Coyne and Eamonn Flanaghan attached for sale signs to this particular share which they say is ‘materially overvalued’. It’s hard to disagree when the price is so very much in excess of the company’s net asset value.
The trade media however focuses in on the reason perhaps that Admiral is able to command such loyalty from its shareholders and a factor that may well inform that sky-high equity.
Amidst spiraling claims, most of the UK motor insurance sector can’t bring in money any quicker than it goes out of the back door, so to hear a company confidently reporting that it has seen no ‘unusual trends in bodily injury or damage claims’ is rather refreshing.
Could it be down to good underwriting in the first instance? Well, Admiral’s quota share arrangement means it carries less liabilities on its own balance sheet than many rivals in favour of having the risk spread amongst a group of reinsurers – see one example here – and that means the consequent claims exposure is also shared. However, such arrangements exist to secure a profit on underwriting and as such there is no more or less demand upon Admiral’s underwriters than there would be for those at Royal Bank of Scotland Insurance, Aviva or RSA.
Admiral has enjoyed a purple patch for some time now and if the analysts’ story is to be believed, that could be about to end. Some credit should be extended to an insurance company that manages its portfolio well though. Motor insurance is a great leveller in financial services and those who make a margin in it should get a pat on the back from their investors.
Ralph Savage
Tim Evershed
