Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Admiral Group PLC (AMIGF, Financial) reported a 43% growth in turnover and a 32% increase in pre-tax profit.
- Customer numbers increased by 12% year-on-year, reaching 10.5 million.
- The UK motor insurance segment saw significant growth, adding over 0.5 million motor policies and achieving a turnover growth of over 50%.
- The company maintains a strong solvency ratio of 198%, indicating robust capitalization.
- Admiral Group PLC (AMIGF) declared a nearly 40% increase in the interim dividend to 71p per share.
Negative Points
- The international business results were mixed, with the European market recovering slower than the UK.
- Italy faced higher-than-anticipated increases in core values for settlements, impacting contract results.
- The market is becoming more competitive as price and inflation decrease, potentially slowing growth in the second half.
- The company expects slower growth in the second half due to increased market competition.
- The US business, while profitable in the first half, faces increased competition and higher direct market acquisition costs.
Q & A Highlights
Q: Congratulations on the results today. The first question is on the written expense ratio, which was 15.5%. With your operating leverage improving, is there room for that to go down further as you continue to grow?
A: The expense ratio has reduced mostly because of increasing premiums. Absolute expenses have increased as we continue to invest in technology, automation, and analytics. I do not expect the expense ratio to decrease from this base. (Cristina Nestares, CEO of UK Insurance)
Q: On the quota share results, has your 2021 reinsurance mostly commuted now? Do you expect that to be a drag on earnings, particularly on the 2022 underwriting year?
A: Most of the contracts up to and including 2021 have been commuted. The most significant asset remains on 2022, and as we reduce the loss ratio on that year, we will unwind some of the assets, which will be charged to the P&L. For 2023 and 2024, the impact will be different due to the booked loss ratios. (Geraint Jones, CFO)
Q: Can you talk about the risk mix evolution in your UK motor book since it grew significantly in the half? Are you nervous about these shifts in customer segments?
A: The biggest change is related to the share of new business in our total book. New business and renewals have the same rate but different premiums. We had a high proportion of new business, given our increased competitiveness and a particularly high new business market in the first half. (Milena Mondini de Focatiis, CEO)
Q: What do you think is different about this cycle compared to previous ones?
A: The main difference is the strong external drivers like unprecedented inflation levels, COVID impacts, and pricing reforms. These factors have led to a much sharper cycle. Looking forward, the pricing reforms may result in softer cycles due to higher retention rates. (Milena Mondini de Focatiis, CEO)
Q: Can you provide more details on the internal model pre-application process with the regulator?
A: The pre-application process involves a detailed review of certain parts of the model. We expect to get good feedback by the end of the year, which will determine our next steps. The process has taken longer due to changes in the model and the scope of our business. (Geraint Jones, CFO)
Q: What is your expectation for inflation in the second half of the year?
A: We expect high single-digit inflation, slightly softening in the second half. For 2023, it was around 10%, so we anticipate a slight improvement. (Cristina Nestares, CEO of UK Insurance)
Q: Can you provide more color on the growth in motor policies in the first and second quarters?
A: We grew more in Q1 than Q2. The new business market was bigger in Q1 due to higher prices and increased switching. We decreased rates at the beginning of the year, and the market started decreasing rates from March. We expect to continue growing but at a slower rate. (Cristina Nestares, CEO of UK Insurance)
Q: What are your thoughts on the Ogden discount rate and its potential impact on pricing?
A: It is too early to comment on the Ogden discount rate. We expect news by January 2025 and will update our pricing and reserves accordingly. (Milena Mondini de Focatiis, CEO)
Q: Can you discuss your M&A strategy following the acquisition of RSA's direct home and pet business?
A: We are open to considering other M&A opportunities that fit well with our strategy. We will continue to focus on growing in our existing markets and developing a multi-product strategy in the UK. (Milena Mondini de Focatiis, CEO)
Q: What is your current retention level, and what are your expectations for customer switching at a market level?
A: When prices go up, people switch more. We expect retention to increase as pricing decreases. We have not yet seen the full impact of pricing reforms on retention and new business market size. (Cristina Nestares, CEO of UK Insurance)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
