Admiral boss doesn’t pull any punches after revealing discount rate cut will cost £150m
Insurance firm Admiral lamented the government's decision to slash a key reference rate for calculating personal injury claims, which it said would ultimately cost the firm £150m.
Annual profits for 2016 reduced by £106m, with the balance to be taken in following years. This prompted boss David Stevens, who is in his first full year at the FTSE 100 firm, to call the results "not exactly a flying start."
The figures
Group turnover climbed 22 per cent from £2.1bn to £2.6bn, with customers growing by 16 per cent to 5.15m.
UK insurance customers jumped 14 per cent to 4.1m, while international car customers increased by 28 per cent to 864,200.
Read more: Admiral over promises and under delivers
Pre-discount rate decision profit before tax was scheduled to be £390m, up three per cent on the prior year. But this reduced to £284m once the government changes were incorporated, down 25 per cent year-on-year.
The firm's solvency ratio increased from 206 per cent to 212 per cent.
Earnings per share plummeted 27 per cent to 78.7p but the firm maintained its dividend of 114.4p per share.
Why it's interesting
Admiral's shares were the second worst hit of the insurance big players (behind Direct Line) following the Ministry of Justice's decision to slash the discount rate from 2.5 per cent to minus 0.75 per cent.
Similar to many in the sector, Admiral was caught on the hop by the severity of the cut – hence Stevens "eccentric" comment below – and had to sharpen its pencils and recut its numbers: today's results were due to be posted a week ago.
Read more: Admiral chairman leaves after 17 years at the top
Unlike many competitors, Admiral won't take the full hit in its 2016 figures, with the remaining total cost of £150m to adversely impact next year's returns.
What the company said
My first full year as chief executive, and after 25 years of almost uninterrupted profit growth under my predecessor, profits are down a quarter! Not exactly a flying start!
"On the other hand our ability to grow our businesses rapidly, both in the UK and overseas, and to absorb the shock of an eccentric government decision on discount rates while delivering a 37 per cent return on equity and again paying a substantial dividend is a tribute to the health of the business and resilience of our model.
"I am also delighted that for a record 17th year in a row, Admiral Group has continued its success in the Sunday Times Best Companies to Work For, placing 2nd, our joint highest position ever.”