Editor's comment: The fall of angels

Neither CEO Henry Engelhardt’s proud exclamation mark after highlighting the £1bn-plus turnover in six months alone, nor the headline announcement of a record pre-tax profit was enough to distract the market from underlying figures that proved Admiral too is fallible when faced with the scourge of bodily injury claims inflation.

Despite the market thinking “Admiral could carry on defying gravity”, its first half-year results revealed it to be “not as flexible as first thought” and the group’s share price took a hammering as a result.

With its combined operating ratio ‘deteriorating’ — albeit still coming in at an impressive and market-beating 90.4% for UK car — due to prior year reserve releases drying up, an Investec analyst said in a research note: “We view this as clear evidence that Admiral’s ability to significantly outperform the market is diminishing.”

Arguably, Admiral itself helped foster its reputation of invincibility, with chief operating officer David Stevens declaring last September: “There has been a continual drift up in bodily injury since 2005 but we haven’t seen anything dramatic in the last 12 months. Some of our competitors’ commentary gives the impression something has changed radically.”

But you can’t help feeling a little sorry for the Welsh insurance giant. It’s like a straight-A student suddenly lambasted for maintaining its top grades but dropping a couple of percentage points — while horrifying teachers by admitting that it too found the most recent exam a little taxing. The ferocity of the market’s reaction might appear somewhat melodramatic when peer-reviewed.

And couldn’t Admiral’s confession that it is “not immune” to rising BI claims costs be good for the wider market? Surely if the adverse effect of this inflation is all pervasive — with even the slickest, strongest historical motor performer now feeling the pinch — doesn’t that add to the industry’s case for procedural reform — whether that be banning referral fees or the capping of personal injury lawyer fees?

As long as Admiral stood tall and unaffected, the calls of other insurers for radical costs reform at best lost their resonance and at worst made those insurers look like they were finger pointing to misdirect from their own failings. Perhaps Admiral has done the market a favour.

Lynn Rouse

Editor

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