Marcus Evans Group | Worldwide Headquarters | American Offices | Latin America | European Offices | African / Asian Offices

Admiral shares slump on surge in loss ratio

Shares in Admiral slumped this morning despite the insurer, which insures one in ten British cars and owns the price comparison website, unveiling record profits. The market chose to focus on the group’s loss ratio – the amount paid out in claims divided by the amount collected in premiums – which jumped to 77.5% from 67.8% in the first half.

And the combined ratio, which measures how well the underwriting operations are performing (a lower number is better), rose to 94.2% from 89.3% in 2010.

The share price dropped 121p, or 7.9% to £14.14.

The market shrugged off a 27% increase in profit before tax to £160.6m. Turnover leapt 53% to £1.1bn, which prompted chief executive Henry Engelhardt to say that “it wasn’t so long ago that we were pleased to report over £1bn turnover for a full year”.

The board was so pleased with this performance it decided to give every member of staff £1,500 in shares, a total payout of £8m. The insurer also hiked its interim dividend by a fifth to 39.1p from 32.6p last year.

Engelhardt cautioned that “injury claims and their related costs continue to rise in the UK market, something to which we are not immune”. Admiral has refused to stop taking referral fees, while the Association of British Insurers has called for a complete ban on the controversial fees.

In an accident, customer details are routinely sold to personal injury lawyers or accident management companies who seek to ramp up claims, taking a big cut. Rival insurer Axa has estimated that half of the recent rises in car insurance premiums are related to the rise in bodily injury claims.

As the debate over referral fees heated up this summer, with former justice secretary Jack Straw calling for them to be banned, Axa announced it would no longer be accepting them. But others haven’t followed suit, and the government has indicated that it doesn’t want to ban them. Justice minister Jonathan Djanogly said in June that referral fee profiteering and ambulance chasing are “symptoms of a rotten suing culture”, but not the cause of the problems. “They are funded by an excess of money swilling around the system. Banning anything is not necessarily going to solve the problem.”

In May, the regulator – the Legal Services Board – decided against a ban on referral fees and instead recommended ways to improve transparency for the consumer. It wants insurers to fully disclose their sources of referral fees, and their links with solicitors. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds