Shares in Admiral PLC (LON:ADM) sunk today after in-line headline first-half results were soured by concerns over margin deterioration and pricing issues in its UK motor insurance business.
In late afternoon trade, Admiral shares topped the FTSE 100 fallers list, down 5.6%, or 122p at 2,056p.
READ: Admiral shares lower as car insurer's first half profits hit by Ogden discount rate cut
In a note to clients, analysts at UBS noted that the insurer’s half-year pre-tax profit of £195mln, up 1% year-on-year, was basically in-line with the consensus forecast of £192mln.
But they noted that the result was boosted by higher than expected reserve releases and was 3% behind the Swiss bank’s estimates on an underlying basis.
The analysts pointed out that Admiral’s international insurance business was also below expectation due to higher cost of growth in Europe, although the performance in the US was in-line.
Underlying margin deterioration in the core UK motor division
The UBS analysts pointed out that the group’s motor insurance customer growth was 3% in the first half as Admiral put up prices ahead of the market, but competitiveness improved in the second quarter.
They noted that the firm’s motor premiums were up 7% year-on-year, implying either significant reductions in risk mix or limited risk adjusted pricing.
The analysts said: “We see underlying margin deterioration in the core UK motor division as the key negative in the result.
“In addition” they said, “pricing increases appear weaker then peers at headline level.”
The analysts also noted that profit at Admiral’s price comparison website Confused.com was also below expectations due to higher marketing spend on increased competition.