Admiral Group PLC (LON:ADM) saw its shares fall on Thursday as a cautious outlook offset a better than expected 2018 profit which were inflated by Ogden rate-related reserve releases.
The FTSE 100-listed car and home insurer posted an 18% jump in full-year 2018 pre-tax profit to £476.2mln, up from £403.52mln a year earlier and ahead of the £445.8mln consensus forecast.
READ: Admiral sees strong UK demand drive 9% rise in first-half profits, but cautions over ‘hard’ Brexit risks
The group said its overall pre-tax profit was "favourably impacted" by the change in the Ogden rate which is used by courts to work out how much insurance companies need to pay out in the event of life-changing injuries to customers.
The insurer estimated that the Ogden rate change last year added £120mln to £140mln in pre-tax profit to its UK Motor's business reserves.
Admiral’s chief executive, David Stevens commented: "Yes, we delivered record profits and dividends, but we were helped by the UK government's decision to unwind partially the change in the Ogden discount rate from a couple of years ago."
The blue-chip firm saw its 2018 net revenue increased by 12% to £1.26bn, up from £1.13bn in 2017, with net insurance premium revenue up 8.5% to £671.8mln from £619.1mln.
The group's combined ratio rose was 89.3%, up from 87.7% the year before, which means it is paying out more money in claims that it is receiving from premiums.
Admiral increased its final dividend by 14% to 66.0p per share, up from the 58.0p paid a year earlier, which represented a 49.1p normal dividend, plus a special dividend of 16.9p. The group said 11p was added to its dividend for Ogden-related profit.
That made a total dividend for 2018 of 126.0p, 11% higher than the 114.0p paid in 2017.
Brexit efforts
Looking ahead, Admiral said it has taken a "sUBStantial effort" to ensure the outcome of Brexit will not affect the company, having set up a Spanish subsidiary that will "be robust in the face of any Brexit eventuality".
Admiral said the subsidiary will allow its price comparison sites in France and Spain to continue operating as well its more general insurance businesses in France, Spain and Italy.
The firm’s chief executive said: "The 2018 property & liability cost of circa £3.5mln, is a relatively trivial investment to protect the long-term value being created in our now profitable EU ventures."
In a note to clients, analysts at UBS commented: Headline results are strong, boosted by Ogden, but on balance we read this as a slightly negative result overall, with a lack of EPS upgrades at a premium valuation.”
UBS reiterated a ‘neutral’ rating and 2,000p price target on Admiral shares. In late morning trading, Admiral shares were 4.6% lower at 2,091p.