Admiral suffers from suppressed growth from excess claims

One major motor car insurance provider recently reported that its earnings growth has been suppressed by an excess of personal injury claims, with one executive remarking that the year had been a ‘disappointing’ one as a result.

Admiral, one of the largest car insurance companies operating in the UK, suffered from a larger proportion of claims from 2009 and 2010 that were larger and more costly than anticipated. 2011’s claims were also found to carry the risk of higher costs as well, with the end results being increased car insurance rates for nearly all of its customers.

While the firm’s reinsurance contracts call for it to only underwrite about 25 per cent of total risk, higher claims volume and costs dropped their profit commission figures from 25 per cent of premiums to 15 per cent.  The car insurance group, which insures 2.9 million drivers and is the second largest one of its kind in the UK, came out with a profit alert this past November as a warning that 2011 profit levels were likely to be closer to the conservative end of yearly projections.

The announcement led to Admiral’s shares plummeting, yet recent share prices had surged by 12 per cent following news that the insurance giant had still found a way to increase its profits before taxes to £299 million, an increase of 13 per cent.

The group’s chief executive, Henry Engelhardt, commented that 2011 profits were down from what he had expected, calling the year a disappointing one, not because it was a bad year, but because 2011’s high expectations were not met by such a large margin.

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