Car insurer Admiral has taken a £33.3m hit to its profits following the introduction of changes to how compensation for those injured in accidents is calculated.
The government changed the Ogden rate, which governs how much insurers pay to people seriously injured in car accidents, in July.
Admiral said the changes had cut its first-half profits by £33.m, and reported a pre-tax profit of £218m, a four per cent increase on the same period last year.
The insurer said it expects the total impact of the new Ogden rate on full-year profits to be approximately £50-60m.
Customer numbers rose 8 per cent to 6.74 million, driven by a 21 per cent increase in international car insurance customers to 1.36 million by the end of the first half.
Admiral announced a 5 per cent increase in its interim dividend, which rose to 63p per share.
Earnings per share (EPS) rose a modest 2 per cent to 63p, but Admiral said the changed Ogden rate had reduced EPS by 10p.
Admiral’s share price was up 4.58 per cent in morning trading to 2,125p.
Why it’s interesting
The insurance sector has been highly critical of the Ogden rate changes since they were announced in July, and Admiral’s results begin to show what the impact of the change will be on the industry.
Insurers, who pay out less as a lump sum when the rate is higher, had called for the level to be raised after it was slashed in 2017 from 2.5 per cent to minus 0.75 per cent.
The rate was raised to minus 0.25 per cent on 15 July, a lower rise than many in the industry had been hoping for.
Huw Evans, head of the Association of British Insurers, said at the time that the change was “a bad outcome for insurance customers and taxpayers that will add costs rather than save customers money”.
What Admiral said
Chief executive David Stevens said the group’s results were “a bit dull”, cautioning: “If it’s a can’t-put-down, read-in-one-go page-turner that you’re after, then I’m afraid our half-year results don’t fit the bill.”
Nevertheless, Stevens found some things to be enthusiastic about. “Profit growth, even if modest, is more exciting considering the £33 million Ogden headwind,” he said.
“Low growth in UK Motor policy count reflects a consciously reduced competitiveness, as we price rationally in the face of any rising claims costs across the market as a whole,” Stevens added.
Stevens also highlighted Admiral’s success in Europe, calling it “the racier continental novella” that could get “potentially lost amidst the worthy tome that is the UK”.
Main image credit: Admiral