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Admiral : record profit but market eyes competition

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U.K. motor insurer Admiral Group posted record first-half profit as its revenue soared 53%, but its shares fell on concerns that the company’s major competitors are beginning to close the gap in its domestic market.

The Cardiff-based company said pretax profit for the six months to June 30 rose 27% to GBP160.6 million, while revenue increased to GBP1.1 billion from GBP720.5 million a year earlier.

“As one of the lowest cost providers in a commoditized market we are well placed for a future which is shaping up to be the survival of the fittest,” Chief Executive Henry Engelhardt said. “All in all we’re pleased with the numbers for the first half of 2011.”

Investec Securities analyst Kevin Ryan said Admiral’s profit was well ahead of the brokerage’s GBP145 million estimate and represented very strong growth in a stagnant market.

However, he said there was “clear evidence” that the company’s ability to significantly outperform the domestic market was diminishing, citing Admiral’s U.K. combined operating ratio of 90.4% compared to Aviva PLC’s (AV.LN) similar combined ratio of 94%.

Such worries combined with valuation concerns to make Admiral the worst performing stock on the benchmark FTSE 100 index. At 0915 GMT, the company’s shares traded down 7.5% at 1423 pence, while the wider index traded up 0.1%.

Admiral said its U.K. combined ratio had increased from 82.9% a year earlier because of a lower release of reserves, and added this was partly offset by a lower expense ratio and a lower loss ratio on business earned in the first half.

The company said it had continued to increase market share in the U.K. and ended the first half with more than 2.8 million vehicles insured in the country, 33% higher than a year earlier.

Engelhardt said the momentum of vehicle growth and price rises boosted first-half results but warned that injury claims and related costs continue to rise in the U.K.

Outside its domestic market, Admiral’s combined international businesses generated revenue of GBP53.9 million, 45% higher on the year, and ended the first half with 236,000 insured vehicles, 53% higher than a year earlier.

Admiral operates four web-based insurance operations outside the U.K.: Balumba.es in Spain, ConTe.it in Italy, Elephant Auto in the U.S. and L’Olivier in France.

Admiral also operates three price comparison sites outside the U.K.–Rastreator in Spain, LeLynx.fr in France and Chiarezza.it in Italy–and said consumer preference for such shopping methods is growing.

The company announced a 20% rise in the interim dividend to 39.1 pence per share and said more than GBP8 million of shares will be distributed to staff.

London,August 24, 2011 (Dow Jones)