The motor insurance group Admiral revealed it would not be following Norwich Union's lead by hiking its premiums yesterday, claiming that NU's move would have little impact on the overall market unless Royal Bank of Scotland followed suit.
Norwich Union, which is owned by FTSE 100 financial services giant Aviva, shocked the market last week by revealing it was hiking its car insurance rates by an average of 40 per cent. It said competition in the market had driven premiums down to unsustainable levels.
Unveiling a 24 per cent increase in its first half pre-tax profits yesterday, Admiral said it had no plans to raise its own rates, adding that it was comfortable it could continue to write profitable business, due to its much more efficient business model.
Admiral achieved a Combined Operating Ratio (COR), a measure of profitability, of 87 per cent in the first half. Anything below 100 represents an underwriting profit. In contrast, NU's COR for the first half was 105 per cent.
Henry Engelhardt, the group chief executive, said: "The market is dominated by Royal Bank of Scotland, who have a 35 per cent share, and they certainly haven't moved on price [since Norwich Union's announcement]. Norwich Union can't move the market on its own.
"We're in a far better position than everyone else in the market. Our expenses are a lot less. The market average is 24 per cent, while we have 12 per cent."
The company increased its dividend by 25 per cent to 12.1p for the half, including a special dividend of 3.7p a share. The group will continue to hand back surplus cash to shareholders on a regular basis. Shares fell 1 per cent to 670p yesterday, giving the group a market value of £1.75bn.Reuse content