Motorists face higher insurance premiums

Motorists face further rises in car insurance premiums during the coming year, one of the country's leading car insurers warned yesterday.

Admiral Insurance's chief executive, Henry Engelhardt, said premiums had risen at about 5 per cent over the past year and predicted that they could increase by 6 per cent over the next 12 months. It follows nearly four years of flat rates between 2002 and 2006.

Mr Engelhardt said rates had been kept artificially low through the early part of the decade because many insurers had budgeted more for claims than they had actually cost, enabling reserves to be released. But he said this could not continue indefinitely. "Prices were really flat between 2002 and 2006 but insurers' costs have increased because of issues such as wage rises. Rises have already started but we expect the increase to be more of a creep than a leap," he said.

Admiral said the headline combined ratio for the car insurance market – a measure of costs and claims paid out over premiums with anything under 100 indicating a profit – stood at 104 per cent. However, the company argued that the reserve releasing pushed this up to more than 110 per cent which it said could not represent "an acceptable return on capital".

Admiral reported a com-bined ratio of 89.7, although that was down on last year's 87 per cent. The figure shows Admiral made £10.30 on every £100 of premium taken in, compared with £13 this time last year, before taking into account the returns from investing premiums.

Mr Engelhardt was speaking as the company, which also owns the price comparison site Confused.com, reported a sharp rise in first-half profits. Pre-tax profits grew to £86.25m from £68.7m on turnover of £178.1m from £151.8m, ahead of City forecasts.

The star was Confused, which reported operating profits of £19.7m compared with £8.7m in the first half of last year. Mr Engelhardt said the company had "no plans" to sell either part or all of the operation.

There is increasing competition from rival price-comparison websites, but the company said it was prepared to take the necessary measures to retain its No 1 position in the market.

Admiral said it would pay a regular interim divi-dend of 10.3p, plus an additional special dividend of 10.3p, in accordance with its policy of retaining only those funds "we need to provide a prudent contingency and support our plans for growth". That is a total increase of 70 per cent on last year.

A £3m share windfall will also be handed out to Admiral's 2,300 staff to reflect the performance of the company, whose shares finished the day up 33p at 893p.