EUR 850.00 For Business Accounts Only

Morningstar | Admiral, a Hyped business based on Reinsurance and Ancillary Business

Admiral is predominantly a U.K. personal lines insurer, mainly in motor and household, but the business model is different from a traditional personal lines insurance. These all feed from its co- and reinsurance relationships. Through these relationships, Admiral generates profit commission on ceded insurance and allows the business to leverage up significantly on ancillary income. For example, for every GBP 100 of premium the business writes, Admiral underwrites less than 30% of this, with co- and reinsurers taking the residual 70% of underwriting risk. Admiral sells ancillary products into the full GBP 100 of the premium income. This makes it a profitable but exposed business model. Other revenue and profit commission account for 40% of net revenue.This is a typically “engineered” business model that investors would see time and again out of private equity. The business was first set up in 1993 and spent its first seven years within Lloyds of London. Teaming up with Barclay’s private equity in 1999, management bought the business in 1999 and entered into these co- and reinsurance relationships with the largest one being held with Munich Re.We see evidence the U.K. underwriting cycle is turning. When the underwriting cycle turns, ancillary profits will come under pressure and investors should view this as leverage.