EUR 850.00 For Business Accounts Only

Morningstar | At First Glance Admiral Is Highly Profitable, but This Is Leveraged Off Reinsurance Relationships

Admiral is a personal lines motor insurer with a few differences. The business was set up in 1993, spending its first seven years in Lloyds of London. It then went through a management buyout in 1999, teaming up with Barclay’s Private Equity. As part of this MBO, it entered into what have been successful coinsurance and reinsurance relationships. These have allowed the business to operate with what looks like a very capital-light business model, and we also think these have enabled the business to grow by using these reinsurers’ balance sheets. Admiral now takes about 22% of underwritten risk, with Munich Re being the main external supplier at 40% going forward.Though Admiral started out as a slightly specialised personal lines motor insurer, it has expanded into more commoditised areas of general personal lines insurance. Its main brand, Admiral, was set up in 1993 to mainly target consumers that pay higher-than-average premiums, such as drivers under the age of 35 and those who live in big city areas. Diamond was a brand the firm set up to cater to female drivers, and the business also set up Bell to write policies for low- or no-claims-bonus motorists. However, as the business has grown, it has expanded to a more commoditised general insurer. Admiral was also one of the instigators of price-comparison websites, setting up Confused.com in 2002. This has provided it with a platform to sell third-party insurance ancillary products, such as windscreen cover, through this channel.International expansion and the price-comparison business have in our view been detrimental to the business overall, and the latter has also been detrimental to the industry. Overseas markets are very hard to crack. In general, they require years of losses, until the business builds enough scale that it can become more selective in its underwriting. This has not yet happened in many of Admiral’s international markets, and on the whole, we believe Admiral would best serve its shareholders by closing down these units.