Key government policy dampens enthusiasm for this insurer

The controversial change to the Ogden discount rate, which is used in determining personal injury damages awards, continues to be a thorn in the side of the insurance sector.

Half-year results from Admiral, which owns Confused.com and insurance brands Elephant and Diamond, were overshadowed by the presence of further costs from the Ogden rate being carried into 2017. This was despite the company having delayed its full-year results in March to take into account the decision by Lord Chancellor Liz Truss to slash the rate from 2.5% to -0.75%.

As a result, Admiral reported "a marginal increase in profitability" of 2% to £193 million for the half year Wednesday. This was offset by a more material increase in the dividend of 10% to 56p a share.

The total bill to Admiral from the Ogden rate remains in line with earlier estimates at £150 million. The industry is now waiting to hear if the government will make changes to the formula following a consultation process undertaken this summer.

Admiral said sustained rate increases seen in the UK car insurance market during 2016 continued into the first six months of 2017, particularly in the second quarter following the change in the Ogden discount rate.

Admiral increased its rates in December 2016 in advance of the Ogden change and has continued to do so throughout the first half.

Shares have rallied since the Ogden blow in March, but the dividend performance wasn't enough to lift the neutral rating of UBS analysts, who have a price target of 2,050p on the FTSE 100 stock, just 3p above the price it closed at. It had fallen as much as 9% to 1,984p initially, meeting a resistance point at that level and bouncing.

They are encouraged by the performance of the company's US price comparison site but said headwinds persisted in key UK markets.

They said: "We see underlying margin deterioration in the core UK motor division as the key negative in the result. In addition, pricing increases appear weaker then peers at headline level. These factors are offset by better results in the US."

Earnings per share (EPS) increased by 3% to 57.3p and was well ahead of consensus of 55.9p after being boosted by a lower tax charge and higher-than-expected reserve releases.

The group's dividend policy is to pay 65% of post-tax profits as a normal dividend and to pay a further special dividend comprising earnings not required to be held in the group for solvency or buffers.

Today's total interim dividend of 56p per share included a special dividend of 18.1p per share.

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