Pre-tax profits at UK insurance group Admiral dropped 25 per cent in 2016, as the changes to the rules governing compensation for serious injuries cost it more than £100m.
Admiral estimated that the total cost of the changes will be around £150m, with £105m recognised as a charge in its 2016 results.
As such, pre-tax profits at the group fell to £284.3m after the impact of changes to the so-called Ogden rate is included, compared to a £376.8m profit in 2015. Excluding the impact of the changes, profits would have risen 3 per cent to £389.7m.
David Stevens, the new Admiral chief executive, said he was confident about the underlying health of the business:
My first full year as chief executive, and after 25 years of almost uninterrupted profit growth under my predecessor, profits are down a quarter! Not exactly a flying start!
On the other hand our ability to grow our businesses rapidly, both in the UK and overseas, and to absorb the shock of an eccentric government decision on discount rates… is a tribute to the health of the business and resilience of our model.
At a statutory level profits fell 24 per cent, to £278.4m, despite a 13 per cent increase in revenues to £1.02bn and 16 per cent increase in total customers.
The rule changes, announced last week, will mean victims of UK road accidents will receive far higher compensation payouts, and have already led rival UK insurer Direct Line to cancel plans to pay a special dividend.
The company said the likelihood that higher costs will be passed on to consumers in the form of higher insurance premiums means the changes will have little impact on its profits over the longer term.
The group anticipates that it UK market pricing adjusts future premiums to reflect the lower Ogden rate, there will be no significant impact on future business and its profitability after the change.
Admiral also said it is working on plans to protect its businesses from the potential impact of Brexit. The company currently operates three insurers and two comparison businesses which benefit from passporting arrangements with continental Europe, and said “there is clearly a risk we lose access to these markets via the passporting mechanism”.
Admiral chief financial officer Geraint Jones said:
We are planning for potential outcomes and expect to be able to establish new entities and/or arrangements which should result in minimal disruption to our businesses and customers in those markets.
Admiral’s management has undergone a series of changes over the past year. Mr Stevens took over as chief executive from founder Henry Engelhardt last year, and earlier this month it announced that former Direct Line boss Annette Court will take over as chairman in April.