Performance Review of Two FTSE Listed Insurance Stocks: Admiral Group & Direct Line Insurance Group

Summary

  • Admiral Group provided motor insurance rebate of close to £110 million to existing motor insurance customers in H1 FY2020.
  • Admiral Group's turnover increased by 2 percent year on year, excluding the impact of the premium rebate in H1 FY2020.
  • Admiral Group had total UK Insurance customers close 5.58 million in H1 FY2020.
  • Direct Line Insurance Group sold 14.6 million policies in H1 FY2020.
  • Direct Line Insurance Group earned a gross written premium of £1,580.8 million in H1 FY2020.
  • Direct Line Insurance Group's Motor insurance division operating profit improved due to fewer claims following covid-19 restrictions.

Admiral Group PLC (LON: ADM) & Direct Line Insurance Group PLC (DLG) are two insurance stocks. Both ADM and DLG have a dividend yield of around 4.47 percent and 7.11 percent, respectively. Shares of ADM and DLG were up by around 26.03 percent and 11.77 percent, respectively based on 1-year performance. Shares of ADM and DLG were up by around 1.20 percent and 1.32 percent, respectively from the previous closing price (as on 24 August 2020, before the market close at 12:30 PM GMT+1).

Admiral Group PLC (LON: ADM) - Announced the interim dividend of 70.5 pence per share

Admiral Group PLC is a UK based insurance group engaged in the business of home, car and travel insurance. Some of the key brands under the portfolio include Homebrella, Qualitas Auto, Admiral Solution and Compare.com. Admiral Group is listed on the FTSE 100 index.

H1 FY2020 results (ended 30 June 2020) as reported on 12 August 2020

(Source: Group website)

In H1 FY20, the Group reported a turnover of £1,689.6 million, which was lower by 4.0 percent year on year from £1,756.2 million a year ago. The turnover was affected due to the pandemic and stay at home premium refund. The Group announced a premium refund of £25 per vehicle for existing motor insurance customers that amounted close to £110 million in H1 FY2020. The turnover increased by 2 percent year on year, excluding the impact of the premium rebate. The total premiums written were £1,399.2 million, and net earned premium was £347.2 million in H1 FY20. The Group reported profit before tax of £286.1 million, which improved from £218.2 million in H1 FY19. As on 30 June 2020, Admiral Group had cash of £396.3 million. It announced the interim dividend of 70.5 pence per share that included 55.0 pence per share of normal dividend and 15.5 pence per share of a special dividend. Loss ratio that is the ratio of claims earned by net earned premium was 54.7 percent in H1 FY20 that was lower than the ratio of 69.1 percent in H1 FY19. Expense ratio that is the net operating expense to net earned premium increased from 23.2 percent in H1 FY19 to 28.3 percent in H1 FY20.

Performance by Division in H1 FY2020

The UK Insurance division reported a turnover of £1,248.4 million in H1 FY20, which was lower than £1,338.8 million reported a year ago. International Insurance segment turnover increased from £260.1 million in H1 FY19 to £319.5 million in H1 FY20.

Key Performance Indicators in the UK business division for H1 FY2020

In H1 FY20, a total of 4.42 million vehicles were insured that increased from 4.33 million vehicles insured in H1 FY19. 1.07 million households were insured in H1 FY20 against 0.92 million households insured in H1 FY19. The Group sold 0.09 million travel insurance in H1 FY20. The total UK insurance customers were 5.58 million in H1 FY20.

Share Price Performance Analysis

1-Year Chart as on August-24-2020, before the market close (Source: Refinitiv, Thomson Reuters)

Admiral Group PLC's shares were trading at GBX 2,698.00 and were up by close to 1.20 percent against the previous closing price (as on 24 August 2020, before the market close at 12:30 PM GMT+1). ADM's 52-week High and Low were GBX 2,758.00 and GBX 1,858.50, respectively. Admiral Group had a market capitalization of around £7.84 billion.

Business Outlook

The Group has experienced the shift towards the digital channel due to the current covid-19 situation. The shift of customer contact channel poses as an opportunity for wider online distribution of the products. The volatile economic situation is a key challenge as it is impacting the loans and investments. The Group expects the future trading conditions to be uncertain. It expects the loan balance to be in the range of £500 to £600 million in 2021.

Direct Line Insurance Group PLC (DLG) – Focused on digital improvement to meet changing customer demand

Direct Line Insurance Group PLC is a UK based insurance group that provides retail and corporate insurance products. The Group categorizes business under Motor insurance, Home insurance and Commercial insurance segment. Direct Line Insurance Group is listed on the FTSE 250 index.

H1 FY2020 results (ended 30 June 2020) as reported on 4 August 2020

(Source: Group website)

In H1 FY20, the Group reported gross written premium of £1,580.8 million, which increased by 0.4 percent year on year from £1,575.1 million in H1 FY19. The owned brand gross written premium was £1,090.3 million that increased by 1.2 percent year on year. In-force policies declined by 1.7 percent year on year to 14.6 million in H1 FY20 from 14.8 million policies a year ago. Direct own brand in-force policies increased by 2.0 percent year on year to 7.3 million in H1 FY20. Operating profit during the reported period declined by 3.4 percent year on year to £264.9 million in H1 FY20 from £274.3 million a year ago. The Group earned profit before tax of £236.4 million in H1 FY20. Direct Line Insurance announced the interim dividend of 7.4 pence per share and a special dividend of 14.4 pence per share. As on 30 June 2020, the Group had solvency capital ratio of 192 percent after the dividend. The Group started initiatives of close to £80 to £90 million to support the customers and staff, and it is planned to be invested in 2020.

Business Performance by Activity in H1 FY2020

The operating profit of the Motor insurance division increased to £220.5 million in H1 FY20 from £153.8 million in H1 FY19. The operating profit improved significantly due to fewer claims following covid-19 restrictions. The claims were lowest in April 2020, and they have increased every month since then. The operating profit of the Home insurance division was £35.3 million in H1 FY20 that was lower than £71.1 million in H1 FY19 mainly due to storms and reduction in prior year releases. The Commercial division that includes NIG and Commercial direct owned brands reported an operating profit of £25.3 million in H1 FY20 that declined from £31.9 million due to losses related to weather events.

Share Price Performance Analysis

1-Year Chart as on August-24-2020, before the market close (Source: Refinitiv, Thomson Reuters)

Direct Line Insurance Group PLC's shares were trading at GBX 307.90 and were up by close to 1.32 percent against the previous closing price (as on 24 August 2020, before the market close at 12:30 PM GMT+1). DLG's 52-week High and Low were GBX 339.92 and GBX 215.83, respectively. Direct Line Insurance Group had a market capitalization of around £4.15 billion.

Business Outlook

The Group would invest in technology in H2 FY20, and it would launch Direct Line and Churchill motor insurance. It has a target expense ratio of 20 percent for 2023. Direct Line Insurance Group has witnessed a shift in the consumer demand due to the covid-19, and more customers have moved toward digitization and online channels. It is focusing on personalization and flexibility of products to cater to the changing demand of customers.

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