Direct Line Insurance Group Plc (DLG) and Admiral Group Plc (ADM) posted lower profit and sales respectively in the third quarter as falling investment returns and decreasing premiums squeezed U.K. auto insurers.
Direct Line, the country’s biggest home and motor insurer, said in a statement today that operating profit dropped 4 percent from the year-earlier quarter to 123.7 million pounds ($200 million). Admiral, which insures 3.6 million British vehicles, said revenue dropped 2 percent to 570 million pounds in a separate statement.
“Against the backdrop of a competitive market and subdued investment returns, we continue to focus on disciplined pricing and underwriting,” Paul Geddes, Direct Line’s chief executive officer, said in the insurer’s statement.
Soaring claims from personal injuries such as whiplash has meant the U.K. motor insurance market hasn’t made an underwriting profit for about 15 years and relies on other income, such as investment returns, according to the Association of British Insurers. Following a 40 percent rise in premiums to compensate for such costs between 2010 and 2011, rates are beginning to fall, further squeezing profits, Admiral said.
“The U.K. car insurance market is cyclical and we are in the softer part of the cycle, with premium rates coming down,” said Henry Engelhardt, Admiral’s CEO. “We believe that the sensible strategy in this part of the cycle is to slow our rate of growth.”
Admiral fell 1.2 percent to 1128 pence as of 8:03 a.m. in London. It’s still the best performer in the nine-member FTSE ASX Nonlife Insurance Index (FAINSU) this year, rising 38 percent, compared with the index’s 20 percent climb, as 2011 claims costs turned out to be less than some analysts had expected.
Direct Line shares were unchanged. It’s up 13 percent to 199 pence a share following its initial public offering on Oct. 11, when it was spun out of Royal Bank of Scotland Group Plc.
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