Is the Admiral Group in trouble?
With losses increasing to £15.1m for 2011 (up from £12.8m in 2010), Admiral's latest overseas results show that the Group's expansion plans outside of the UK continue to act as a drag on its UK-based motor and insurance aggregator businesses.
Of course, Admiral puts a brave face on these continuing overseas losses by pointing to the 90% jump in the number of vehicles insured. To me, this is just smoke and mirrors as the overall portfolio continues to carry massive underwriting losses - which have now topped £17m - and as is the case in the UK, Admiral continues to rely on ancillary income (£7.6m) to offset such insurance losses.
When an insurer continues to report underwriting losses it suggests that there is something fundamentally wrong with the business model and no amount of ancillary income will ever paper over the cracks.
Given the overseas business's heavy reliance on reinsurance (principally through Munich Re), it is now time for Admiral's management team to get "back to basics", reprice their products and start to generate underwriting profits - before their key reinsurers lose faith in them and reduce their support - or worse still, cut them loose altogether
With a dramatic uplift in its claims reserve provisions in the UK business and the UK government's moves to curb the market's lucrative ancillary income streams, the day of reckoning may now have come for the Admiral Group and it's ambitious management team.