Admiral cuts dividend for first time since float

Admiral's annual profits have fallen for the first time since the UK-focused motor insurer launched on the stock exchange a decade ago in another sign of pricing pressure in the industry.

The Cardiff-based company is to reduce the dividend payout that makes it the second-highest yielding stock in the FTSE 100, also for the first time since the listing.

Henry Engelhardt, founder and chief executive - whose 12 per cent stake in the business is worth £500m - said: "In the past, the UK business seemed immune to market cyclicality. But now we are just too big to be immune."

Competitors were behaving "irrationally" by aggressively cutting prices, he said. "The rest of the world is left with a choice: be rational in response, which means you lose a lot of business, or join the ranks of the irrational and sacrifice profits." Admiral maintained its UK customer count steady at about 3m last year. Group turnover dipped 3 per cent to £1.97bn.

The insurer's profits were supported by £144m worth of reserve releases - up from £94m a year ago. Even so, pre-tax profits at the company - chaired by Alastair Lyons, who is standing aside from the boards of Serco, after a series of profit warnings, and Towergate, after it came close to running out of cash - fell from £370m in 2013 to £351m last year.

The results were still better than expected and shares rallied 2.7 per cent to £14.99.

David Stevens, chief operating officer, said the UK car insurance industry was "coming towards the end of the longest ever period for price reductions".

He expected that cheaper premiums would probably start to become more expensive this year as lower fuel costs lead to more driving, and hence more accidents.

This should give insurers scope to increase premiums, but brings with it the risk of higher claims costs. Although government reforms caused whiplash claims to fall last year, Mr Stevens said Admiral was "seeing some evidence that the claims are climbing back up".

Earnings were also dented by investment in Compare.com - Admiral's effort to bring a Europe-style price comparison website to the US. "It's a sad thing to see those record profits go but at the same time it's a great thing to see us investing in the long-term future of our company," Mr Engelhardt said.

Admiral pays out nearly all its profits as a dividend. A final dividend of 49p a share gives a total payout for the year of 98.4p, down slightly from 99.5p the year before. It is payable from diluted earnings per share of 102.8p (104.4p).

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