* Pretax profit down 25 pct after discount rate cut
* Underlying profit performance a slight beat
* Final dividend of 51.5 pence; shares 0.8 pct lower
(Adds detail, CFO quote, analyst comment, share price)
By Simon Jessop
LONDON, March 8 Admiral's pretax profit
fell by 25 percent in 2016 after the car insurer took most of
the hit from a change in the discount rate used to calculate
personal injury payouts.
Last week's surprise reduction to the rate, which determines
the scale of lump sum payouts to claimants, from 2.5 percent to
minus 0.75 percent, has also hit other insurers, including
The government's decision to make the change to better
reflect the interest-rate environment, was "eccentric" as it did
not reflect how people invested their payments, Admiral Chief
Financial Officer Geraint Jones told Reuters.
"We fully support a rate that gives people fair
compensation... we think setting a rate of minus 0.75 ignores
the reality of what people actually do with their compensation,
which is not to invest in index-linked gilts," he said.
"The unfortunate consequence of this is that customers will
pay more for their car insurance... I expect the consultation
that the government will launch will look at that in some detail
and hopefully come to a less eccentric conclusion."
As a result of the rate change, which impacts ongoing
claims, Admiral took the bulk of the pretax profit hit in its
2016 results, resulting in it falling to 284.3 million pounds
($346.99 million) from 376.8 million pounds in 2015.
Jones said after Wednesday's results that the remaining hit
to profits, of around 60-70 million pounds, net of tax, would be
spread over the next 3-5 years.
Stripping out the impact of the discount rate cut, the firm
said profit was up 3 percent, boosted by strong revenue growth
across its business. Revenue was up 22 percent to 2.6 billion
pounds ($3.17 billion).
The company said it would pay a final dividend of 51.5
pence, made up of a normal dividend of 15 pence per share and a
special dividend of 36.5 pence.
Bernstein analysts said the underlying results were slightly
ahead of forecasts, including in the firm's UK car insurance
market, which despite the firm diversifying into other countries
and products, remains Admiral's main source of revenue.
"Today's results do not materially affect our investment
thesis: we continue to rate Admiral as Market-Perform with a
target price of 1,915 pence," they wrote in a note to clients.
Shares in Admiral were 0.8 percent lower at 0842 GMT,
underperforming the broader FTSE 100.
($1 = 0.8214 pounds)
(Editing by Maiya Keidan and Alexander Smith)