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If you were looking for companies that could not just survive but thrive in the age of pandemic, you might naturally think about technology or healthcare stocks. Or businesses that cashed in on bored lockdown households, like Nintendo which announced this week that profits had surged in the second quarter.

Perhaps you would be less likely to think about Wales’s only FTSE 100-listed company, the household and motor insurance group Admiral. But if any company has seemingly shrugged off the pandemic then this is it. Take a look at Admiral’s share price chart and you’d never know we’re enduring the biggest test of the global economy in decades.

Admiral’s shares stand 7.5% higher than they did at the start of the year, which compares with a mid-teens percentage decline in the value of the FTSE 100 over the same period. Compared with ten years ago, the shares are three times as high. Anyone backing the company’s flotation 15 years ago has enjoyed a five-fold rise in their investment. Please remember past performance is not a reliable indicator of future returns.

Perhaps the decision to hand back £25 to every motor policy holder in the early stages of lockdown might have offered a clue as to the company’s health. Admiral admitted that the stay-at-home order meant that there were far fewer road traffic accidents and so fewer insurance pay-outs - but rather than simply count its higher profits, it handed back at least some of the benefit to its customers.

Some might carp that this was little more than a PR stunt, but it also sent out a clear message to shareholders. We’re doing well and we can afford to keep our customers happy as well as our investors. It also, famously, looks after its staff, by the way, regularly appearing as one of the best places to work in the UK.

Go back a bit further to the full-year results for 2019 and you can see where Admiral’s confidence comes from. Last year it increased profits by 10% to more than £500m for the first time. Over nearly 30 years, the company has grown into a multi-channel, multi-national insurance giant and it has done it with excellent service and good prices (full disclosure: I am a Multi Policy holder with the company but not a shareholder).

So, next week’s interim results will be an interesting test of whether Admiral really can shrug off the pandemic and continue its steady rise.

It’s easy to make a case for it doing so. Insurance is not really a discretionary purchase, especially where your car is concerned, because it is a legal requirement. That makes for very secure revenues for the industry as a whole. The challenge is for individual companies to grab a growing share of the market and to do so at a price that delivers a profit.

And this is where customer service and proposition come in. Most people find buying insurance a bore and will do almost anything not to think about it too hard. A company that makes life easy (for example, by aligning all your household and motor renewal dates so it’s a once-a-year job) is already a step ahead of the opposition.

If it’s easy, you are unlikely to worry so much about squeezing the best price either, so margins can be fatter than at a company you will only put up with if it’s the cheapest on the market.

The other attraction of Admiral for investors, apart from its steadily growing profits, is its ability to pay out a high and sustainable dividend. At a time of across the board cuts in shareholder pay-outs, that is more than usually attractive. Back in 2005, Admiral paid out a 24.6p dividend. Last year, that had grown to 119.3p. At today’s share price of just under £25, that represents a yield of 4.8%. In the environment of lower-for-longer interest rates signalled this week by the Bank of England, that is a compelling reason to look at the shares.

Insurance is a complicated business for outsiders to understand which has always seemed to me a reason to be cautious about investing in the sector. I remember 20 years or so ago a high-flying insurance company called Independent Insurance unexpectedly collapsed leaving its loyal shareholders high and dry. It was a warning that go-go stocks in black-box businesses can be risky, although I should stress that there are no apparent similarities here other than the sector and the popularity of the shares.

Another reason to be reassured is that Warren Buffett, the most cautious of all successful investors, has long been a fan of the insurance business. It represents a key part of his portfolio. And why not? If you understand the underwriting risks well enough and can at least break even on the insurance part of your business, then you are effectively being given free money to invest between the time you take in the premiums and the time you have to pay some of the cash out again to meet claims.

Anyway, we will hear more on Wednesday 12th August. Investors will hope Admiral remains at the head of the fleet.

More on Admiral Group

Five year performance

(%) As at 5 Aug 2015-2016 2016-2017 2017-2018 2018-2019 2019-2020
Admiral Group 57.0 3.7 -3.8 12.8 27.1

Past performance is not a reliable indicator of future returns

Source: FE, total returns as at 5.8.20, in local currency

Important information: Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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