AA motors ahead with solid performance from insurance unit

PA library photo of AA patrolman
PA library photo of AA patrolman
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AA has impressed investors after reporting a solid performance from its insurance services division and scheduling an earlier than expected update on its strategic review.

The breakdown recovery and car insurance firm has brought forward a market update on its review - first announced in September - to February 21 as it confirmed that underlying earnings would meet forecasts of £390 million to £395 million for the year to January 31.

The company said its insurance services business “continues to perform well”, having seen the volume of motor policies jump 6 per cent to 629,000, which helped offset a 5 per cent drop in home policies to 818,000.

New members for its roadside assistance arm increased 7 per cent though retention was largely flat at 82 per cent - after passing on insurance premium tax increases and costs related to changes in regulation to customers.

AA said the cancellation of its free roadside membership service to its insurance customers in December 2015 resulted in a near 1 per cent drop in paid members to 3.29 million.

“Therefore from December 2016 to December 2017, we no longer had this pipeline of free-to-paid conversion. This represents an impact on paid membership of c70,000,” AA said in its trading update.

The number of customer breakdowns handled rose by 1 per cent to around 3.68 million, with AA incurring higher costs after using third parties to supplement its own services.

In what may be a glimpse into the content of its strategic review, AA said retention rates could benefit from increased use of its breakdown services.

The trading update added: “The AA continues to build on its leadership position in digital mobile platforms, including the AA breakdown app.

“More than 1 million members are now registered for the app and it is used in c30 per cent of the breakdowns that we service.

“In August 2017, we successfully launched Car Genie, our connected car technology.

“Where installed, Car Genie has demonstrated a capability to predict up to one third of breakdowns.”

The statement added: “The business has continued to generate healthy levels of cash. As a result of the refinancing in July 2017, we further reduced the cost of borrowings and extended the average maturity of our debt. We have no near-term refinancing requirements.”

AA was up nearly 2.2 per cent at 136.25p per share in morning trading.

Liberum analysts said the strategy update “should add flesh to the bones”, reiterating their “Buy” rating on the stock.

In September last year, the AA released its half year results, which revealed that pre-tax profits rose 67 per cent to £80m in the six months to July 31.

The AA was formed in 1905 by a group of motoring enthusiasts. By 1950 it had grown to one million members.

In 1973, it launched AA Relay, which guaranteed to transport any seriously broken-down vehicle – together with driver, passenger, luggage and trailer or caravan – to any destination in Britain.

Three years ago, the AA achieved a Premium Listing on the London Stock Exchange.