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By Chris Thomas and Muvija M
(Reuters) - British motor insurer Admiral said on Thursday an expected rise in claims when lockdowns ease and people start driving more would increase its loss ratio this year, with the warning eclipsing a 20% jump in 2020 earnings.
Motor insurers have been a bright spot for the insurance sector, which is facing billions of dollars in pandemic-linked claims, including for business interruptions and event cancellations.
Admiral's pre-tax profit surged to 608.2 million pounds for the year ended Dec. 31 as it settled fewer claims for accidents and car repairs, with coronavirus restrictions keeping people at home and off the roads.
But a global vaccination drive means that economies will begin to open up, with a increase in essential journeys and leisure trips.
Admiral Chief Executive Milena Mondini de Focatiis told Reuters the insurer expected to return to a normal level of claims frequency in the next few months, with the company saying its 2021 loss ratio - the amount it spends on claims compared to how much it earns on premiums - will be higher than last year's.
Shares fell 2.3% to 30.75 pounds on the UK blue-chip index by 1138 GMT.
The company added that the impact of discounted policies written in 2020 will eat into the premiums it earns this year.
Before the health crisis, the industry was struggling with stiff competition and high costs associated with car repairs, while a 2019 regulatory change in a rate used to calculate compensation for personal injuries forced companies to make larger lump sum payments for such claims.
Admiral, which had reported strong interim results in August when it also paid a special dividend, proposed a final dividend of 86 pence per share, a 12% increase from a year earlier.
Rival Direct Line, Britain's largest motor insurer, is due to report 2020 results next week.
(Reporting by Muvija M and Chris Thomas in Bengaluru; Editing by Rashmi Aich, Kirsten Donovan)