Business

AA prepares for strategic report after solid performance from insurance unit

A solid performance from its insurance services division and scheduling an earlier than expected update on its strategic review have impressed AA investors

BREAKDOWN recovery firm the AA impressed investors after reporting a solid performance from its insurance services division and scheduling an earlier than expected update on its strategic review.

It 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 around 70,000," 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.

AA was up nearly 2.2 per cent at 136.25p per share in morning trading before paring back to trade just 0.2 per cent higher at 133.65p.

The trading update comes after a difficult year for the firm, having sacked its executive chairman Bob Mackenzie for gross misconduct last summer.

It came hot on the heels of a failed tie-up between its insurance division and Hastings Group.

Reports linked Mr Mackenzie's dismissal to the attempted spin-off of AA's insurance arm, which led to a physical clash between him and insurance chief Michael Lloyd, as well as an earlier altercation in a public place with someone not thought to be an employee of the company.

AA has since called on Mr Mackenzie to pay back more than £1.2 million, accounting for annual bonuses stretching from 2016 to 2017.

According to the company's annual report, the former chairman was paid bonuses worth £707,000 in 2016 and £514,000 in 2017.

The company last month said it was "astonished" at news that Mr Mackenzie was pushing for an employment tribunal hearing.

It is understood the case is still ongoing.

The firm also embarked on a top-level shake-up, having announced in September it had appointed Simon Breakwell as permanent chief executive and John Leach as chairman.

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