MOTOR insurance group Admiral today said rates rose by an average 12% last year in the largest annual increase for nearly a decade.

The group, which owns brands including Diamond, elephant.co.uk and price comparison site Confused.com, said premiums were rising across the market following a period of minimal increases and to "compensate for claims inflation in recent years".

But there was better news for the group’s 3,500 staff, who were told today they will share out £9 million in bonus shares after Admiral notched up a 7% hike in annual profits.

Admiral will distribute the windfall between its staff - worth an average of more than £2,500 each - following a £215.8 million profits haul in 2009.

Investors will also get a 10% increase in the annual dividend payout after the record result.

Admiral said the cost of car insurance was likely to rise again by a similar amount over 2010 amid the rise in personal injury claims, made easier in recent years by the explosion of ``no win, no fee'' compensation lawyers.

Insurers were also battered by poor returns on premium money invested, which they use to offset losses on insurance business, according to Admiral.

It said that while its insurance business remained profitable, the group was forced to raise rates in line with the market to avoid being swamped by new business.

Admiral added that its average written premium stayed largely the same, at £430, as canny customers shopped around on price comparison sites to get the best deal and as it targeted lower risk business, such as older drivers.

The Cardiff-based firm reported a 15% rise in profits for its UK car insurance business to £206.9 million in 2009 after boosting customer numbers by 17%.

Total group profits set another record, while it surpassed the £1 billion turnover milestone for the first time - with total revenues up 18% to £1.08 billion.

However, Confused.com continued to come under pressure from a highly competitive price comparison market.

The site’s earnings remained largely flat on 2008 at £25.7 million, although its profit margin was lower.

Henry Engelhardt, group chief executive, said: "2009 was another year of fierce competition among the four key players in UK price comparison.

"Despite having to spend aggressively on media to defend its market position, Confused delivered a profit in line with 2008."

"Experience in the early part of 2010 provides no evidence that the tremendous levels of media activity from the major players will diminish in the near future."

Admiral pulled plans for a stock market flotation of Confused.com in 2007, but has instead focused on overseas expansion, rolling out price comparison sites in Spain, France and Italy since last March.

Mr Engelhardt said: "It’s not all plain sailing and setting up businesses outside the UK has its challenges; it takes time and some money to build growing, profitable businesses.

"However, if I could fast forward 10 years I’d expect to see these businesses as key drivers of our profit growth."

The firm also confirmed today it was looking to launch a car insurance offering in France.

Shares slipped 3% today despite the record profits, with investors sealing in profits after recent strong gains.

Numis Securities analysts said: "Admiral’s valuation is well supported by accelerating earnings growth.

"The UK business is thriving in the current environment and the overseas initiatives appear to be making steady progress towards becoming the driver of long-term growth."