UBS adjusts ratings on UK motor insurers after Ogden change
UBS adjusted its ratings on UK motor insurers on Friday to reflect changes to the Ogden discount rate used to calculate lump sum payouts for personal injury claims, which was recently cut to -0.75% from 2.5%.
Admiral Group
2,699.00p
16:34 26/04/24
Aviva
463.80p
16:40 26/04/24
esure Group
279.60p
17:00 18/12/18
FTSE 100
8,139.83
17:09 26/04/24
FTSE 250
19,824.16
16:59 26/04/24
FTSE 350
4,470.09
16:59 26/04/24
FTSE All-Share
4,423.59
17:14 26/04/24
Hastings Group Holdings
249.60p
12:13 16/11/20
Insurance (non-life)
3,595.04
16:59 26/04/24
Life Insurance
5,699.63
16:59 26/04/24
RSA Insurance Group Limited
684.20p
16:54 28/05/21
The bank said the reduction ensures primary motor insurers need to increase prices substantially to maintain margins.
"Insurers with lower reinsurance retentions can hold off price increases for longer and take market share in the meantime. As such, our preferred exposures in the sub-sector are those with attractive valuations, strong franchises and lower reinsurance retentions – namely Direct Line, Saga and Hastings."
The bank added that they can afford to delay price increases without adverse margin impact at the expense of those with higher retentions, such as Admiral, Aviva and AXA.
UBS estimates that price hikes of around 15% are needed for UK insurers to offset the impact of the Ogden change and claims inflation.
The bank upped is stance on Direct Line to 'buy' from 'neutral' and RSA Insurance to 'neutral' from 'sell'. It cut Admiral to 'neutral' from 'buy' and initiated coverage of Hastings at 'buy' and Esure at 'neutral'.
"The market is pricing in a significant deterioration in Hastings' margins but given reinsurance protection over the next 12 months and unchanged risk tolerance, we see that as unlikely."
As far as Esure is concerned, it said the growth profile is attractive, but coming from underwriting new segments, which presents some risk.
At 1035 GMT, Direct Line shares were up 0.1% to 336.27p, RSA Insurance was down 0.6% to 588.50p, Admiral was off 1% to 1,973p, Hastings was up 1.9% to 268.10p and Esure was down 0.3% to 235.20p.