Admiral Group PLC (LON:ADM) shares fell after JPMorgan downgraded the car insurer to ‘underweight’ from 'neutral’ and cut its target price to 1,900p from 1,980p.
JP Morgan said anticipation of the goverment's U-turn on the Ogden rate cuts and its proposed whiplash reforms will weigh on pricing in motor insurance.
READ: Admiral Group upgraded as Deutsche Bank recalculates after government's Ogden rate rethink
“We downgrade Admiral to ‘underweight’ in part on valuation but also due to our more cautious view on the motor pricing cycle,” it said.
“Admiral has industry-leading margins and leverages its returns through extensive use of quota share reinsurance. In our view, it may be difficult to further improve these margins, while a more competitive motor market could easily lead to some erosion.”
In February the government cut the Odgen rate, used to determine how much compensation is awarded to those who have injuries from a car accident, from 2.5% to -0.75%.
But the government reversed its decision in September following a backlash from insurers, suggesting the discount rate should fall in the range of between 0 and 1%.
READ: Berenberg downgrades Admiral rating to ‘sell’ from ‘hold’, sees ‘challenges ahead’ for the insurer
The government also plans to crackdown on whiplash compensation claims.
Shares in Admiral dropped 5% to 1,832 in morning trading.