UBS has upgraded Admiral Group PLC (LON:ADM) after first-half results showed the core UK motor insurance business performing better than had been predicted.
While the UK motor pricing and claims inflation backdrop “remains challenging”, the Swiss bank reckons Admiral is “proving more resilient than expected under testing conditions” with the current year loss ratio down two percentage points versus a predicted four and reserves also developing more favourably on prior years.
With Admiral saying it raised UK motor prices by "low to mid-single digits”, analysts at the Swiss bank suspect pricing is running at 3-4%, with claims inflation around 7%, “with risks this trends higher”.
“Whilst we still expect margin erosion from here, on our updated estimates this is now coming from a better starting point,” UBS said in a note to clients on Tuesday, noting that improved bodily injury trends could reverse some of last year’s loss ratio pressure.
For the full year, the bank's earnings per share estimate has been increased 7% , with outer years rising between 1% and 4% on better UK motor.
With no downside seen to consensus earnings, UBS has removed its ‘sell’ rating and moved to ‘neutral’ with the price target nudged up 75p to 2,075p.