10th Jan 2023 10:31
(Alliance News) - UK motor insurers are on the "road to recovery", though analysts at Berenberg believe Sabre Insurance will be less likely to revel in it.
The German bank is more bullish on Admiral, its top pick, and FTSE 250-listed Direct Line Insurance Group PLC.
Last year was a tough one for motor insurers. The industry grappled with accelerating claims inflation.
"UK motor insurers suffered in 2022 and the sub-sector became one of the most disliked by investors within the insurance sector. A combination of weak pricing following the pandemic, combined with high inflation, caused margins to compress," Berenberg said.
However, the direction of travel for the industry is now "positive", Berenberg believes.
"We believe claims inflation has remained flat throughout Q4, at approximately 10-12%, and while many of the major headwinds, such as used car prices and supply chain issues, remain in play, we view the risk skewed to the upside," the German bank added.
"Used car prices are more likely to fall than rise and supply chain issues are likely to get better rather than worse, hence inflation is likely to moderate throughout the course of 2023."
Claims inflation will peak in the third quarter of 2023, and ebb thereafter, according to Berenberg.
Admiral remains Berenberg's top-pick in the motor insurance sub-sector, helped by its reserves position.
It also believes the future is bright for Direct Line, predicting it to maintain its dividend policy - one of two key catalysts for the stock. The other is a quota share reinsurance deal for its UK motor arm.
QS reinsurance is a pact which sees insurers and reinsurers share gains and losses on premiums at an agreed-on percentage.
Berenberg is less optimistic about Sabre Insurance, however.
"We continue to be relatively cautious on Sabre as we remain below consensus across all forecasted years, including [around] 20% in 2023. Sabre is more exposed to younger drivers than its peers, where pricing has been weakest. Moreover, we believe the group has the weakest reserving position versus peers," Berenberg added.
It rates Sabre at 'hold', though its two larger peers at 'buy'. Sabre shares were flat at 107.00 pence each in London on Tuesday morning. Direct Line was up 0.5% at 232.45p. Admiral rose 2.8% to 2,270.00p.
By Eric Cunha, Alliance News news editor
Comments and questions to [email protected]
Copyright 2023 Alliance News Ltd. All Rights Reserved.
Related Shares:
AdmiralDirect LineSabre Insur