Broker snap: Admiral's Munich Re extension should ease dividend fears, says Numis

9th Dec 2013 09:18

Numis Securities has reiterated its 'add' rating and 1,425p target price for Admiral following the insurance group's announcement that it has extended its underwriting agreement with Munich Re.London-listed Admiral said on Monday that it has renewed its reinsurance contract with the German firm from 2016 to at least the end of 2018 and noted a "slight improvement" in cost and contractual terms.Munich Re currently underwrites 40% of Admiral's UK car insurance business, with other reinsurers supporting 35% and Admiral retaining 25% on its books, Numis said."After many years of partnership with Munich Re, renewal of the co-insurance contract is arguably something of a formality, but improved economics for the outer years is a fractional positive for Admiral," said analyst Nick Johnson.He said that the extension should also ease fears that Admiral might need to reduce its dividend to increase regulatory capital "if the company encountered reduced reinsurer support".Johnson added: "We are bullish on the shares given our view that excess reserves will provide strong earnings and dividend support during the cyclical downturn, with attractive longer-term International and UK growth prospects undervalued in the current rating."The stock was 0.41% higher at 1,211p by 10:11.BC