Broker snap: Canaccord ups UK motor insurance targets on improving trends

20th Jan 2014 10:59

Canaccord Genuity has lifted its target prices across the UK motor insurance sector after recent data showed that premium trends began to improve at the end of last year.The Towers Watson/Confused.com UK motor pricing survey released on Friday showed that the quarter-on-quarter decline in premiums improved from 3.8% in the third quarter to just 1.1% in the fourth. "This pricing data fits broadly with our thesis, published in October, that pricing would stabilise in H1 2014 after a 10%+ decline in 2013 and move into positive territory in H2 2014," said Canaccord analysts Ben Cohen and Ming Zhu."The driver for higher prices is deteriorating accident year underwriting results, low investment income and flat to down ancillary income, although reported results remain fairly strong, helped by prior-year reserve releases."The analysts still expect overcapacity in the industry and price comparison distribution to limit the size of an upturn, but said they have now taken a more positive view, raising the forecast for average motor pricing in 2014 from -5% to flat.The broker has lifted its rating for Admiral from 'sell' to 'hold' and raised its target price from 1,160p to 1,400p.The target for Direct Line ('buy') has been raised from 240p to 275p, while the target for esure ('buy') has been lifted from 255p to 305p.However, they added: "We continue to regard the market as extremely competitive, and accident year returns as only marginally profitable, with reported earnings supported by prior-year releases through 2015."BC