JPMorgan names Esure as top non-life pick, upgrades Direct Line

28th May 2015 10:08

Non-life insurers in the UK are currently struggling with tough conditions, though things should improve as motor pricing picks up, according to JPMorgan Cazenove.JPMorgan named Esure as its top pick with an 'overweight' rating, and upgraded Direct Line from 'neutral' to 'overweight'.It said that the risk-reward balance at the two companies was now positive due to anticipated improvements in UK motor pricing and attractive stock valuations.The broker raised its target price for Esure from 280p to 299p, and lifted its target for Direct Line from 240p to 349p.While the sector's profit drivers - underwriting, investment income and ancillary income - are all under pressure, the broker said: "As underwriting and ancillary income are highly geared to a rising pricing cycle and increasing volumes, any hint around rising pricing would be good for the pure-play UK motor insurers such as Esure, Admiral and Direct Line and we believe that pricing cycle in UK motor should improve over next few quarters."JPMorgan said that UK motor insurance rates are now down 30% from peak to trough and the majority of insurers are now raising prices. Claims inflation is higher and pricing increases are necessary to offset that impact, it said.As for others in the sector, JPMorgan rated RSA and Saga as 'neutral', saying they are trading at fair-value multiples with limited sensitivity to rising UK motor pricing and relatively low dividend yields.Admiral, meanwhile, is rated 'underweight' due to its "expensive" valuation.Direct Line was trading 1.3% higher at 335.4p on Thuesrday morning.