Admiral on course to overtake Direct Line as the UK's largest private motor insurer
Admiral is on target to grow its market share from 10% to 14% by 2015, analyst Jefferies says.
The Cardiff-based insurer has already grown its market share from 7% (2009) to 10% last year.
The growth would see Admiral’s combined operating ratio advantage over its competitors decline from 23 points to 12 points by 2015, Jeffries says.
In the note, called ‘Sailing into the unknown”, analyst James Shuck, recommended holding the stock, and fired off a note of caution for 2011.
He said: “Having been the standout insurance stock of 2010, Admiral shares have now paused for breath and are flat on the year to date relative to Eurostoxx.
“Recent results on 2 March confirmed very strong growth in UK private motor (policy count +32%) with no obvious sign of margin erosion.
“However, although still impressive, we do believe that loss ratios are deteriorating slightly on an underlying basis.
“The bulls are pointing to a 7pps expected improvement in the 2011 loss ratio as earned premium feeds through, although we are not so sure. Greater uncertainty may hold back the recognition of future reserve redundancy in our view.
“The strong growth of 2010/11 has significantly increased Admiral’s exposure to the development of these years and we estimate 30% earnings upside/downside based on a 3pp variance in ultimate loss ratios.
“Pushing against this is that consensus 2011 estimates still look 10% too low to us, given the expected strong pick up in profit commission.”
According to EMB, Direct Line had the highest market share in 2009 with 12.9% of the market.
Admiral’s growth to 14% of the market by 2015 would probably see it overtake Direct Line as the UK's largest private motor insurer.
