RBC Capital upgrades Admiral to 'sector perform'

RBC Capital Markets upped its stance on insurer Admiral to ‘sector perform’ from ‘underperform’ and bumped the price target up to 1,925p from 1,650p.

The bank said it was updating its estimates following the full-year 2016 results. In 2017 and 2018, its earnings per share forecasts rise by 8.5% on average as it reckons Admiral will achieve higher premium growth and profitability in the UK Motor business.

RBC also said it expects the Ogden discount rate used to calculate lump sum payouts for personal injuries will ultimately increase, which will boost Admiral's solvency position.

The bank noted that in her decision on the Ogden discount rate review, Lord Chancellor Liz Truss said that a consultation would take place around Easter 2017 to consider whether the current methodology in setting the discount rate is appropriate.

“We see potential for the Ogden rate to rise following the consultation. From our analysis, at 0% discount rate, Admiral’s FY16 Solvency II ratio will improve by 15%pts from 212% to 227%. Looking ahead to FY17E, we expect a Solvency II ratio of 241% (pre-dividend), which would improve to 258% were the Ogden rate revised to 0%.”

Earlier this month, Admiral reported that its full-year profits fell by a quarter due to the government's changes to the Ogden rate, though the non-life insurer's hefty dividend was held steady as underlying profits edged higher.

The upgrade from RBC came as the government on Thursday unveiled its consultation into the future of the discount rate for personal injury payouts after insurers were forced to make large write-downs against future claims.

In a written parliamentary statement, Truss said the consultation would look at whether the rate should in future be set by an independent body.

She added that it would investigate whether more frequent reviews would improve predictability and certainty for all parties; and whether the methodology – which in effect assumes that claimants would invest only in virtually risk-free index-linked gilts - was “appropriate for the future”.

At 1400 BST, the shares were up 0.9% to 1,993p.