Barclays downgrades Hastings, Esure

The bank said UK motor insurers were among the best-performing stocks last year, but it felt there were more miles left in the names as pricing remained above claims inflation.

“We also viewed the larger-than-expected decline in the Ogden discount rate to -0.75% in February 2017 as a positive for the sector as this would prolong the pricing cycle,” it said, adding that it highlighted Hastings and Esure as the prime beneficiaries, with minimal impact to their back books but with the ability to take market share as pricing increases continued.

Following the proposal to cut the Ogden rate from 2.5% to -0.75% on 28 February, all UK motor insurers took reserve charges that impacted 2016 earnings.

Barclays noted that Hastings, Esure and Admiral have rallied after their full-year earnings, and said the stocks are now up with events.

It reiterated its ‘underweight’ rating on Admiral and maintained its ‘equalweight’ on Direct Line. Barclays said Direct Line has lagged the sector over the past 18 months and particularly for the year to date and should benefit from any reversal of the Ogden discount rate.

The bank said RSA Insurance is its best idea among the UK non-life insurers, as it still has benefits from its restructuring to come through while Hastings remains its top pick in UK Motor with the strongest earnings growth at a reasonable multiple.

Barclays kept its price target on Esure at 234p, but upped the target on Hastings to 276p from 247p. Its 337p price target on Direct Line was unchanged.

At 1300 BST, Hastings shares were down 2.4% to 276.10p while Esure shares were down 1% to 238.90p.