FTSE falls on poor Chinese and UK manufacturing, but RSA leads insurers higher

Discussion in 'Market News' started by Lily, May 3, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
    Likes Received:
    Motor insurers also roar ahead despite signs of slowdown in rates

    Leading shares have started the shortened trading week in a downbeat mood after weak Chinese manufacturing data raised new concerns about the world’s second largest economy.

    But insurers are bucking the trend. A new survey from the AA showed a small fall in car insurance rates after recent sharp rises, but the organisation believes the upward trend will soon resume.

    According to the AA Insurance, the so-called Shop around rate for comprehensive motor cover reduced by 0.4% and by around 1% for non-comp cover, leaving rates up around 21% and around 15% over the year respectively (with the latter impacted by the increase in the insurance premium tax in the fourth quarter of 2015...for example comprehensive rates were up around 10% in the fourth quarter.

    Although the first quarter of each year is often viewed as the most competitive, as companies attempt to build market share (to coincide with new car registrations), our analysis of the indices implies a fairly even spread of rate increases and reductions in the quarter. The key issue for the industry remains elevated levels of claims frequency and severity, which the rating environment is struggling to keep pace with. Sadly, whiplash claims remain a real problem for the industry despite repeated attempts by the government to address the issue.

    RSA has set out its ambition to close the gap to the best in class players in each of its core markets, UK, Scandinavia and Canada by 2018. While we acknowledge that it is rare for a mid of the pack insurer to become a “best in class” insurer, we do believe RSA has set out a realistic plan to get there. RSA’s ambition is to have a combined ratio of 94% or lower in the UK and Canada, and 85% or below in Scandinavia. We believe there is significant upside even if the company is only partially successful, and we revise our price target of 545p is based on the company on getting half way to its targets. With 19% upside to our revised price target of 545p, coupled with a 3% 2016 yield, we upgrade our rating to overweight.

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