UBS Downgrades Admiral Group Amid Concerns Over Rivals’ Margins Catching Up

Admiral Group PLC faced a setback as UBS analysts downgraded the insurer, citing expectations that competitors’ margins would catch up more quickly than anticipated. UBS noted the favorable operational backdrop of increasing UK motor prices and receding inflation. However, the bank expressed the belief that rivals’ margins would narrow the gap faster than previously imagined.

Admiral, which reported a motor insurance margin of 19.1% in the last August half-year results, was downgraded from a ‘buy’ to a ‘neutral’ rating by UBS. The analysts suggested that Admiral’s window of “gaining volumes on better margins” compared to rivals might be closing soon.

While UBS acknowledged the potential for near-term margin growth for Admiral, they emphasized that lower inflation now favors competitors. Direct Line, a rival, reported a motor insurance margin of 10% in the following quarter after Admiral’s last August results.

The bank pointed out that deflation allows peers to achieve more acceptable margins sooner, impacting Admiral’s operational leverage to improving margins. UBS also highlighted Direct Line’s improved capital base, providing investors with more credible alternatives to consider. In response to the downgrade, shares in Admiral fell by 3.4%.


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