Admiral share price: Insurer extends Munich Re underwriting deal until 2018

Shares in Admiral Group (LON:ADM) have extended gains at the opening bell in London today. Admiral’s share price yesterday rose by one percent after the UK insurer said it had extended its underwriting arrangements with Munich Re for its UK car insurance business from the end of 2016 until at least the end of 2018.

Munich Re underwrites 40 percent of Admiral's UK car insurance business, with other reinsurers supporting 35 percent and Admiral retaining the remainder on its books.

“The long-standing partnership allows Admiral to mitigate risk exposure while benefitting from profit commission,” the Cardiff-based FTSE-100 insurer said in a statement. While the cost and contractual terms remain confidential, Admiral “confirms that they provide a slight improvement” to the company from 2017, it added.

According to Nick Johnson, analyst at Numis Securities, the extension should mitigate fears that the British car insurer might need to cut its dividend to increase regulatory capital "if the company encountered reduced reinsurer support".

Johnson opined.

Admiral Group said last month that the number of vehicles on its books had increased by three percent year-on-year to 3.64 million in the third quarter of 2013 with Chief Executive Henry Engelhardt attributing the rise to expansion outside the group’s core UK market (Admiral share price dips as company reports fall in Q3 turnover).

Analysts on Admiral’s stock

Following Admiral’s announcement, analysts at Numis Securities yesterday reiterated their “add” rating on Admiral’s stock with a target price of 1,425p. Last week, Barclays restated their “equal weight” rating with a target price of 1,323p and Citigroup increased its target from 1,215p to 1,220p ($19.97) and maintained a “neutral” rating.

According to Analyst Ratings Network, nine equity analysts have issued a sell rating, seven have issued a hold rating and five have issued a buy rating for Admiral’s shares. The group presently has an average rating of “Hold” and an average consensus target price of 1,192.65p.

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