Overall European insurance sector was ‘resilient’ in 2013, according to Berenberg analysts

Direct Line Group is better able to cope with falls in personal lines rates than rival insurer Admiral, according to analysts at stockbroker Berenberg.

In a research report on European insurance released this morning, Berenberg analysts described Direct Line as “a better way to play the UK non-life space” for investors than Admiral.

The report said: “The market is seeing considerable pressure on pricing in both the home and motor insurance lines. Direct Line is likely to be less affected by this.”

Berenberg expects Direct Line to weather price cutting better than Admiral for three reasons: it only derives 62% of its total premium from home and motor business, it is still seeing the benefits of earlier operational improvements, and there is potential for Direct Line to improve its investment income by investing in longer-duration bonds.

In addition, the Berenberg analysts noted that, despite these positive factors, Direct Line trades at at almost a five percentage point discount to Admiral, which they said make Direct Line’s valuation attractive.

Overall, Berenberg said it remained positive about the European insurance industry. The report said: “The sector has remained resilient in the face of a difficult environment and our base case is that the macro environment can now gradually improve and the yield curve can gradually steepen. This lends support to a positive medium-term view.”

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