with Michael Faulkner
With warnings that the UK economy could move into recession in the coming year, insurers will be keeping close tabs on claims costs. Claims traditionally rise during periods of economic downturn, along with fraudulent claims and incidents of arson and burglary. Counter intuitively, motor insurance is one area where economic slowdown benefits insurers, as Citigroup pointed out this week. Motorists tend to drive less and, in theory, claims frequency falls. Good news then for the likes of Chaucer, which is focusing more of its efforts on the UK motor market. The Lloyd’s insurer this week reported an encouraging start to the year’s trading which saw its motor book grow by over 6%. Chief executive Ewen Gilmour is looking for rate increases of over 7% in the UK motor market to justify the company’s allocation of additional capacity to the sector and offset the expected falling rates in other lines of business.
Chaucer’s share price has been fallen by 15% since April, not helped by a poor performing investment portfolio. But its stock looked to be turning a corner, rising to 91.25p before falling to 90.25. Numis this week reiterated its ‘buy’ recommendation and target price of 110p.
Motor giant Admiral continued to climb this week. It stock has taken a battering over the past couple of months, falling from 1100p at the end 2007, amid warnings from chief executive Henry Engelhardt about motor rates. An upbeat trading update for the year ahead from Engelhardt turned the stock’s fortunes at the end of last month, which put a spring into its share price. Shares in Admiral rose to nearly 910p before falling back to 868p, up 1.4% for the week.
Brit Insurance Holdings’ shares took a roller coaster ride this week as the group reported that gross written premiums were up 5.8% to £528.2m for the four months to 30 April 2008, equating to a 4.5% increase at constant exchange rates, despite falling rates across all lines of business. There were some encouraging signs for the UK market. Brit’s analysis appeared to suggest that rate decreases across its UK lines of business were beginning to slow. Commercial motor rates showed continued signs of improvement. Brit Insurance Holdings chief executive Dane Douetil said: “We have seen continued improvement in our motor classes and continue to believe that this year should see the bottom of the UK underwriting cycle.” After falling to 216p during the week, shares in Brit recovered to 229p.