First Read: UK Life Insurance "Feedback from results and Macro today" Ahmed

Research evidence excerpt

First Read: UK Life Insurance "Feedback from results and Macro today" Ahmed

Valuation Method and Risk Statement

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Admiral Group:

Motor insurance is a competitive market, and there could be risk to forecasts if either Admiral

is able to grow faster than expected, or conversely if competition curtails Admiral’s ability to

grow market share in the UK. Growth is also dependent upon the sustainability of rate

increases, and any adverse development could put further risk on forecasts. Our PT is SOTP-

derived, using peer multiples for the UK motor and price comparison businesses, and a DCF

for the more nascent businesses.

Aviva:

Aviva: UK insurers tend to be geared to movements in equity markets. The stock is likely to be

sensitive to expectations regarding volumes and margins in the UK, catastrophe-related losses

in the non-life business or evidence of a sharper downturn in the underwriting cycle. Aviva

also carries significant credit risk in its investment portfolio. Our PT is SOTP derived using a

DCF of capital generation.

Direct Line: UK general insurance companies are subject to uncertainty as to the ultimate cost

of claims. Should there be a structurally lower level of claims severity/frequency then Direct

Line would be a near-term beneficiary. The UK personal motor market has historically been

highly competitive and cyclical. Results in the household book can be significantly affected by

weather-related losses, but if the period is benign then Direct Line earnings will likely beat

expectations. The company is also exposed to regulatory risk and investment risk. Changes in

interest rate, credit spreads and default rates could positively or negatively affect the value of

the bond portfolio. Our PT is SOTP-derived, rolled forward 12 months.

Standard Life plc: