LONDON (Alliance News) - JPMorgan is lowering its profit forecast Hastings' for next year due to a reduced loss ratio.
Shares in the FTSE 250-listed insurer were down 3.4% at 248.20 pence each. Year-to-date, Hastings is down 21%.
JPMorgan holds a Neutral rating for Hastings but lowered its price target to 285p from 315p.
The American investment bank expects Hastings' pretax profit for year ending December to increase 2% but expects a 7% decrease in financial year 2019.
JPMorgan said the gap between Hastings' written premium inflation, about 2%, and observed claims inflation, about 5%, will result in the insurer returning to the bottom end of its 75% to 79% target loss ratio range.
JPMorgan Analyst Edward Morris said: "Pressure on the loss ratio is likely to result in lower reinsurance commissions, and given that Hastings is far less reliant on prior year releases than peers we see near term profit as more sensitive to the pricing backdrop. Our operating profit estimate is reduced by 3%, however an additional GBP7 million amortization charge from 2019 results in a 7% fall in our financial year 2019 pretax profit."
Morris added: "This may also slow Hastings' growth ambitions slightly, leaving Hastings' 3 million customer target in FY19E finely balanced in our view."
Hastings' 2018 pretax profit is expected to rise due to a one-off VAT rebate, which will reduce operating expenses and result in a 2% profit increase.
Taking a wider view of the sector, JPMorgan believes the third quarter industry pricing data, available in mid-October, will have "broadly stabilised".
Morris commented: "While it may be a little premature to call a turn in the cycle, we believe the
first signs of an inflection point could prove a positive catalyst for the sector."
FTSE 100-listed Direct Line is JPMorgan's preferred UK motor insurance - due to its "attractive valuation and outstanding capital return profile".
