Why did Admiral Group shares fall over 5% today?

Admiral Group shares (LSE: ADM) tumbled as much as 6.6% today after Citi Bank downgraded its rating on the company to a ‘sell’. The Cardiff-based insurer experienced a significant decline in its share price, reflecting investor concerns following Citi’s revised outlook.

Citi’s decision to downgrade Admiral Group was based on a thorough examination of industry loss ratio trends. According to the bank, this analysis revealed that the current consensus estimates for the group are outliers, prompting the downgrade and a negative outlook.

“We downgrade Admiral to sell and issue a negative catalyst watch as we expect an earnings expectation reset and material downside risk into 1H23E numbers,” Citi stated.

The bank further highlighted that its own earnings per share (EPS) forecasts are now 10% lower than the consensus estimates for both the first half of 2023 and the full year.

Following Citi’s downgrade, Admiral Group’s shares experienced a sharp decline, falling by as much as 6.6% during the trading session. At 16:00 GMT, the shares were down 5% at 2,208p.

Citi’s assessment of industry feedback and detailed modelling also suggested that claims inflation in the motor insurance sector remained elevated in the first half of 2023 but with a sharper drop expected in the third quarter. As a result, Citi sees downside risk for loss ratios in the first half of the year.

This downgrade from Citi comes after Admiral Group announced a significant reduction in its full-year dividend in March. The company reported a 40% decrease in the dividend, citing a weak performance in its motor division as a primary factor.

In terms of financials, Admiral Group’s pre-tax profit for the 12 months ending on December 31, 2022, totalled £469.0 million, marking a 39% decline compared to £769.0 million in 2021. The decrease in profit primarily stemmed from a substantial fall in UK insurance profit, which tumbled by 278% to £616 million.