On Wednesday, UK insurers witnessed a significant dip in their stock prices, as concerns surfaced regarding the viability of premium finance products in the wake of comments made by the Financial Conduct Authority’s Head of Insurance, Matt Brewis.
According to an article in the Insurance Post, Brewis referred to premium finance as a “poor product,” triggering a notable reaction in the stock market.
As of 12:58 GMT, Direct Line’s shares (DLGD.L) had plummeted by 5.8%, while Admiral’s shares (ADML.L) experienced a 5.9% decline, positioning them at the bottom of the FTSE 350 (.FTLC).
Berenberg equity analysts weighed in on the situation, suggesting that the weakness observed in UK motor insurers could be attributed to the article published in the Insurance Post the day before.
They highlighted that the report hinted at potential alterations in the way insurers price premium finance products.
Thomas Bateman, an equity research analyst (insurance) at Berenberg, stated, “(The article) has reignited the discussion around premium finance, and while the FCA has talked negatively about it (the product) in the past, we believe the recent comments, which have been made publicly, are more negative than they have been in the past.
In our view, it’s reasonable that there is some underperformance in the sub-sector today.”
The Financial Conduct Authority, when approached by Reuters, declined to provide any formal comments regarding the matter.
In the past, the FCA had already signaled its concerns about premium finance, releasing a letter to CEOs in September 2022, emphasizing that firms must assess whether these products offer fair value to customers.
Both Direct Line and Admiral refrained from making official comments in response to the article’s impact on their share prices, with Admiral being unavailable for immediate comment when approached by Reuters.
In summary, the article in the Insurance Post, coupled with Matt Brewis’s critical comments, has cast a shadow over the future of premium finance products, leading to a notable decline in the stock prices of UK insurers, particularly Direct Line and Admiral.
The industry now faces renewed scrutiny and potential changes in the pricing and regulation of these financial instruments.