Sabre Insurance confident despite lingering Covid concerns

Sabre Insurance Group reported gross written premiums of £86.9m in its first half on Tuesday, falling from £101.2m year-on-year, while its net loss ratio fell to 45.1% to 48.2%.

The FTSE 250 motor insurance specialist said its expense ratio for the six months ended 30 June was 26.6%, compared to 23.3% a year earlier, while its combined operating ratio was 71.7%, broadly in line with the 71.5% it reported for the first half of 2019.

Adjusted profit before tax slipped to £27.8m from £30.5m, while the board said it would pay an ordinary interim dividend per share of 4.3p, down from the 4.7p per share distribution a year ago.

It also declared an additional interim dividend per share of 5.2p, as the deferred full-year 2019 special dividend, taking the total interim distribution per share of 9.5p for the first half of 2020.

Sabre’s return on tangible equity was 39.9% on an annualised basis, down from 44.1%, while its solvency coverage ratio pre-dividend was 218%, up from 200% at the end of June last year.

Looking ahead, the company said its full-year premium position remained “extremely hard” to forecast due to a number of variables, including speed of recovery in car sales, and how sustained the recovery is, as well as the number of new motorists coming to the market and competitor pricing actions.

It also cited the impact of potential further national or local lockdowns, adding that the impact on claims costs as lockdown measures were eased was also uncertain.

For example, Sabre said it remained unclear how body shops and supply chains would fare as claims volumes increased, adding that many drivers had been off the road for “a considerable period”, with increased numbers of cyclists possibly leading to an increase in bodily injury claims.

Higher repair and hire costs could also arise, due to increased cleaning requirements, with Sabre saying it was also concerned about a potential increase in propensity to make “exaggerated or fraudulent” claims.

“At the time of annual general meeting trading statement in May we were in the eye of the storm as lockdown continued, with new business volumes having shrunk significantly and with no certainty on the impact on claim costs,” said chief executive officer Geoff Carter, adding that at the half-year mark, the firm was in “a more favourable” position.

“Quotation requests in the market have increased markedly as lockdown restrictions have eased.”

From a position of being around 25% down at the end of April, Carter said year-on-year quote requests now appeared to be in line with the previous year.

He said the company’s written premiums for June, on a week-on-week basis, exceeded that for the same period last year by more than 10%, with July likely to deliver a similar increase.

“On competitor pricing actions, we believe that our previous observation that some competitors would chase volume with price decreases has proven to be accurate, although some competitors do appear to have responded in line with our more data driven approach.

“We do not believe there is any reason to suspect that the underlying drivers of cost and claims inflation have changed during this period, even if 2020 is likely to benefit from reduced frequency which may disguise the true position.

“It is important at this point that we re-focus on the potential additional costs caused by a disorderly exit from the Brexit transition period - for example possible pressure on care and nursing costs and the cost of replacement parts.”

Carter said that on the regulatory front, the company was awaiting the details of the Financial Conduct Authority review into “loyalty penalty”" pricing, although it did not expect to be adversely impacted by that, with the detail of the whiplash reforms which had now been delayed to 2021.

“As lockdown eases we will adjust prices appropriately to ensure we continue to stay within our target combined operating ratio corridor - volume will remain an output, not a target.

“Depending on the market pricing environment our weekly volumes could be better or worse than the current position.”

He also noted that, as the government's furlough scheme unwound, it was reasonable to expect that some customers could struggle to pay premiums.

“We will continue to treat customers fairly, responsibly and sympathetically.

“Our premium discounts during recent months have benefitted both new and renewing customers whilst ensuring we worked within cautious assumptions that support our combined operating ratio targets.”

Looking forward, Geoff Carter said that while it was difficult to forecast the short-term impacts on volume and claims costs, Sabre was “pleased” that its “well-established and conservative” strategy had enabled it to weather recent challenges, and would continue to do so.

“We anticipate our combined operating ratio for the full year will fall within the 70% to 80% corridor, although uncertainties as we move into the second half of 2020 make it difficult to project exactly the outcome within this range.

“We remain confident of maintaining an attractive dividend for 2020, in our future prospects and that we will be able to continue delivering good financial results, whilst being well positioned for growth at the right time.”

At 0911 BST, shares in Sabre Insurance Group were up 3.26% at 269p.