Lockdowns dent premiums at Sabre Insurance

Pre-tax profits at the motoring insurance specialist in the 12 months to 31 December were £49.1m, down on 2019’s £56.5m and around 6% below consensus. Gross written premiums fell to £173.2m from £197.0m, a greater decline than expected, while the combined operating ratio was 75.3%, against 73.4% a year previously. Analysts were looking for a figure of around 73.0%.

However, the total dividend per share rose from 12.8p a year ago to 21.2p, slightly ahead of expectations. The figure included 5.2p deferred from 2019 that was paid at the interim stage.

Covid-19 and the imposition of varying lockdown restrictions during the year meant there were fewer cars on the road, which in turn led to fewer accidents and a lower cost of claims, Sabre said. Premiums were discounted to reflect expected savings, reducing the premium available in the market. Revenues were also hit by fewer people either buying new cars or learning to drive.

It noted: "Throughout, we have balanced potential loss of income against the cost of miscalculating the impact of restrictions, and continued to err on the side of caution."

Geoff Carter, chief executive, said: "Throughout this disruption, we have remained resolutely focused on our long-term strategy of prioritising underwriting profitability over premium volume. This has delivered a strong level of profitability and allow us to provide our investors with another attractive proposed dividend payment."

Looking to the current year, Carter said premium volumes were down 20% in the third lockdown, against the same pre-Covid period in 2020. "I can see it being a bumpy start and a challenging first half of 2021," he conceded.

But he added: "Our pricing actions over the last two years have left us well positioned to maintain our profitability and take advantage of growth opportunities at the right time.

"The third and hopefully final lockdown will clearly impact premium levels in early 2021, and continue to impact 2022 as these premiums earn through. After the first lockdown, volumes rebounded strongly and I would anticipate a similar impact in 2021 as car sales pick up and new drivers enter the market."

As at 1015 GMT, shares in Sabre were off 4% at 240.3p, having fallen as much as 7% in early trading.

Numis said: "Recent lower premium volume will likely be an earnings headwind during 2021 and the early part of 2022 due to the normal lag in premium recognition. Consensus forecasts already partially reflect this, but we expect moderate pre-tax profit reductions as models are adjusted to fully reflect the latest lockdown.

"However, the strong capital position should ensure the current dividend of 16p can be maintained. The attractive yield of 6.4% and high-quality underwriting approach continue to provide a good reason to own the shares."