- Expenses fall in absolute terms
- Solvency remains solid
Supply chain issues, most notably the ongoing global shortage of semi-conductors, have had some unexpected knock-on effects. Motor insurance underwriter Sabre Insurance (SBRE) notes that its premium income remains under pressure as slowing car sales, partly a consequence of the shortage, means that fewer new customers are looking to insure vehicles. Chief financial officer Adam Westwood points out that matters were made worse by “continued heavy price discounting in the market”, so gross written premiums for 2021 came in at 2.3 per cent below the prior year.
Anyone following the motor insurance sector will know that claim volumes have been somewhat erratic since the pandemic took hold. The ratio of losses to premiums earned stood at 51.1 per cent. That’s within Sabre’s target range, although comparisons with the prior year aren’t particularly revealing given the reduction in claims frequency because of lockdowns in 2020. A 160 basis point increase in the expense ratio to 28.3 per cent might also be slightly misleading in that expenses (ex-commissions) fell by £2.4m in absolute terms, although the ratio is well in advance of the pre-pandemic comparator. At any rate, it meant that the combined ratio stood at 79.4 per cent versus 75.3 per cent in 2020, indicating Sabre paid out more in claims, proportionally speaking, than it did the previous year.
There has been a degree of claims inflation, but the main problem is clearly linked to “a lack of new drivers and slow car sales”. However, policy growth improved over the second half of last year and has continued into 2022 as a degree of normality returns to its core market, although one wonders what impact rising fuel prices might have – another indirect stumbling block perhaps? But given strong solvency and a 4 per cent forward yield, we remain buyers. Buy.
Last IC View: Buy, 281p, 5 Aug 2020
|SABRE INSURANCE (SBRE)|
|ORD PRICE:||221p||MARKET VALUE:||£551mn|
|TOUCH:||221-222p||12-MONTH HIGH:||276p||LOW: 173p|
|DIVIDEND YIELD:||3.8%||PE RATIO:||18|
|NET ASSET VALUE:||101p||SOLVENCY II RATIO:||164%|
|Year to 31 Dec||Gross premiums (£mn)||Pre-tax profit (£mn)||Earnings per share (p)||Dividend per share (p)|
|*Includes intangible assets of £156m, or 63p a share. NB: Year-end dividends do not include special dividends of 6p a share in 2018, 4.9p in 2020, and 4.6p in FY 2021. A dividend of 5.2p was paid in Aug 2020, which represented the deferred special dividend in respect of 2019.|