Sabre reports record premium income

Sabre Insurance (SBRE) felt the impact of inflation on its motor insurance business more than most over the past two years, which left it precariously exposed as rate rises failed to cover rising costs. However, fast forward a year, and declining loss rates, hardening underwriting rates and an easing of inflation in certain areas meant a hugely improved operating performance.

Management took a significant risk in that Sabre stood alone with pushing through large price increases at the start of the year, which was not generally matched by its competitors. These were not small increases; the overall premium across its lines increased by 31.4 per cent, with Sabre’s core motor division posting a 47.5 per cent rise. However, judging by these results, the pricing strategy was a success.

Sabre effectively prioritised its margin in the hope that the rest of the market would catch up. That proved to be a sound strategy just as loss ratios started to fall, with Sabre posting a much-improved loss ratio of 56.3 per cent (2022: 66 per cent), which contributed to a return on tangible equity that doubled to 23 per cent. Overall, premium income reached a record £225mn.

In terms of the outlook, management noted the numbers of withdrawals from the motor insurance market during the year, with few new entrants. This should underpin current pricing discipline for some time to come.

Broker Numis forecasts that most of the benefit from premium rate rises will filter through this year. The shares are rated at a price/ earnings ratio of 10.5, with a prospective dividend yield for 2024 of 7.9 per cent. Move to buy.

Last IC view: Hold, 109.8p, 26 Jul 2022