- Industry underwriting losses mount
- Dividend will be maintained at a reduced rate
The ill-effects of the inflationary surge continue to ripple out. An interim trading update delivered by Sabre Insurance (SBRE) knocked nearly 40 per cent off its market valuation even though the motor insurance brokerage detailed a 17.4 per cent increase in gross written premiums in the six months to 30 June.
Underwriters have clearly underestimated the scale of inflation through the first half of 2022. The early view was that claims inflation had reached approximately 10 per cent in the first quarter of the year, but that rate has escalated to 12 per cent, meaning that insurers are forced to fork out more cash for replacement vehicles, credit hire and parts. Matters are further complicated by difficulties in sourcing auto parts due to ongoing supply chain disruption.
Sabre is bolstering premium rates in a bid to reduce the loss ratio (insurance claims paid plus adjustment expenses divided by total earned premiums) and is guiding for a full-year position of 65-70 per cent. Action is being taken on reserves and pricing which the group anticipates will lead to a turnaround in performance in 2023.
Looking ahead, motorists can expect a sizeable increase in premiums through the remainder of this year and beyond. And we may see some softening on claims inflation if the current slide in industrial metals prices is prolonged.
Management believes that Sabre’s prioritisation of pricing policies correctly over growing volume will see it outperform the sector as a whole, but that provides scant consolation for shareholders. Sabre said that it will still pay a dividend for 2022, albeit at a reduced rate due to narrowing earnings, with post-tax profits guided at £3.5mn against £18mn at the 2021 half-year mark. Recommendation under review.
