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Hastings warns on claims inflation

The insurer is feeling the squeeze from rising competition and claims costs
April 26, 2019

Hastings (HSTG) expects its loss ratio to come in at the top-end of guidance this year as claims inflation continues to outpace the rise in motor premiums.

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The insurance provider said that if the elevated claims, market competition and third-party property damage costs witnessed during the first quarter continued, the loss ratio would move to the higher-end of the 75-79 per cent range. The news wiped as much as 14 per cent off the group’s market value on the day the announcement.  

The insurance provider reported a 1 per cent decline in net revenue during the first quarter due to lower earn-through of premiums and reinsurance income. That was despite a 4 per cent rise in gross written premiums and a 3 per cent increase in live customer policies to 2.75m, thanks to improved customer retention.

Despite rolling out operational efficiencies by increasingly digitalising the business – with 35 per cent of claims now settled digitally – expenses are expected to increase this year due to recent changes in UK law restricting VAT recoveries and increases in both the Financial Services Compensation Scheme and Motor Insurers' Bureau industry underwriting levies.

However, a rise in motor premiums helped the insurer boost its share of the UK private car insurance market to 7.6 per cent, from 7.5 per cent at the end of December.  

“The higher motor prices are the more people switch providers,” says RBC Capital’s Kamran Hossain. “That would benefit someone like Hastings who is targeting [policy] growth.”

Analysts at Peel Hunt expect a rise in the loss ratio to 80 per cent during the second half of the year, which would feed through to a 1 per cent reduction in the combined operating ratio (claims costs as a proportion of premium income) and 6 per cent fall in its EPS.