Sabre Insurance still roadworthy

This balance sheet strength was spelled out in results published last week. At the end of 2019, Sabre's solvency coverage ratio stood at 214 per cent, meaning its capital is more than double the regulatory requirement. Even after the group pays an 8.1p final dividend to shareholders on the register on 24 April, this ratio will stand at 180 per cent, above a target range of 140 to 160 per cent.

Mindful of this, the group had planned to declare a special dividend for the second year in a row, in addition to its policy to return 70 per cent of adjusted post-tax profit to shareholders. However, to reflect its own risk appetite and the Prudential Regulation Authority’s message that insurers carefully consider distributions, the group has deferred the bonus payment to a later date.

In the meantime, Sabre does not expect any adverse capital strain from the Covid-19 crisis. In fact, with the country in lockdown and roads largely abandoned, chief executive Geoff Carter anticipates “a significant, temporary, reduction in claims frequency”, although this could eventually be offset by other potential pressures, such as a vehicle repair industry hampered by sourcing, resource and staffing issues, or a rise in fraudulent claims from financially-distressed policyholders. A likely delay to long-awaited reforms of the whiplash claims market isn’t ideal, either.

Fortunately, Sabre has already built itself a buffer. For the past few years, the insurer has responded to dogged competition and higher claims inflation by defending its rate increases. At the end of 2019, Mr Carter says there were signs that peers were gravitating to the company’s view that profit is preferable to volume. However, it remains to be seen whether those peers can match Sabre’s metric of choice: a 70 to 80 per cent combined operating ratio target range. The combined operating ratio measures claims and cost to premiums, and is a key measure of profitability for insurers, with a lower ratio suggesting a more profitable business. A ratio of 73.4 per cent in 2019 was down year on year and helps to explain the group’s very attractive 42 per cent return on tangible equity.