Briefing: Why Hastings is a good fit for Sampo

When Sampo announced it was making a £1.7bn move for Hastings, the general mood was one of surprise.

Sure, many could see the benefits of Hastings cashing in on the deal given the troubles it has faced of late with rising claims inflation dragging down the performance of the highly competitive motor market, but analysts were more perplexed when it came to the reasons why the Finnish insurer wanted to buy.

Delve a little deeper, however, and things begin to make a bit more sense.

Hastings sits in eighth position in the latest Insurance Times/IMAS Top 50 Brokers rankings after breaking into the top 10 in 2018 following years of impressive growth (keep an eye out for the 2020 edition of this report coming out later in the year to see how the positions have changed).

This growth has, however, tailed off in recent years, and Hastings’ potential new owners will be looking to turn this trend around and get back to the growth that had been a mainstay of its results for a number of years.

On the underwriting side of things, Hastings’ latest set of results revealed a 5% increase in live customer policies and a 3% increase in gross written premium.

While this is lower than previous levels of growth for the underwriting arm, it should not be dismissed given the highly competitive nature of the UK motor market.

Sampo has also spotted the potential for growth in the UK home insurance market, an area where Hastings has yet to make any meaningful headway.

Sampo chief executive Torbjörn Magnusson said the non-public setting should also help Hastings achieve more profitable growth across the board, and this will also help Sampo satisfy its own shareholders.

Pleasing the activists

Some industry players have said that a business like Sabre, with its fantastically low loss ratios and continuously strong financials may have made more sense as an acquisition target, but the growth potential of Hastings will be a lot more pleasing to Sampo’s activist shareholders who are hungry for growth over the more dividend-focused strategy that could have played out if they’d made a move for some of the other players in the market.

Investment bank Berenberg, meanwhile, has described Hastings as an “attractive proposition” for Sampo, given the broking group’s expertise in selling motor business direct to consumers and its focus on digital channels.

Indeed, speaking on Sampo’s half year results call with analysts, Magnusson pointed out that the UK market was very “digitally savvy” and that Hastings and the other digitally focused motor players had been performing well over recent years.

He also pointed out that the acquisition opens up potential for Hastings’ digital strength to benefit the wider Sampo non-life business, which has a large motor book itself and is particularly strong in the Nordics.

He added that there was also the potential for bringing additional learnings into Hastings from its experience in similar markets in that region, particularly around retention levels.

Magnusson also cited the possible benefits of reinsurance synergies with bringing Hastings on board the Sampo ship, noting that Hastings cedes “a very large proportion of its premiums” to reinsurers, and that this was an area to “explore” for “potential synergy that we can change.”

So after the initial surprise to the bid, at least some of the analysts are beginning to wake up to the sense of the deal.

But only time will tell how Hastings will fit into the giant that is Sampo, and whether that growth the Finnish insurer so desperately craves will be as achievable as they hope once the world begins to emerge from the Covid-19 pandemic.