Interest payments eat into Hastings Q1 profit

Insurance group Hastings made a profit after tax of £11.8m in the first quarter of 2014, down 15.7% on the £14m it made in the first quarter of 2013.

Profit before tax was down 17.6% to £14m (Q1 2013: £17m).

The company said the drop was caused by the increase in interest payments to service the £416.5m debt the company issued in October 2013.

The group’s combined operating ratio (COR) increased by 9.7 points to 93.7% (Q1 2013: 84%). The company said the increase was caused by changes to underlying reinsurance contracts, discounts applied by the broker and some non-recurring accounting adjustments.

It added that the increase did not reflect underlying claims development.

Positive quarter

Elsewhere, Hastings had a positive quarter.

Group earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 14.8% to £23.2m t(Q1 2013: £20.2m).

Adjusted EBITDA, which includes one-off restructuring and transaction costs, rose 16.1% to £23.8m (Q1 2013: £20.5m). Hastings chief executive Gary Hoffman said the EBITDA increase “reflects the increase in profitability of our underlying business”.

Hoffman continued: “The first quarter of 2014 has seen the achievement of a number of milestones in the Hastings Insurance Group journey, as we completed our equity investment from Goldman Sachs and exceeded 1.5 million customers.

“We achieved this through record levels of new business sales and customer retention, with customers responding well to our focus on customer service and competitive pricing.”

Hoffman added that the company had achieved “selective” price increases in 2014 so far.

He said: “Despite our expectation of gradually increasing prices over the course of 2014, we believe that we will continue to experience strong price competition in the market. With our healthy loss ratio position, conservative risk selection and flexible pricing structure, we believe we remain well placed competitively to maintain policy growth over the coming months.”

Results breakdown

Hastings’ broking division made a profit after tax of £12.2m in the first quarter of 2014, up 65.4% on the £7.8m it made in the same period last year.

Adjusted EBITDA increased 52.7% to £16.8m (Q1 2013: £11m). This was driven by a 21% increase in revenue to £49.3m (Q1 2013: £40.6m).

The company’s underwriting division performed less well. Profit after tax fell 8.6% to £6.4m (Q1 2013: £7m).

This was partly caused by a 22% increase in net claims to £35.9m (Q1 2013: £29.4m).