Briefing: Hard times for DLG, Admiral and Sabre – what are the shareholder challenges?

By Saxon East

It’s been a brutal year for equity markets – but, in particular, UK motor insurers.

In just six months, Direct Line Group (DLG) shares are down 32%, while Admiral’s have dropped 40%.

Sabre Insurance Group has also suffered a hammering, with shares down 50% over 2022’s first half.

Each of these businesses faces shareholder challenges.

Sabre Insurance Group

On the London Stock Exchange, Sabre’s share price has halved to 113p – at the time of writing – since its flotation in 2017.

This month’s profit warning was large too – guiding to a mid-90s combined operating ratio (COR) compared to 79.4% last year.

Claims severity is outpacing premium rises in the motor market and the outlook, therefore, is highly challenging.

With its share price underperforming and a steady - if unremarkable - dividend, total shareholder returns are underwhelming since Sabre’s float.

Is the stock market really a suitable place for Sabre?

If a buyer approaches the insurer with the intention of a delist, one that is credible with the regulator, that could be a good option. Hastings followed a similar route in 2020, although in a better claims environment.

Despite this year’s challenges, Sabre has an excellent historic track record of underwriting.

This may be attractive to a purchaser.

Direct Line Group

Chief executive Penny James is under pressure for the first time since her appointment three years ago.

James has raised prices to combat claims inflation coming via the motor supply chain.

The second £50m tranche of the insurer’s £100m share buyback programme, which launched in March 2022, has been cancelled to conserve capital for the fight ahead.

The key battleground is the dividend.

James has planted her flag in the sand, insisting that “we don’t see the ordinary dividend under threat”.

However, investment bank Jefferies is expecting DLG’s dividend to be cut, reducing the dividend estimate by 36%.

For DLG shareholders, the dividend is the sacred cow. A profit warning is unwelcomed but understandable in choppy conditions.

Shareholders expect stable returns from the dividend. This will be the challenge now for James and her team.

Admiral

Admiral has been the darling of the stock market in recent years. Amid continued profit growth, its share price has nearly doubled in the last 10 years - in August 2012, its share price was 1,150p, whereas now it is recorded as 1,917p.

The big question now is whether profit commissions will suffer. Admiral gets profit commission for successful underwriting on its reinsurance book. Jefferies estimated that this work contributed 37% to Admiral’s profits last year.

Around 10 years ago, Admiral suffered a claims deterioration, which led to reserve strengthening. Chief executive Henry Engelhardt and his team came through the scare well.

It will be a real test for Admiral’s current management to see whether they can do the same this time around.