Sabre shrinks book as it continues to push through rate increases

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Insurer’s combined operating ratio climbs 2.8 percentage points, but remains a highly profitable 73.4% as it expects pricing pressures to ease

Sabre has reported an 8.8% fall in adjusted profit after tax for the year ended 31 December 2019 to £45.7m (2018: £50.1m) after its book of business shrunk by £13m.

The insurer brought in gross written premium of £197m, down from £210m the previous year as the insurer maintained a “disciplined” approach to underwriting that saw rate increases in excess of 10% over the course of the year.

This helped the insurer report a 73.4% combined operating ratio (COR) for 2019, which, while a 2.8 percentage point deterioration on 2018’s 70.6%, is still comfortably in profit-making territory.

And Sabre chief executive Geoff Carter said its approach to underwriting meant that the insurer was well-placed for a profitable future.

“Against the backdrop of on‐going turbulent market conditions and industry headwinds, our commitment to underwriting profitability has helped Sabre to both deliver a robust performance in 2019 and, as importantly, ensured business is adequately priced to support profitability in future years,” he said. “We have been assertive in covering high claims and other cost inflation, applying rate increases in excess of 10% during the year.

“This action has protected our profit margins and will continue as we move through 2020.”

Growth opportunities

Geoff carter 2

Geoff Carter

Carter said that despite the disruption surrounding the market in the wake of the coronavirus outbreak, Sabre was still expecting growth opportunities around the turn of the year.

“With market price increases apparent in the most recent months there is a possibility that growth opportunities may arise later in 2020 or early in 2021,” he said. “Whilst it is now likely that Covid ‐19 will drive a significant, temporary, reduction in claims frequency it is anticipated that other claims pressures will emerge as social distancing continues and then ultimately winds down.”

He said that these pressures included “delays in sourcing replacement parts, lack of staff and resources in car repair bodyshops, emergence of new claims trends and other operational challenges as our colleagues and business partners work remotely”.

The insurer has modeled a number of different scenarios for the future of the motor insurance market under the coronavirus pandemic, and said that it intended to continue to pay “full salaries” to its staff who are now working remotely.

It is also offering to support its smaller suppliers and stakeholders, and is allowing its staff paid leave each week to support NHS or other volunteering initiatives.

“Our modelling of COVID‐19 scenarios does not suggest that we would undermine our capital base in any reasonably foreseeable stressed scenario and that we will continue to be profitable and capital generative,” Carter said. “If more extreme scenarios were to occur these would be likely to reduce future years’ profitability and dividends.

“The situation is, however, rapidly changing and unforeseen challenges and social and economic scenarios could occur.”

Balanced approach

And a report from Numis Securities viewed Sabre’s approach to the coronavirus crisis as “balanced” in its approach.

“The discussion on COVID-19 is generally reassuring but also balanced,” the report stated. “WFH [working from home] is said to performing efficiently and a significant temporary reduction in claims frequency is anticipated during lockdown.

“But the company is equally mindful that COVID-19 disruption has the potential to have negative effects such as claims inflation from supply chain delays and labour shortage, increased propensity to claim, and difficulty some customers may have in making monthly premium payments.”

But the uncertainty around the length of government restrictions relating to the outbreak meant that Sabre decided it was “prudent to withhold any element of special distribution of excess capital”.

As such, Sabre confirmed a full year ordinary dividend of 70% of adjusted profit after tax, equal to 8.1p, without any additional return of excess capital.

“The board may propose an interim dividend representing the return of surplus capital later in the financial year should the situation become clearer,” Carter added.