Sabre suffers drop in GWP due to Covid-19 and FCA pricing reform

Motor insurance underwriter Sabre Insurance Group has reported a £12.5m drop in its gross written premium (GWP) in the nine months to 30 September 2021 due to impacts arising from the Covid-19 pandemic and FCA’s general insurance pricing reform.

In its quarter three trading update, published today (14 October 2021), the firm revealed that its GWP had fallen from £139.2m in Q3 of 2020 to £126.7m as at 30 September 2021.

Net earned premium for the first nine months of the year was £108.8m, compared to £127.3m for the same period in 2020.

Today’s trading update also revealed that Sabre’s combined operating ratio (COR) for 2021 is expected to be towards the upper end of the group’s target - in the 75% to 80% range - with a solvency coverage ratio of 175%, down from 186% as of 30 September 2020.

Sabre anticipates, however, that profit before tax at full year for 2021 will be moderately below the range of analysts’ forecasts of £41m to £46m.

The group hopes it will be well placed to grow in 2022.

Sabre chief executive Geoff Carter said: “Sabre has shown a great deal of resilience during recent challenging times, when our addressable market significantly and temporarily reduced in size.

”Whilst this has had an anticipated impact on our short-term financial performance, we are very confident about the medium-term and longer-term growth outlook.”

Disappointing for investors

According to the insurer, its slow post-lockdown recovery in terms of policy volumes is linked to its target market - attracting new business that is typically new, younger drivers. Therefore, the backlog of driving tests and delays in new car registrations, which has a knock-on effect on second hand car sales, may have disproportionately affected Sabre’s financials.

Alongside recovering from the Covid-19 pandemic, Sabre believes that regulatory changes - such as the upcoming implementation of the FCA pricing review in January 2022 - has resulted in a significant divergence in policy pricing among insurers.

Commenting on Sabre’s results, Karl Morris, director at Edison Group, said: “Disappointingly for some, the combined ratio for 2021 is expected to be at the top end of the company’s target range of 75% to 80%. The solvency ratio of 175% remains healthy, which should support the group’s dividend policy.

“Management is [also] flagging that profit before tax for FY21 is expected to be [moderately below the analysts’ forecasts], which is consistent with the comments around growth and underwriting.

“We think this update will be slightly disappointing for some investors. Nevertheless, the shares have been under significant pressure since the middle of this year, so perhaps much of this has already been reflected in Sabre’s share price.”

FCA inflationary impact

However, there are three main pricing trends that Sabre believes should facilitate further organic growth in both the medium term and into 2022. These include:

• The reversal of ‘Covid discounts’. With claims frequency returning closer to pre-pandemic levels, Sabre believes insurers must unwind the discounts applied to policies sold during, or in anticipation of, periods of reduced traffic.
• Cost inflation. Sabre expects the market will have to respond to a significant period of cost inflation through price increases to avoid large losses in 2022 and beyond.
• FCA pricing review. The insurer anticipates that the FCA pricing review, where motor insurers will be required to equalise prices for new and renewing business, will have an inflationary impact on new business prices at market level.

Carter added: “By taking the hard decisions to allow volumes to reduce during the recent unprecedented period, we have maintained our core strengths and are very well positioned to benefit from these opportunities.”