14th Jul 2022 15:43
(Alliance News) - Shares in London-listed insurers dropped on Thursday after a profit warning from Sabre Insurance Group PLC, but German bank Berenberg believes the negative read-across for the sector could prove limited.
Direct Line Insurance Group PLC shares were down 13% in afternoon trade, Hiscox Ltd was down 6.3% and Beazley PLC was down 5.4%. Admiral Group PLC was the worst performer in the FTSE 100, down 18%.
Sabre's own shares suffered the most, down 39% to 115.00 pence.
Sabre is a motor insurer who brands include Go Girl, Insure 2 Drive and Drive Smart.
Interim pretax profit slumped 81% to GBP4.3 million from GBP22.2 million a year ago. While gross written premiums increased 17% to GBP91.8 million from GBP78.2 million, the combined operating ratio rose to 99% from 74%. Any combined ratio below 100% indicates underwriting profit, so the lower the better, and a 99% ratio is on the verge of loss-making.
Claims inflation has continued to increase through the first half, now standing at around 12%, said Sabre. "The increase in claims inflation applies across all of the key drivers of claims cost, including parts, labour, credit hire, paint, car values and availability, and provision of care," the firm said.
Sabre still expects to pay a dividend for 2022, but one "at a reduced level", before returning to "more normal" levels in 2023. The Surrey-based insurer said it expects to return to "near-normal profitability in 2023".
Sabre's update spooked investors, prompting a wider sell-off in insurance shares.
While Berenberg said it was "concerned" by Sabre's numbers, the read-across to the rest of the sector could be limited. Sabre has a "chequered" reserving history and could be more exposed to used-car prices than Admiral and Direct Line.
Part of Thursday's sharp falls are likely due to "overly optimistic consensus estimates", Berenberg added, though cautioned: "Sabre is generally one of the better performers in the market, and it is reasonable to think that if it is having issues then it is likely other insurers are also feeling the pain. This could be the market event needed for pricing to accelerate."
The coming weeks will be key for the rest of the sector.
"We will be watching very closely over the next few weeks. If Admiral or Direct Line are going to announce profit warnings then it will likely be in this period, so the absence of any news could be a clear buying signal," said Berenberg.
By Lucy Heming; [email protected]
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Related Shares:
Sabre InsurDirect LineHiscoxAdmiralBeazley