(Sharecast News) - Hastings Group warned over claims inflation on Friday as it said gross written premiums ticked higher in the first nine months of the year.
In an update for the nine months to the end of September, the insurer said claims inflation elevated in the third quarter to between 7% and 8%, with inflation experienced across third party credit hire cost, repair costs and mid-range bodily injury costs.
The company cautioned that its full-year loss ratio, before the impact of the Ogden rate change, could move from the top of the target range of 75% to 79% to slightly above if elevated claims inflation continues.
Gross written premiums were up 2% in the nine-month period to £753.1m but net revenue declined 2% to £563.8m. Hastings said the increase in premium prices has been offset by a change in the risk mix of business that is aimed at lower risk segments and a reduction in younger drivers.
Live customer policies rose 5% on the year to 2.84 million as at 30 September 2019, with policy growth supported by continued strong retention rates.
Chief executive officer Toby van der Meer said: "The market remained competitive in the third quarter, with market premium inflation continuing to lag claims inflation. We maintained focus on pricing discipline, applying rates ahead of the market, in line with our stated targets and strategy.
"We are confident that continuing to invest in our growth opportunities whilst navigating these current market conditions is the right thing to do."
Shore Capital analyst Paul De'Ath said the warning over claims inflation is likely to weigh on the shares as the nature of Hastings' business model means that it is relatively more impacted by current year underwriting than many of its peers.
"Hastings' business model is geared into rising motor prices more than many of its peers due to its desire for growth (notwithstanding the current profit focus) and its focus on price comparison websites as its primary distribution channel. Rising prices tend to generate more switching and more opportunities to utilise its advanced pricing models," he said.
"While the business is doing all the right things to improve its own claims handling and anti-fraud capabilities, the competitive nature of the motor insurance market means that the pricing cycle has yet to turn. We continue to believe in the long-term prospects of the business but in the near-term there is likely to be continued pressure on earnings in 2019F."
At 0900 BST, the shares were down 3.9% at 181p.
24 May 2016 15:03