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(Sharecast News) - Motor insurer Sabre Insurance tumbled on Thursday after it said it expects to pay out a smaller dividend for 2022 as it warned over the impact of claims inflation.
In an update for the six months to 30 June, the company said pre-tax profit fell to £4.3m from £22.2m in the same period a year earlier.
Sabre said it now estimates that claims inflation has reached around 12%, versus 8% in 2021. 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.
"We have continued to prioritise pricing policies correctly over growing volume," it said. "We have taken pro-active management action in response to the evolving wider economic conditions which will have a one-off impact in 2022 and position the business strongly for 2023 onwards."
It said that action on reserves, driven by "the rapidly evolving inflationary environment", along with the impact on current-year losses, is likely to move the full-year combined operating ratio to the mid-90s, before a return to "near-normal" profitability in 2023.
In 2021, the combined operating ratio was a more profitable 79.4%. A ratio below 100% indicates that the company is making an underwriting profit, while a ratio above means it is paying out more money in claims that it is receiving from premiums.
Nevertheless, Sabre said it continues to expect to pay a dividend for 2022, albeit at a reduced level, before returning to "more normal levels" next year.
Chief executive Geoff Carter said: "We have continued to execute on our strategic objectives this year. The strong recent progress in the business will be impacted in 2022 by the need to reflect the current extraordinary inflationary pressures. We believe that taking prudent and assertive action now, in conjunction with our normal pricing discipline, means that we are protecting the underlying profitability of the business, and will allow a rapid rebound to our expected levels of performance.
"This performance is being delivered in a very challenging period for the motor insurance industry with expert external commentators anticipating a market combined operating ratio of around 114% in 2022, with very little improvement in 2023. Whilst our response to external factors has generated a poor expected result for 2022 by our own standards, we believe our performance will compare favourably to the wider market. Our motorcycle and taxi portfolios are developing well, and we see opportunities for further similar deals."
At 0915 BST, the shares were down 36% at 120.97p. Direct Line and Admiral also suffered heavy losses.
