Hastings warns on profits amid elevated claims costs
Insurer Hastings warned on profits on Friday and said it would cut its dividend following elevated claims costs in the fourth quarter.
In an update for the year to the end of December, the company also pointed to higher repair and third party credit hire costs, slightly higher winter frequencies than the prior year and a small number of larger bodily injury losses.
As a result, it now expects the 2019 loss ratio, before the impact of the July Ogden rate change, to be between 81% and 82%, while adjusted operating profit will be around £110m. Broker Shore Capital noted that the operating profit figure is 12% lower than the most recent company-compiled consensus.
In addition, the 2019 total dividend will be lower than the year before but above the stated 65-75% target payout range.
The company said 2020 trading had started in line with expectations.
Chief executive officer Toby van der Meer, said: "Whilst the market environment has been challenging, with elevated claims inflation in the fourth quarter, we remained focused on our strategy of maintaining pricing discipline, applying rate increases ahead of the market.
"During the year we have also continued to make progress on our technology, operational and strategic initiatives. We have started to see the initial benefits of this come through, including our ability to maintain strong retention rates over the year, which I will talk about more at the full year results."
At 0930 GMT, the shares were down 7.6% at 171.20p.
Russ Mould, investment director at AJ Bell, said: "A big challenge for the company is that motor insurance is a very competitive market and therefore, despite its best efforts to remain disciplined on pricing, it is very hard for premiums to keep pace with claims inflation. Regulatory changes haven’t helped either.
"Hastings arguably has greater sensitivity to rising premiums than some of its rivals as it wants to expand and use price comparison sites as its main method of distribution. People tend to make more use of these sites and do more switching of policies when their bills are increasing.
"To give management their due, they are seeking to manage the variables that are under their control by improving claims handling, boosting anti-fraud capabilities and launching initiatives to become more efficient and retain more business.
"However, until the motor insurance market turns it could be very difficult for Hastings to get out of first gear."