Home and car insurer Hastings (HSTG) has announced a 24% increase to its interim dividend. The payout for the six months to 30 June of 4.1p is a good bit more than the 3.8p per share expectations of investment bank RBC.

Yet investors have taken the news in their stride, the share price barely moving, just 1.3% higher on Wednesday at 325.8p.

‘We’re an agile digital disrupter in motor insurance,’ is how chief financial officer Richard Hoskins describes the company. Hasting wins a lot of its business through online price comparison sites but this doesn’t mean they just offer the lowest prices.

Shares wrote about the company’s winning model almost exactly a year ago. Since the company's October 2015 IPO the share price has rallied 91%.

Hoskins says that the company is able to change its pricing intra daily whereas most of the larger incumbents don’t therefore it wins more business.

The company’s revenue is up 22% in the first half to £345.2m on a year on year basis, while underlying profit after tax hit £66.9m, beating consensus estimates by 4%.

Political uncertainty impacts insurers

Before prime minister Theresa May called the general election on 8 June, it looked certain that the higher ceiling for compensation payouts announced in February would be reviewed. The change to the formula, known as the Ogden discount rate, could drive up costs for the insurance industry due to larger claim payouts.

The Ogden rate was moved from 2.5% to -0.75% and took effect in March. If a claimant was awarded £1000 under the old rate, the insurer would have to pay out £975. This is the amount minus the 2.5% interest that was being used. The actual amount received is adjusted according to what interest the claimant can expect to earn from investing it.

As interest rates have been low for a long time, the new rate of -0.75% means the insurer would have to pay £1007.50 on a £1000 claim. However, if injuries are life changing and claims substantial it could wipe millions of an insurance company’s profits.

Hastings calendar year loss ratio of 73.4% to 30 June is below its target range of 75% to 79%. The loss ratio is how much is paid out in claims versus taken in as premiums, so in plain English the company is paying out 73.4p on every pound.

Hastings believes that the Ogden claims inflation on the loss ratio was around 1% to 1.5% which is immediate. Pricing takes 12 months to earn through, so this impact on claims should be negated by the second half of the year according to Alan Devlin, analyst at Barclays.

Using Devlin’s figures, Hastings is paying out a 3.7% dividend yield although with a price to book estimate for 2017 of 3.4-times, it’s certainly not a cheap company.


Issue Date: 09 Aug 2017