European non-life insurer Gable (GAH:AIM) collapses today, losing more than a fifth of its value, after being forced to find around £20 million to beef-up its reserves.
Shares fell 20.5% to 15.5p in early trading on Monday after management outlined plans to raise additional cash that could wipe £2 million off its profits in 2016, which consensus puts at £10.4 million.
Gable has raised £4 million through issuing loan notes, an expensive move that will see it pay 7.5% a year. It could raise another £6 million from the programme. Other plans include taking £15 million of premiums off the full-year results to swell its reserves.
These measures are being taken ahead of 1 January 2016’s initial deadline to meet Solvency II’s guidelines, which specify how much capital insurers must hold to avoid a banking-style bailout if a company reports huge losses.
The minimum reserves that Gable has to hold have not been confirmed so investors remain fearful that further funds may have to be raised in the coming years to meet the requirements demanded by Europe’s various national regulators.
Gable’s initial arrangements are yet to be approved by the Financial Market Authority Liechtenstein, a regulator.
The group provides commercial cover in the UK, Denmark, France, Germany, Italy, Norway, Spain and Sweden.