Shares in motor insurer Sabre (SBRE) gained 8% to 282p after the firm reported resilient first half trading helped by lower claims as lockdown resulted in fewer drivers taking to the roads.

Gross written premiums in the six months to 30 June were 14% lower year on year at £86.9 million as the firm stuck to its policy of focusing on profits over volumes and Covid-19 reduced overall demand for new policies.

STRONG EXIT RATE

Since the 21 May AGM, premium income has continued to recover and in June and July it has been running at more than 10% above last year’s level as demand has been rekindled.

Meanwhile a marked reduction in road traffic has led to fewer claims so the firm’s net loss ratio is lower than last year at 45.1% and its combined operating ratio is an industry-leading 71.7%, close to the bottom of its preferred 70% to 80% target range.

At the same time, strong cash generation pushed its solvency coverage ratio to 218% which allowed it to reinstate its deferred 2019 special dividend of 5.2p per share and declare an interim 2020 dividend of 4.2p per share.

After these payments, its solvency was still an impressive 178%, above the firm’s preferred range of 140% to 160%.

Chief executive Geoff Carter was ‘pretty pleased’ with the results and the fact that Sabre is one of the first firms to reinstate its dividends.

He said, ‘We know that investors own our shares for the yield, and thanks to our conservative strategy of putting profits over volume and having no debt we are able to keep our side of the contract.’

CAUTIOUS OUTLOOK

In line with this conservative approach, the firm is taking a cautious view of the second half and not getting carried away with its recent performance.

As it points out, the outlook for premiums is hard to forecast as it depends on the speed of the recovery in car sales, the number of new drivers coming onto the market, how its competitors go about pricing their policies and the potential for further local lockdowns.

Moreover, claims inflation is still running at high single digit rates and could stay there if body shops and supply chains struggle as accidents and claims volumes increase, which is possible given that many drivers have been off the road for some time.

Also, enhanced cleaning of replacement hire vehicles could lead to higher repair and hire costs and the increased number of cyclists on the roads could mean more bodily injury claims.

Therefore the firm is only predicting that its full year combined operating ratio will be within its target range and that volumes will continue to be a by-product of market pricing rather than the driver.

READ MORE ABOUT SABRE HERE

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Issue Date: 28 Jul 2020