Shares in over-50s insurer and travel provider Saga (SAGA) have jumped 3.1% to 42.45p after it announced a partnership with Goldman Sachs to offer long-term savings products via its retail bank Marcus.

The idea behind the tie-up is tap into the wealth of Saga’s customers, who typically prefer to keep much of their money in savings.

Goldman Sachs launched Marcus in the UK last August, a retail bank which offers a higher interest rate for savers than that offered by the high street banks.

Saga and Goldman Sachs plan to launch products together from the autumn, the former said in a statement.

The partnership has been welcomed by the market after a series of negative news from the insurer, which has been beset by profit warnings and dividend cuts.

A SORRY SAGA

Saga has been struggling with increasing challenges in its insurance division, and expects a decline in reserve releases and insurance margins, renewal pricing changes, as well as investment in new products to weigh on future profits.

While investors will be disappointed that such investment is likely to hit future profits for some time, the partnership with Goldman Sachs reflects the more long-term view Saga is taking on growth.

Analysts have previously voiced concerns that Saga has been too focused on short-term growth, particularly via its broking channel.

Historically, Saga sold its insurance policies direct and had a high level of customer loyalty, but analysts at UBS point out that as insurance has become more commoditised, the firm wasn’t able to differentiate its product offering enough to sustain its levels of customer volume.

MEETING THE CHALLENGE

To address this problem, in the last two years the company has tried to bring in more customers via price comparison websites (PCWs), but has had to rely on lowering prices to draw customers in.

Unlike its competitors which have their business models set up to operate in this area, UBS says that despite Saga extracting higher margins than normal from PCW customers, this is unsustainable and the company is having to focus its efforts elsewhere in order to achieve growth.

So it could be that the market views partnerships like the one with Goldman Sachs as a step in the right direction for Saga, as it looks to differentiate its products and services and take a more sustainable, long-term view.

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Issue Date: 11 Jun 2019