Full year results from motor insurer Sabre Insurance (SBRE) demonstrate once again management’s ‘laser-like’ focus on quality over quantity.
Rather than grow its revenues at the expense of margins, Sabre’s ‘core principle’ is to put underwriting profitability first. By treating volume as ‘an output not a target’, the firm continues to generate exceptionally strong cash-flows.
READ MORE ABOUT SABRE INSURANCE HERE
Gross written premiums for the year to December were flat at £210m as was the expense ratio at 22.1% meaning that the firm ended the year with a huge 213% solvency ratio, enabling it to pay out a special dividend of 6p per share.
The expense ratio is the level of operating costs over net premiums while the solvency ratio is the amount of capital a firm has against the level of risks it has insured.
After paying out a total of 20p per share for the year, including the special dividend, Sabre's solvency ratio is still 161% which is at the top of its target range.
THE ABILITY TO PICK AND CHOOSE
Most of the motor insurance industry is pushing though premium increases of 1% to 2% which are well below the 6% to 7% level of claims inflation, meaning that they need to take on more customers just to keep profits where they are.
Sabre offers products to higher-risk drivers who struggle to get coverage with mainstream insurers and is raising prices in line with or above the rate of claims inflation as it is being more selective about its customers. While this means it hasn’t grown the top line, management is very happy with the outcome.
That’s not to say it isn’t looking at ways to grow. Last year it expanded into the van market in a small way and early signs are that its strategy has been successful.
NO WORRIES OVER FCA REVIEW
Also, while most of the motor - and home - insurance sector is nervous ahead of the outcome of the Financial Conduct Authority’s (FCA) review into pricing, Sabre expects the impact to be neutral or even slightly positive.
The FCA is investigating differences between new business and renewal prices, and the use of non-risk or behavioural factors in setting prices.
Sabre charges the same price for renewals as it does for new customers wanting the same cover, and all of its premiums are calculated on risk factors.
Having touched a year-high of 294p yesterday in anticipation of the results, the shares are trading 2.5% easier today at 286p. Given a total dividend of 20p for last year that puts them on an historic yield of 7%.
