The pressure that the current inflationary economic backdrop is placing on UK insurers became clearer today after Sabre Insurance Group Plc (Sabre) announced its H1 2022 trading update and revealed that claims inflation has continued to increase through the first half of the year.
“Our early view was that claims inflation reached approximately 10% in the first quarter of the year,” the insurer stated. “We now estimate that claims inflation has reached approximately 12%. Overall economic inflation is now anticipated to be at its highest levels since the early 1990s.
“The increase in claims inflation applies across all of the key drivers of claims cost, including parts, labour, credit hire, paint, car values and availability, and provision of care. Additional market-wide cost pressures include an increase in industry levies and significant reinsurance cost increases at renewal, driven by market-wide personal injury cost and Ogden rate concerns.”
In response to this warning within the trading statement, Bloomberg reported that the insurer’s shares plunged more than 30% on Thursday. The publication noted that while Sabre is a relatively small firm, the news sends a clear signal that other insurers will also face a crush on profits, with companies set to find it more expensive to pay out on policies sold. Sabre reported an 81% plunge in first-half earnings before tax.
“Inflation bites hard,” Peel Hunt analyst Andreas Van Embden wrote in a note, reported by Bloomberg. “An earnings recovery will take time and returns will be temporarily low.”
Bloomberg highlighted that Sabre traded down 36% to 120 pence today, the biggest percentage drop on record. Meanwhile, larger UK car insurers also took a dip with Admiral Group Plc and Direct Line Insurance Group Plc dropping 13% and 7.9%, respectively.
