Sabre Insurance Share Discussion Threads

[wish i wasnt in rbs] 28/1/2022 14:00

Even at this level they are not commanding a premium.

[wba1] 28/1/2022 12:42

I agree that they will know their profit to be declared for 2021 and 2022 (and maybe 2023) because like all insurers they have surplus claims reserves which will have been further bolstered during lockdowns. And neither Saga or Freeway or MCE will have much impact on profit before the 2023 numbers (as existing policies from these accounts take a year to transfer and then earn on a 365th basis over the year following transfer). My concern with these 3 moves into either specialist niche markets (taxis and motorcycles) or accounts with an awful underwriting history (Saga) is what it says about company strategy. They have always flexed their account size to maintain a COR in the 70s but there is no way these new accounts will produce a COR lower than in the 90s - and that may be optimistic. If they do perform in line with the market they will still add profit for Sabre (by absorbing fixed costs) but Sabre will be heading to be just another general insurer rather than the best underwriter on the market.

All will become clear, one way or another, over a longish time period - but I cannot see anymore why they should command a premium. I might have been a bit more bullish if Catherine Barton had remained on the board. But I will still consider trading in them this year if they dip down into the 180s again.

[jonwig] 28/1/2022 10:32

Thanks for comment, as always.

Sabre do say they are stressing their disciplined approach and will determine pricing. They seem to know how much profit they can generate.

[wba1] 28/1/2022 09:40

I have traded out now. Freeway specialise in the private hire market (Westminster remain the black cab specialists). Whilst I am no expert on either Freeway or this market I do know that those insurers who have underwritten in it as a small account (rather than as a specialist) have lost a lot of money over the years. And that Freeway are moving from one sole underwriter to another does raise the question of account performance. Whilst it is possible that it is excellent and has enabled Freeway to auction the underwriting role there is also the risk the previous underwriter walked away for reason. So either it is an account needing cleaning up (which takes time) or Sabre have had to outbid an existing underwriter with more knowledge (including all the data which does not always show well in reports).

Following Saga this all seems like Sabre is too keen for top line growth over profit (although they may well declare good profits from existing surplus reserves for some time). So I will now look elsewhere until things are clearer at a Sabre which seems to be moving away from its core markets and focus on best in market underwriting performance. I may be wrong but no longer feel comfortable with my past view of Sabre as the quality player in the market.

[jonwig] 28/1/2022 08:05

New underwriting contract:

Expected to make additional £2-4m profit. They made £49m PBT last year, and expect rather less this year (£41-46m), though positive about outlook.

[wba1] 29/11/2021 09:23

Sorry to see today's announcement that Catherine Barton is leaving the board to take an exec position with another insurer. She is an excellent actuary. Sabre need to ensure her replacement is an equally good actuary in order to maintain the skill set on the board.

[wba1] 11/11/2021 16:49

Tom; wish I had agreed to the consults just to find out who is interested in the market. On Sabre I was reading the insurance press re the MCE deal. It sounds as though prices are going to be heavily hiked from the current levels on the account and that the projected £20m represents something like a 50% loss of premium. The account is, I believe, currently written through the underwriting sister company of MCE in Gibralter so, if this is true, it suggests MCE were losing money heavily on underwriting bikes and wanted to exit risk carrying. This may suggest Sabre have a free hand to price properly but the downside is that in such cases (and I have seen a few) it takes 2-3 years to clean up the account properly as the worst risks are those which stick around.

[tomleafs] 11/11/2021 11:49

wba1, I couldn't help but notice your post on 25th Oct mentioning various outfits sniffing around the UK motor market and it made me recall some strange share price action on Direct Line Group which occurred a few days after on the 28th. The chart on google finance doesn't really do it justice but at 2pm DLG spiked from £2.80 all the way up to £3.15 or so in the space of about 30 minutes, this spike was on absolutely no news and had everyone scratching their heads. I'm not sure whether it's a coincidence that this seems to line up with US market times or not? DLG has since dropped back down to £2.80 which I've used as an opportunity to pick up some more shares. I don't really have a point I'm trying to make with this post but wanted to say I find your thoughts on the insurance market interesting. I wonder whether we could see a big move somewhere soon? ATB Tom

[wba1] 10/11/2021 09:30

Firstly, for wilksy, my apologies for missing your question. I would trade them between 175 and 225 for the next 6 months.

Secondly; I knew MCE (and their founder Mike Edwards) quite well in years past. They are a quality broker. There are, a few issues about this however. As an exclusive underwriting deal I will be amazed if they can write it at 75-85% COR (implied by the premium/profit figures). I suspect that they are hoping to achieve this number as a result of not allocating any fixed costs to the scheme, which is a slippery slope. It seems to me to be a continuation of the strategy behind the SAGA deal, to extend distribution into new channels, something which will - over time - see the COR for the whole Sabre business move from the 70s to the 80s (and the 90s if it drives significant top line growth). Whether you worry about this depends on how you see the market responding to growth over profit.

My other concerns relate to the nature of the deal. I can see no good reason for MCE to sign up to a deal which will deliver that level of profit to Sabre, since it will place them at a competitive disadvantage to other bike insurers. So I suspect this is a starting point which will see rates get tighter over time (and less profitable to Sabre) in order to maintain the partnership. Finally, bike insurance has interesting features, one of which is a much higher propensity for very high PI claims (mitigated by less passenger exposure). This will require tweaking of Sabre's reinsurance. Hopefully they have done this (and recruited the specialist claims handlers needed).

So, in concluson, I like the MCE source. If you are going to do bike business they are a quality broker. But bike business is specialist, has usually been less profitable for the market than cars, and the profit numbers look as if they have been dreamt up for the release.

I am now more confident than before that Sabre are transitioning from their traditional specialist niche to a more broadly based motor carrier. This will, inevitably, mean that over time their p/e rating will converge with the market.

[jonwig] 10/11/2021 07:58

It means about 8% increase on the last year's PBT.

[masurenguy] 10/11/2021 07:14

An interesting and profitable new market opportunity !

New Contract as Exclusive Underwriter to MCE Insurance

Sabre Insurance Group plc, one of the UK's leading motor insurance underwriters, today announces that it has signed an agreement with MCE Insurance ('MCE'), one of the largest distributors of motorcycle insurance in the UK, to become the exclusive underwriter for policies issued by MCE Insurance Ltd effective immediately. Under the terms of the agreement, Sabre will have complete control of pricing, claims handling and reserving. It has also received access to MCE ' s multi-year claims and policy data which will be combined with Sabre ' s leading digital pricing techniques. Sabre is not paying a financial consideration to MCE and will not be liable for any historical policies, claims or activities of the previous underwriter. Sabre has no obligation to take on any employees from MCE ' s existing underwriting business.

This agreement provides a unique opportunity for Sabre to enter a new market at scale. Sabre will apply its disciplined approach to underwriting motorcycle insurance and expects GWP over £20m per annum and to generate a pre-tax profit contribution in the region of £3m to £5m on a fully earned, annualised basis. This agreement comes into effect from today's date, on Sabre calculated rates.

Geoff Carter, CEO said: " I am delighted to announce our partnership with MCE Insurance today. Motorcycle Insurance is entirely consistent with our focus on engines and wheels, providing an exciting additional opportunity alongside our UK private motor business. The partnership will add significant data capabilities and allows us to retain our underwriting discipline whilst providing incremental earnings growth. We will provide a further update on our progress with MCE at full year results."

[wilksey1] 04/11/2021 08:04

thanks for your response wba1 do you have a target price in mind..

[wilksey1] 03/11/2021 14:20

what is going on here 90p drop since aug got to be well over done surely

[masurenguy] 31/10/2021 11:11

Peel Hunt upgrades Sabre as recovery continues
29 October 2021

Peel Hunt has upgraded Sabre Insurance (SBRE) as the broker believes the group is ‘geared towards recovery’. Analyst Andreas van Embden upgraded his recommendation from ‘add’ to ‘buy’ but reduced the target price from 285p to 255p on the stock, which closed down 3.6%, or 7.2p, at 196p on Friday.

He said the group was ‘geared towards recovery in the non-standard auto market’ and that fortunes in its UK motorcycle division ‘will turn eventually’. ‘Sabre has protected its margins in a soft market but we believe disruption from the pandemic will delay a cyclical boost to premiums until 2022,’ said van Embden. He lowered forecasts for earnings per share out to 2023 and cut premium estimates, as well as reducing the target price. The analyst concluded: "Sabre’s valuation multiples are increasingly attractive. We upgrade from “add” to “buy”, confident that Sabre will bounce back."

[wba1] 25/10/2021 17:20

There seem to be some outfits sniffing around the motor market. I have done some phone consults for Third Bridge in the past and, in the last couple of weeks have twice been asked about the UK motor market (I turned them down as I am now retired so do not know the identity of the clients). Going on past consults from this source it suggests either an activist investor or a potential bidder from overseas looking at someone. I will be interested to see if anything emerges.

[wish i wasnt in rbs] 21/10/2021 14:54

interesting that the action seems to be taking place in the afternoon - when the Americans are around.

[pughman] 20/10/2021 18:56

wba1, to date Catherine Barton has not shown much confidence in the business, with a 17,000 shareholding. I'll keep an eye on what happens though because you know your stuff.

[masurenguy] 20/10/2021 08:37

Took a modest opening position here yesterday. Will look to add on further positive indicators.

[wba1] 18/10/2021 13:37

Van Embden may (accidentally) be correct, but he does not understand insurance. There are two key factors which may make the increase in market rates slower, and of a lower quantum, than he expects. Firstly, all motor insurers stuffed their claims reserves during lockdown and can use the excess reserves to smooth the rate correction (something they usually do during normal cycles, but which is even more likely in current circumstances). Secondly, Sabre are very unusual in being a pure motor insurer. Companies like Aviva and Allianz are happy to see retail motor as a commoditised market which they can price marginally to absorb fixed costs, and make their profit on business such as various commercial classes and specialist business (such as PetPlan at Allianz). Sabre cannot do this.

Market rates will recover, and Sabre are good at using such corrections, but it will be at least 2023 before this has any material impact on accident year profit, both because of the factors mentioned and because of the translation of written business into earned business (a policy written in mid-2022 will earn 50% in 2022 and 50% in 2023).

On the issue of director buys; this is always encouraging, but the director to watch is Catherine Barton. She is the one who best understands the numbers.

[masurenguy] 18/10/2021 08:25

Peel Hunt see an upside of circa 45% here. No current position but on my watchlist.

Peel Hunt: Derated Sabre still a good long-term bet

Sabre (SBRE) has derated but Peel Hunt believes a turnaround will come and says the insurance group is still a good long-term bet. Analyst Andreas Van Embden retained his ‘add’ recommendation and target price of 285p on the stock, which closed up 1%, or 2p, 198p on Friday.

"Sabre has derated to a price/earnings [ratio] of 12x 2022 [estimated profits] over concerns it would struggle to grow premiums while margins come under pressure. We, however, believe the motor market remains cyclical, will eventually turn, and that Sabre is well-positioned to benefit. We remain positive on the stock long-term."said van Embden.

Although Sabre’s premiums continued to decline in the third quarter as policy volume growth remained modest, van Embden said this would change as ‘claims inflation forces insurers to regain underwriting discipline’ and Sabre ‘continues to maintain pricing discipline’.

[wilksey1] 14/10/2021 16:42

i see directors have been having a nibble at these price,s

[wba1] 14/10/2021 10:04

jonwig; the unearned premium reserve relates to the premium written in the year up to the reporting date but not yet earned. So, for example, £1000 of annual premium written at 1 January will only have earned half of that by 30 June and £500 will remain in UPE. It is just an accounting line to differentiate written from earned premium, because premium is earned on a 365th basis over the full year following the date of inception. I would expect it to be lower at present simply because that reflects the low volumes written in the last year. In fact, as the line is the delta rather than absolute level, I am surprised it is not negative (I must look more closely).

However, it is unrelated to my point, which is about claims reserves. The state of these is not easy to pick out of reported numbers, but is best seen in the claims triangles showing loss ratio for each accident year by year of development. Claims departments can reserve claims at a chosen level and, when they finally settle with the insured, any surplus (reserves held over and above the settlement figure) get released to profit. For personal injury awards (a very big element) this can be many years after the business was written. So a 2010 claim may be reserved at £1m and settle for £800k in 2020 - at which point £200k should be released to profit. However, companies have discretion about the timing of such releases because if, for example, they do not want to release that £200k, they can just stuff it into other parts of the claims reserves such as those held for incurred but unreported claims (an element which may exist for many years as claims can be initiated up to 27 years after the event in the case of babies injured. Companies usually take a conservative approach to reserving claims when first reported and set the reserve at (typically) 5% over best estimate - so that 5% will always be expected to be released to profit at some point, meaning that the claims reserves represent a piggy bank that can be used to smooth profits over years. And last year all insurers stuffed the reserves even more than usual because they were mainly earning premium written at pre pandemic rates but having low claims due to lock downs. If they had not stuffed reserves they would have attracted criticism for making super profit when the country suffered (an unfair point as they wrote the business not knowing about the impending disaster and there is a balancing effect now being seen as business written at pandemic rates attracts higher claims as we return to normal claims levels).

Hope this helps. I know how opaque insurance accounts can be from many years arguing with insurer CEOs about underlying performance.

[essentialinvestor] 14/10/2021 09:45

Value or value trap ?,

tempted to buy back in, had a very small holding previously.

[jonwig] 14/10/2021 09:41

To add, should I be looking at the "Change in unearned premium reserve" in the P&L account?

This seems to be a key number in determining profitability and comes at the company's discretion, if I've understood you right. To FY 31/12/20 it was £12.5m, and to HY 30/06/21 it was only £4.3m. Since they describe themselves as "prudent" I suppose it could even be negative?