Inflation forces Sabre to bolster provisions, delivers hit to H1 earnings

UK insurer Sabre was forced to write fresh provisions as record-high and still rising inflation exceeded pricing power and delivered a strong hit to its H1 earnings.

For the first half of 2022, Sabre now expects a 24.5 percentage point increase in its combined ratio to 98.9%, despite a 17.4% year on year increase in gross written premium. The net loss ratio is up 26.7 points. The bottom line likely dwindled to a fractional £3.5 million gain.

“The global inflation outlook, along with claims inflation, has changed considerably” and, after hitting approximately 10% in Q1 is now around 12% on way to “its highest levels since the early 1990's,” management said in its market filing heralding the hit to H1 earnings.

Inflation is being felt “across all of the key drivers of claims cost” including parts, labour, credit hire, paint, car values and availability, and provision of care, management admitted.

Rising costs are also showing signs of creating an inflation spiral for the industry, visible in a "significant reinsurance cost increases at renewal."

Sabre was forced to make "an appropriate adjustment” to reserves on the rise in claims costs. “Taking assertive pricing and reserving action now means we anticipate a return towards our normal performance levels in 2023,” management assured.

Continued action on the pricing side should push loss ratios down already in 2022 from the 71.6% now said to be likely for H1 to the low-60's in H2. “Covid-19 related pricing discounts are earning out in the first half ... and the significant rate increases in H1 across the portfolio will earn through.”

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