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Hastings' battle with costs leads to profit warning, dividend cut

Adjusted operating profit is expected to be 12% lower than market forecasts

Hastings Group Holdings PLC -

Motor insurer Hastings Group Holdings PLC (LON:HSTG) has warned on profits and said it will trim its final dividend payment after claims costs ramped up in the fourth quarter.

Adjusted operating profit is now expected to be roughly £110mln a result, 12% lower than the most recent company compiled consensus estimates.

READ: Hastings Group faces battle to keep loss ratio within its target range

Hastings is more affected by rising motor prices than many of its peers due to its push for growth and focus on price comparison websites, analysts said.

The loss ratio for the 2019 calendar year – the ratio of pay-outs to premiums received – is expected to be in the range of 81%-82 before the impact of July’s change in the ‘Ogden’ discount rate of discounts for injury payouts.

In November Hastings had warned that that the size of insurance claims was rising faster than premiums and that the loss ratio could be above its 75%-79% target range.

The market environment has been “challenging, with elevated claims inflation in the fourth quarter,” said chief executive Toby van der Meer, adding that the company had maintained pricing discipline and flat policy numbers in the second half of the year.

The 2019 total dividend is expected to be lower than 2018 but van der Meer said the board “remains confident in the group's ability to capitalise on its long term profitable growth opportunities” and so the dividend will still be above the group’s stated 65-75% target payout range.

He added that trading in the first weeks of 2020 has been in line with expectations.

Shares in Hastings fell 8% to 170.9p in early trading on Friday, close to their four-and-a-half-year low from November.

"While the business is doing all the right things to improve its own claims handling and anti-fraud capabilities, the competitive nature of the motor insurance market means that the pricing cycle has yet to turn," said analysts at Shore Capital. 

"We continue to believe in the long-term prospects of the business but in the near-term there is likely to be continued pressure on earnings.”

Quick facts: Hastings Group Holdings PLC

Price: 170 GBX

LSE:HSTG
Market: LSE
Market Cap: £1.12 billion
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