(Reuters) - Motor insurer Hastings (HSTG.L) on Friday said it expects a 42% plunge in annual earnings and cut its dividend because of rising claims costs, sending its shares down more than 7%.
The surprise trading update placed Hastings’ shares on course for their steepest one-day fall since last April, within the first 10 minutes of the opening bell.
The company said claims expenses rose in the fourth quarter, due to increases in repair and third party credit hire, slightly higher winter frequencies than the prior year, and a small number of larger-range bodily injury losses.
British motor insurers have been grappling with steep costs to repair cars, while a change in the discount rate used to calculate compensation for personal injuries has meant that they have to set aside more money for lump sum payments for people seriously injured in car crashes.
That, coupled with stiff competition in the market, has weighed on the insurers in recent years.
Hastings said it expects adjusted operating profit around 110 million pounds ($143.89 million), versus the 190.6 million pounds in 2018.
Its update comes after Direct Line (DLGD.L), Britain’s biggest motor insurer, said in November that it will cut expenses and bolster digital presence in response to stagnant prices and stinging competition.
Hastings expects 2019 loss ratio - the amount it spends on claims compared to how much it earns on premiums - to be in the range of 81% to 82% before the impact of the July discount rate change. It had warned in October that its loss ratio may move above a target range of 75% to 79%.
“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,” Shore Capital analysts wrote in a note to clients.
Still, Hastings said 2020 trading had started in line with expectations.
“Whilst the market environment has been challenging, with elevated claims inflation in the fourth quarter, we remained focused on our strategy of maintaining pricing discipline, applying rate increases ahead of the market,” Chief Executive Officer Toby van der Meer said.
Reporting by Muvija M in Bengaluru; Editing by Shailesh Kuber and Emelia Sithole-Matarise