The battle for Hastings Group is set to be a swift one. A consortium has offered £2.50 per share for the British motor insurer, valuing it at £1.7bn. A rival bid is unlikely. The foreign consortium, which controls just under 30 per cent, is already offering a 40 per cent premium to the three-month share price.
Hastings is the place where foreigners last conquered England in 1066. This time, the invaders include South Africa’s RMI and Sampo, a Finnish insurer named after a mythical, easily mislaid money mill. Profits in UK motor insurance tend to be equally elusive.
The pandemic has provided some respite by keeping drivers off the road, meaning there are fewer claims for insurers to pay. The trend in previous years was for successful claims to outpace policy price rises. This squeezed earnings and held back share prices. In January, Hastings blamed rising claims for a profit warning.
Neil Utley led the £24m management buyout of Hastings from Insurance Australia in 2009. The group came to market in 2015 valued at £1.1bn. It promised to grow by deploying smart technology. But market forces stifled top-line growth.
Remaining Utley family stakes, including shares held by an endowment, would fetch £85m at the takeout price. This would take family proceeds from share sales alone to just over £139m since Hastings became public, Lex calculates.
Mr Utley and fellow shareholders should accept the offer, which at 15 times forward earnings is well ahead of the recent average.
Pricing trends may remain favourable for the rest of the year. Longer term, it will be back to the grim old grind of claims versus premiums versus investment inflows. Claims inflation looks certain to resume as social distancing pushes up garage costs. The economic outlook will not support regular policy price rises.
Regulation is another challenge. A potential ban on automatic renewals could reduce sector earnings per share by 20 per cent, thinks UBS. Hastings will need the firepower of deep-pocketed owners for the fight to come.
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