Analyst on why Sabre-MCE agreement is "an attractive deal"

Move marks market entry for insurer

Analyst on why Sabre-MCE agreement is "an attractive deal"

Motor & Fleet

By Terry Gangcuangco

Sabre Insurance Group Plc is now the exclusive underwriter for policies issued by motorcycle insurance broker MCE Insurance Ltd, which earlier this month ceased to place new business and renewals with Gibraltar-based MCE Insurance Company Ltd.

“Motorcycle insurance is entirely consistent with our focus on engines and wheels, providing an exciting additional opportunity alongside our UK private motor business,” said Sabre chief executive Geoff Carter when the agreement was announced.

“The partnership will add significant data capabilities and allows us to retain our underwriting discipline while providing incremental earnings growth. We will provide a further update on our progress with MCE at full-year results.”

Under the deal, which does not involve any financial consideration to the broker, Sabre will have control of pricing, claims handling, and reserving, while not being liable for any historical policies, claims, or activities of MCE’s former underwriter.

Sabre, additionally, is not obliged to take on any of the staff from the underwriting business of MCE. It will, however, have access to years of claims and policy data.

In an analyst note, Peel Hunt’s Andreas van Embden wrote: “Sabre has taken an important first step in its footprint expansion strategy by entering the UK motorcycle market and signing an attractive underwriting agreement with one of its largest brokers. Sabre is entering a niche market complementing its existing non-standard motor book.

“This is an attractive deal at no major cost and is likely to contribute significantly to premiums and profits in the medium term with margins within Sabre’s target range. Sabre’s shares are attractively valued, in our opinion... We reiterate our ‘buy’ recommendation as we see Sabre return to growth next year.”

The analyst highlighted that Sabre is integrating a significant book within the company and writing it fully on the insurer’s existing cost base.

“There is no volume guarantee with MCE, which means Sabre has full control of pricing and can reprice the motorcycle book to align it with its own margin criteria,” noted van Embden. “We estimate Sabre will reprice the motorcycle portfolio to a c.79-80% combined ratio; as such, margins will remain within Sabre’s targeted CoR range of 70-80%.”

He is of the view that Sabre’s non-standard motor portfolio is set to bounce back in 2022, thanks to a turn in the pricing cycle, as well as the easing of the impact of COVID-19. “[We] believe Sabre has one of the most attractive business models in the UK personal lines insurance market,” added the Peel Hunt analyst.

The insurer – on a fully earned, annualised basis – expects the exclusive agreement to contribute somewhere between £3 million and £5 million in pre-tax profit.        

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