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Hastings issues profit warning as elevated claims costs bite

Hastings Group Holdings PLC expects its 2019 loss ratio to range from 81% to 82%, before the impact of the Ogden rate change, compared to its full-year target of 75% to 79% set out in its nine-month trading update.

The U.K.-based property and casual insurer said it saw elevated claims costs in the fourth quarter of 2019, with increases in repair and third-party credit hire costs, slightly higher winter frequencies than the prior year and a small number of larger bodily injury losses.

Hastings expects its 2019 adjusted operating profit to come in at about £110 million. This compares to a consensus of £125.5 million, according to Panmure Gordon and Co.

It noted that it has continued to apply price increases ahead of the market, resulting in live, or in-force, customer policies remaining broadly flat over the second half of 2019 at 2.85 million. Hastings said live customer policies are up 5% from the prior year, receiving support from strong retention rates during 2019.

The group said it maintained a strong capital position, with the underwriting subsidiary Solvency II coverage ratio within the target range as of December 2019, and that it "remains strongly cash generative."

Hastings CEO Toby van der Meer said the board expects the 2019 total dividend to be lower than 2018, but anticipates paying a total dividend above the group's target payout range of 65% to 75%.

"We see this as negative overall," Panmure Gordon analyst Ming Zhu said in a note to clients. "[The] Confused Price Index [an index of auto insurance pricing compiled by broker Willis Towers Watson for price comparison site] reported a 4% increase quarter over quarter in new policies premium in the fourth quarter, and a 5% rise year over year, which is encouraging.

"But we are unclear how much of that increase reflects the Ogden discount rate, (U.K. Financial Conduct Authority) pricing review and strong fourth-quarter seasonality."

As of 11 a.m. London time, Hastings' stock was down 6.48% to 173.20 pence.