Saga is in ‘exclusive discussions’ regarding a possible sale of its insurance underwriting division.
Confirming Sky News reports, the over-50s travel and financial services provider told investors it is in talks sell its Acromas Insurance Company to the Australian firm Open Insurance Technologies.
It added that Open was seeking to raise capital from investors to finance a takeover of Acromas, which currently underwrites between a quarter and 30 per cent of Saga’s business.
Talks: Cruise ship travel operator Saga has confirmed that it is currently in discussions regarding a possible disposal of its insurance underwriting division
The London-listed, FTSE All-Share group revealed last month that it was seeking buyers for the underwriting arm in order to reduce a £721million debt pile built up under its former private equity owners.
A potential sale would not stop Saga from offering home and vehicle insurance, but would offload risk connected with the policies to a separate company.
Saga told investors that talks were ongoing and there can be no certainty that any transaction will occur, adding that the sale would also require regulatory and shareholder approvals.
For the six months ending July 2022, the firm’s underwriting segment saw underlying pre-tax profits almost halve to £16.6million, primarily because of the rising cost of motor insurance claims.
Car insurers are finding it much harder to absorb elevated cost pressures due to semiconductor shortages reducing the supply of new motors and producing a surge in secondhand vehicle prices.
Repairs are also being made more expensive by delays in receiving new parts, the growing costs of raw materials such as paint, and an increased shortage of vehicle technicians since the UK left the EU.
Just over a fortnight ago, Saga revealed that claims inflation in its insurance underwriting business since August had remained high.
It said that the division’s combined operating ratio for the full year was anticipated to be larger than previously forecast, at about 125 per cent. Any number above 100 per cent denotes an underwriting loss.
However, the group said it remained on course to post an underlying pre-tax profit of between £20million and £30million, as per prior guidance.
Saga shares remain more than 90 per cent below their levels five years ago, giving the firm a market capitalisation of £246.4million, which is around a third of its total net debt.
Even before the pandemic, the company’s profits and sales were being impacted by Brexit-related uncertainty, investment in new products and squeezed margins in its insurance business.
They were up 2.5 per cent to 175.1p on late Friday morning, making them one of the FTSE All-Share Index’s top risers.
