Saga in talks to sell insurance underwriting arm to Australian group

Saga is in “exclusive talks” about a possible sale of its insurance division.

The over-50s travel and financial services company confirms Sky News reports and told investors it is in talks to sell its Acromas Insurance Company to Australian firm Open Insurance Technologies.

It added that Open was seeking capital from investors to fund an acquisition of Acromas, which currently underwrites between a quarter and 30 percent of Saga’s business.

The London-listed FTSE All-Share group revealed last month that it was looking for buyers for the underwriting arm to reduce the £721 million mountain of debt it had built up among its former private equity owners.

A potential sale would not prevent Saga from offering home and auto insurance, but would transfer the risk associated with the policies to a separate company.

Saga told investors that talks were ongoing and there can be no assurance that a transaction will take place, adding that the sale also requires regulatory and shareholder approval.

For the six months ended July 2022, the company’s underwriting segment saw underlying pre-tax profit almost halve to £16.6m, mainly due to the rising cost of motor insurance claims.

Auto insurers are finding it much more difficult to absorb the increased cost pressures caused by semiconductor shortages, which are reducing the supply of new engines and driving up the prices of used vehicles.

Repairs are also becoming more expensive due to delays in receiving new parts, the rising cost of raw materials such as paint and a greater shortage of car technicians since the UK left the EU.

Just over two weeks ago, Saga revealed that non-life inflation in its insurance business had remained high since August.

It said the division’s full-year combined operating ratio was expected to be greater than previously forecast, at about 125 percent. Any number above 100 percent indicates an underwriting loss.

However, the group said it remained on track to post underlying pre-tax profit of between £20m and £30m, following previous guidance.

Saga Shares remain more than 90 per cent below their levels five years ago, giving the company a market capitalization of £246.4 million, which is about a third of its total net debt.

Even before the pandemic, the company’s earnings and sales were impacted by Brexit-related uncertainty, investment in new products and tight margins in the insurance business.

They were up 2.5 percent to 175.1 pence late Friday morning, making them one of the best risers on the FTSE All-Share Index.