Saga warns insurance business overhaul to knock profits lower
Over 50s insurance and holiday group also slashes dividend amid ‘increasing challenges’
Insurance and holiday specialist Saga said profits in the coming financial year would drop and cut its dividend as it pivoted to a new insurance strategy in a bid to return to growth.
The group, which focuses on the over 50s market, said “increasing challenges” from the commoditisation of its markets meant it needed to fundamentally change its model. In insurance it said it was “moving the conversation from price to value” and launched a new three-year fixed price offering, which it said would knock margins.
Broking gross margins will fall from £80 to between £71-£74 per policy. As a result, underlying pre-tax profit in the year to January 2020 would be between £105m and £120m, down from £180.3m, Saga said.
It also proposed a final dividend per share of 1p for the 2018-2019 financial year and a full year dividend of 4p, down from 6p and 9p the previous year.
“As a result of lower margins in insurance, a change in approach to renewal pricing, lower reserve releases and investment in new products, underlying profit before tax for the 2019/20 financial year is expected to be between £105m-120m,” said Lance Batchelor, Saga chief executive said.
“Therefore, we have taken the difficult decision to reduce our final dividend and write down goodwill. The fundamental changes we are making are essential to address the long-term challenges facing our business. They will support future growth in customers and profits, and generate attractive cash flows for Saga.”
For the year to January 2018, underlying pre-tax profit, stripping out a goodwill impairment, was down 5 per cent at £180.3m. Saga said this reflected “strong reserve releases” and a “disappointing” retail broking performance, where profits contracted 19 per cent to £105.8m.
On a statutory basis, including the £310m impairment charge, Saga reported an overall pre-tax loss of £134.6m, down from a profit of £180.9m previously. Total revenue was down 2 per cent at £841.5m.