Esure Group Plc, a U.K. property and casualty insurer, posted a 21 percent drop in first-half profit as car insurance costs increased and said premium growth may slow for the rest of the year. The shares slumped the most in two years.
Underlying pretax profit, which excludes one-time items, fell to 46.5 million pounds ($72 million) from 59.1 million pounds a year earlier, the Reigate, England-based insurer said in a statement Monday. Profit from auto coverage declined to 81 percent to 3.3 million pounds, affected by bodily injury claims.
“The claims environment for the motor market continues to deteriorate and as a consequence we will seek to implement further rate increases in the second half of the year as we look to mitigate against these trends,” Chief Executive Officer Stuart Vann said in the statement. “This may result in premium growth being lower in the second half of the year than that achieved in the first half.”
U.K. prices for new car insurers increased 2.9 percent in the second-quarter from a year ago, the Association of British Insurers said in a report last month. Even so, last week, Direct Line Insurance Group Plc said price gains across the industry may not have been sufficient to outweigh claims inflation.
“Esure seems to be having real problems with small personal injury claims, which has hurt the first-half figures,” Eamonn Flanagan, an analyst from Shore Capital with a sell rating on the stock, wrote in an e-mail. The results were worse than Shore predicted, but broadly in line with market expectations, he said.
The shares fell 9.6 percent to 240 pence in London trading. That’s the biggest drop since August 2013.
Esure’s combined operating ratio, or claims and expenses as a percentage of premiums, increased to 95.8 percent from 90.9 percent. The guidance for the full year is 96 percent to 97 percent. Gross written premiums increased 5.8 percent to 275.5 million pounds.
The company will pay an interim dividend of 4.2 pence a share, including a special dividend of 1.2 pence. The payout was 5.1 pence a share in the year-earlier period.