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esure - Motor continues to grow

George Salmon | 10 November 2016 | A A A
esure - Motor continues to grow

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Motor continues to grow

Following the demerger of GoCompare.com, esure announced a 5.76% increase in in-force policies and a 15.9% increase in gross written premiums for the third quarter versus a year earlier.

Our View

Following the demerger of price comparison business GoCompare.com, esure is focussed exclusively on its personal insurance business. Unfortunately this market is very competitive, and with the growth of comparison websites increasingly driven by price. That makes it difficult for insurers to retain customers while also protecting margins.

Having said that, the UK motor insurance market is experiencing a bit of a let-up in price pressure at the moment, much to the relief of insurers. esure is no exception, but we can't help but feel that the core esure and Sheila's Wheels brands may be a little past their best.

Against that background it's perhaps no surprise that esure has looked elsewhere for revenue. The company continues to say 'insurer' above the door, but 'Non-underwritten additional services' accounted for 56% of half year trading profit. Among other things, the division offers third party services such as breakdown assistance and motoring legal protection, to esure customers.

The greater focus on the core insurance business post-demerger is welcome, and seems to be yielding results. The number of in-force policies is steadily increasing and is expected to be up by 6-9% in 2016. Meanwhile reduced pricing pressure is fuelling premium growth of 13-18% for the full year.

The remaining esure group aims to pay out 50% of underlying group profit after tax, with a further special dividend if the group has sufficient capital. A £65m departing dividend from GoCompare will provide a substantial boost to solvency ratios. That should improve the outlook for special dividends.

The dividend policy has made for an erratic payout in the past. But, if the company can continue to increase the number of in-force policies, improve underwriting performance and cross-sell effectively, profits could start to motor, taking dividends along for the ride. The stock offers a prospective dividend of 5.3% for 2017.

Third quarter results:

Group level growth was driven largely by a strong performance in the group's motor division. Motor premiums increased 18% versus Q315 to £155m, with in-force policies up 8%.

That was partially offset by a more competitive landscape in Home, which saw policy growth of 1% but gross written premiums decline 2% to £24m.

Additional service revenues year to date increased 3.5% to £80.6m.

The group said that it remains on track to deliver full year premium growth towards the upper end of its 13-18% guidance.

Unless otherwise stated, all estimated figures, including prospective dividend yields, are taken from a consensus of analyst forecasts compiled by Thomson Reuters. These estimates should not be taken as a reliable indicator of future performance.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.