Rating agency warns of ‘significant volatility’ in motor insurance group’s business

Rating agency Fitch has assigned a B+ issuer default rating to Hastings Insurance Group (Finance), a division of motor insurance group Hastings Insurance Group.

The agency noted the group’s “considerable financial flexibility” overall, but also warned of the significant volatility inherent in the company’s core motor insurance business.

Hastings Insurance Group (Finance) is the legal entity that issued the bonds in Hastings’s recent refinancing, which saw Goldman Sachs buy a 50% stake in the motor broking and underwriting group.

Fitch has also assigned a BB-/RR3 rating to the £150m of Hastings bonds that mature in 2019 and the £266.5m of bonds that mature in 2020.

Advantage improvement

Fitch said Hastings’s underwriting arm Advantage Insurance Company has achieved “a notable improvement” in its loss ratio despite the competitive UK motor market by cutting unprofitable business and improving fraud prevention. As a result, its combined ratio has been below 100% for the past two years.

However, it added that Hastings faces “significant competition” in its core market of UK motor insurance and that it its going up against big names such as Direct Line Group, which has a 15% market share, and Admiral, which has a 9% market share.

Weakening financial flexibility

Fitch said Hastings has considerable financial flexibility at present, thanks to the long duration of its new bonds.

But the agency added that Hastings’s business could be subject to “significant volatility” given its target market and customer acquisition techniques. Hastings gets 90% of its business from price comparison sites, which Fitch noted are typically price-sensitive.

Fitch said: “Hastings needs to achieve significant EBITDA growth over the next several years to achieve sufficient deleveraging. If growth does not take place as envisaged by the business plan, in an environment of softening prices, credits metrics are likely to come under pressure and cause a reduction in financial flexibility.”

 

Topics