Analyst flags up reserving issue and warns the market will have concerns
Hastings decision to strengthen large loss reserves is ‘disturbing’, according to a leading analyst.
Hastings yesterday revealed in its half-year results that it had ’experienced a higher number of large losses in relation to the 2014 accident year than expected’ and had decided to strengthen large loss reserves in relation to the 2014 and 2015 accident years.
While Shore Capital analyst Eamonn Flanagan praised the ‘good set’ of half-year results, he warned that this reserving aspect was a concern and fired off a sell recommendation on the stock.
“Despite the better underwriting numbers, the group’s need to revisit its 2014 and 2015 claims reserves so early in its history as a PLC is disturbing in our view and will increase fears in the market that its current year figures are too flattering,” he said.
According to The Times, the decision to strengthen reserves related to serious motorcyle accidents and similar cases from 2014 and also for last year and this year.
Chief executive Gary Hoffman said it was ‘prudent’ to strengthen reserves. He said there was no worrying ‘pattern’ emerging in Hastings underwriting.
The half-year results showed that Hastings reserve releases accounted for only a 0.3% improvement in its calender year combined ratio, comapred to 6.3% last year.
The reserving has not caused any concern among investors as the stock climbed to 212p, its highest point since listing a year ago.
Hastings is the fastest growing motor insurer, according to latest research.
|30 June 2016||30 June 2015|
|Accident year loss ratio||74.3||79.9|
|Prior year development loss ratio||(0.3)||(6.3)|
|Calendar year loss ratio||74||73.6|