esure Group PLC (LON:ESUR) - the insurer which completed the demerger of the Gocompare.com price comparison website in November - saw its shares jump today after it reported solid growth in premium and profits for 2016, with its strong capital position allowing payment of a bigger than expected special dividend.
By mid morning, esure shares was the top FTSE 250 gainer, up 7.5%, or 16.7p at 239.2p.
For the year ended December 31 2016, esure saw its underlying profit after tax increase by 18.0% to £80.5mln, up from £68.2mln in 2015.
The profits rise came as the Shelia's Wheels group saw its gross written premiums rose by 19.0% to £655.0mln, up from £550.3mln a year earlier, with the number of in-force policies up 8.6% to 2.174 mln.
Sir Peter Wood, esure’s chairman, said: "2016 has been a significant and positive year for the Group. Premiums are ahead of expectations; Gocompare.com has been demerged allowing both businesses to thrive and reach their full potential; capital is at the top of our risk appetite; and we have once again paid a special dividend demonstrating the Board's commitment to return excess capital to shareholders."
esure’s solvency coverage ratio rise to 149%m, up from 123% in 2015, underpinning its final dividend of 10.5p, giving a total payout for 2016 of 13.5p, up from 11.5p in 2015, and inclusive of the 20% special dividend.
On track ...
Stuart Vann, the firm’s chief executive officer, said: "We continue to focus on and control carefully our approach to underwriting, underpinned by our enhanced customer contribution modelling. As a result, we are on track to deliver increased value to shareholders both in 2017 and beyond."
In a note to clients, Shore Capital analyst Eammon Flanagan pointed out: “esure reported 2016 results which were better than we and the market had expected driven by stronger than we had forecast investment returns, a much higher level of ancillary and instalment income and an underwriting performance which was in line with our expectations.
He added: “The 13.5p dividend (consensus: 9.5p), based on a 70% pay-out, is likely to be well received, although it remains a figure which is nigh near impossible to forecast.”
However, the analyst repeated a ‘sell’ rating on esure, saying: “The key for both esure and the industry is whether the market responds with significant rate increases to offset the Ogden impact, at which point happy days for the companies, not so for the public or the government (which could then witness motor rate driving RPI ever higher) – we remain sceptical!”
In its statement, the group confirmed that the Lord Chancellor's recent cut to the Ogden discount rate used for calculating personal injury claims to minus 0.75% from plus 2.5% had a limited impact as the firm had already included an allowance for a rate of 0%.
Nicholas Hyett, equity analyst at Hargreaves Lansdown said esure "deserves credit for dodging most of the problems caused by the Ogden rate, which caught out many of its competitors.
“The change in the rate used to calculate personal injury compensation payments has left a much smaller dent in esure’s numbers than that of rivals, thanks to a conservative approach to underwriting and existing allowance for a much lower rate.”
-- Adds further broker comment, updates share price --