Saga, the UK insurance and travel business focused on customers over 50, cut its full-year profit forecasts on Tuesday, sending the group’s shares down more than 23 per cent.

The company blamed the gloomier outlook on inflation, which has driven up the cost of paying claims. Saga now expects underlying profits of £20mn to £30mn for the 12 months to January 31, down from a previous range of £35mn to £50mn.

Euan Sutherland, chief executive, attributed the cut to the forecasts to the effect on Saga’s insurance underwriting business of the “underlying inflationary environment around insurance claims”.

“This impacted our underwriting business more than we thought,” Sutherland said.

However, Sutherland insisted that other parts of the business were doing well and that the first-half results had exceeded market expectations.

The company announced underlying profits for the first six months — a measure excluding certain financial adjustments, including goodwill impairments — of £14mn, compared with a £2.8mn loss for the first half of 2021. Revenue rose 65 per cent, largely as a result of the restarting of the company’s cruise business following the coronavirus pandemic, to £258mn.

In the underwriting business, underlying first-half profits fell to £16.4mn, from £31.1mn, on underlying revenue down 13 per cent to £75.7mn. The company blamed a number of factors, including increased rates of car crashes as the number of miles driven rose and the effect of inflation on claims. The company said claims inflation was currently running at an annual rate of around 13 per cent.

“This increases the cost of insurance claims which is having some impact on our profitability,” the company said.

However, Sutherland said that in other parts of the business, including cruises, the company was managing to pass on raised costs to customers.

“We are seeing very significant inflation coming through,” Sutherland said.

The company was able to raise prices because it already had a programme to raise “per diems” — the rate it charges per day for cruises — to reflect quality upgrades.

“We have been able to go ahead of plan on that and offset inflation,” Sutherland said.

Alongside the results, Saga announced plans for a revamp of its travel business to offer customers more flexibility under a programme called “Tailor-made by Saga”. The operator will also offer new, “experienced gap-year” products intended to offer customers greater purpose in their trips.

The company announced a £257mn pre-tax loss for the first half, compared with a £700,000 pre-tax profit for the first half of 2021, as a result of a previously announced £269mn impairment of insurance goodwill resulting from expected tighter future insurance margins.

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