Investment - Articles - Sabre Insurance to float on London Stock Exchange

 Sabre is a UK private motor insurance underwriter, founded in 1982, with an established track record of market leading underwriting performance, controlled and attractive growth and attractive cash generation. The Group generated gross written premiums ("GWP") of £197 million in the year ended 31 December 2016 and had an average of approximately 325,000 in force policies during that period. Policies are distributed through a broad network of over 1,000 brokers and direct to customers through three direct brands (Go Girl, Insure2Drive and Drive Smart, together the "Direct Brands"). The Group provides quotes in response to nearly all requests it receives which has resulted in a diversified book of business and a broad underwriting footprint with a bias towards the higher average premium segment, where the Directors believe the Group has an advantage through its proprietary pricing model and extensive dataset.

  

 The Directors' vision for the Group is to maintain its focus on the UK private motor insurance market, continue to provide brokers and direct customers with quotes across the entire risk spectrum and ensure the Group continues to deliver market leading underwriting performance, together with controlled and attractive growth over the longer term.

  

 Sabre's long-term track record
  

 Market leading underwriting performance: The Group had the lowest average combined ratio in the UK private motor insurance market over the 10 years ended 31 December 2015 (being the last date to which market information is available). Between 2006 and 2015 the Group's combined ratio averaged 74.2% relative to the market average of 111.0%.
  

 Controlled and attractive growth: The Group grew GWP at a compound annual rate of 11.3% between 2006 and 2016 whilst its loss ratio remained broadly stable.

  

 Strong cash generation: Between 2006 and 2016 the Group's low incremental capital requirement, strong profitability and consistent growth of GWP facilitated an average dividend payout ratio of 90.1%.

  

 Business highlights

  

 Disciplined, actuarially-driven pricing strategy utilising a proprietary and agile model: The Group prices to achieve a combined ratio of 80% or better, with no adjustments made or discounts offered to achieve sales volume targets and no individual pricing subjectivity. The Group's proprietary pricing model has been constructed in-house by its experienced actuarial team and refined over time to enhance its accuracy.

  

 Extensive dataset, compiled from more than 15 years of underwriting experience: The Group's pricing model relies on an extensive proprietary dataset, with broad coverage across the risk spectrum, which is continually updated to reflect the Group's latest claims experience. Policy and claims data has been compiled consistently over more than 15 years and is held on the Group's single policy administration system, ensuring high quality, reliable data is readily available. Proprietary data is enhanced by third party data validation and enrichment.
    

 Broad underwriting footprint: The Group provides quotes in response to nearly all requests it receives, allowing it to take advantage of opportunities to write high margin business wherever they arise, often in the higher average premium segment where the Directors believe competition is less intense.
    

 Robust and effective claims management: The Group benefits from a claims team of over 75 employees with more than 600 years of collective experience. Claims handlers use a proprietary claims workflow system which enhances efficiency and improves controls. Efficient use of outsourcing enables the Group to focus on areas where the Directors believe most value can be added, including managing personal injury claims and identifying fraud.
    

 Diversified, multi-channel distribution model: The Group distributes its policies through a broad network of over 1,000 insurance brokers (accounting for approximately 70% of GWP for the year ended 31 December 2016) and its Direct Brands (accounting for approximately 30% of GWP for the year ended 31 December 2016). Distribution through brokers gives the Group privileged access to certain customer groups (for example through affinity partnerships or a high street presence) and allows it to benefit from well established brands, whilst direct distribution provides strategic optionality. 
    

 Conservative approach to risk management: The Group makes use of excess of loss reinsurance. The Group's reinsurance cover provides unlimited personal injury cover, plus a level of property damage cover which is aligned with its policies, in each case with a £1.0 million attachment point (subject to an index linked adjustment), reducing volatility of loss ratio, earnings and cash flow. The Group has a conservative investment portfolio, which comprised 95.5% UK Government securities as at 31 December 2016, with a focus on capital preservation to support its profitable underwriting activities. The Group has a strong balance sheet, no external borrowings and intends to operate with a solvency coverage ratio of between 140% and 160% over time.
      

 Streamlined operating model: The Group has a streamlined operating model with approximately 150 employees operating from a single owned site with capacity for growth. The Directors believe the Group's selective outsourcing to third parties improves efficiency and provides scale optionality and variable cost control whilst maintaining customer service levels. The Group benefits from a long-standing and experienced management team with significant and diverse expertise.

  

 Details of the Offer

  

 The Company intends to apply for admission of its Ordinary Shares to the premium listing segment of the Official List of the FCA and to trading on London Stock Exchange plc's main market for listed securities. It is expected that Admission will occur in December 2017.
  
 Ordinary Shares will be offered to certain institutional investors in the UK and elsewhere outside the United States in reliance on Regulation S under the Securities Act of 1933, as amended (the "Securities Act"), and in the United States of America to persons reasonably believed to be qualified institutional buyers in reliance on Rule 144A under the Securities Act or pursuant to another exemption from the registration requirements of the Securities Act. There will also be an Intermediaries Offer.
  
 The Offer is expected to comprise an issue of new Ordinary Shares by the Company and a sale of existing Ordinary Shares held by private equity funds advised by BC Partners LLP (such funds together, the "Major Shareholder"), Angus Ball, certain of the Company's management team and certain other existing shareholders.

  

 The Offer is expected to raise gross primary proceeds of up to approximately £213 million, of which up to approximately £206 million will be used by the Company to purchase the preference shares issued by Barbados Topco Limited ("Topco") (the current parent company of Sabre), which are 99.9% owned by the Major Shareholder, Angus Ball and Keith Morris, for cash consideration. It is intended that Topco will redeem those preference shares shortly after Admission. Any primary proceeds from the Offer received by the Company in excess of the amount required to purchase the Topco preference shares will be used to pay commissions, fees and expenses relating to the issue of the new Ordinary Shares.
  
 If the gross primary proceeds from the Offer are less than approximately £213 million and Admission proceeds but the Company is unable to settle all of the consideration for the purchase of the Topco preference shares in cash, the holders of the Topco preference shares will exchange their residual cash entitlements in respect of the sale of their Topco preference shares for new Ordinary Shares of equivalent value at the Offer Price. Any new Ordinary Shares issued to the holders of the Topco preference shares under this exchange arrangement will be subject to the same lock-up arrangements as shall apply to such holders in respect of their holdings of Ordinary Shares.
    

 The Company, the Major Shareholder, the Executive Directors, the Chairman, Ian Clark and certain other shareholders are expected to enter into customary lock-up arrangements with respect to their shareholdings in the Company for specified periods of time following Admission.
  

 An over-allotment option of up to 10.0% of the Offer size will be made available by the Major Shareholder.

  

 Members of the general public will not be able to apply directly to the Company or the selling shareholders for Ordinary Shares in the Offer. They may, however, be eligible to apply for Ordinary Shares through the Intermediaries Offer.

  

 Full details of the Offer will be included in the Prospectus. Prospective investors should rely only on the information contained in the Prospectus when making a decision to participate in the Offer.
      

 Following Admission, the Company is expected to be eligible for inclusion in the FTSE UK indices.

  

 In relation to the Offer and Admission, Barclays Bank PLC ("Barclays") and Numis Securities Limited ("Numis") are acting as Joint Global Co-ordinators, Joint Bookrunners and Joint Sponsors.

  

 Joh. Berenberg, Gossler & Co. KG ("Berenberg") and Peel Hunt LLP ("Peel Hunt") are acting as Co-Lead Managers.

  

 Evercore Partners International LLP ("Evercore") is acting as Financial Adviser to the Company.

  

 Comments  

 
 Geoff Carter, Chief Executive Officer of Sabre said: "We are very excited about the next stage in Sabre's development. Sabre benefits from strong underwriting expertise, a unique dataset and proprietary pricing model, diverse distribution through our wide broker network and Direct Brands, robust claims management processes and a prudent approach to risk. These strengths give us a significant competitive advantage to write attractive and profitable business across the UK private motor insurance market. Taking account of the potential growth opportunities we see from further developing our pricing capabilities, the Board is confident that the business will continue to deliver significant value to shareholders following Admission."

  

 Patrick Snowball, Non-executive Chairman of Sabre said: "I have been very impressed by the expertise of the management team and capability within the Group. The business has delivered a consistently strong financial performance as a private company over the last 10 years and the Board sees significant opportunities to achieve further growth and create shareholder value. I have huge confidence that the opportunities identified by the Group will be capitalised upon to create a very bright future for the business and all of its stakeholders."