Hastings bought by Finnish/South African consortium

Hastings has confirmed an offer to buy the remaining shares in the group by a consortium known as Dorset Bidco which is comprised of Nordic insurer Sampo and Rand Merchant Investment Holdings (RMI).

Hastings first addressed deal rumours this week.

Today’s announcement showed the deal valued Hastings at £1.66bn.

RMI is already a 29.7% shareholder of Hastings having invested in 2017. 

Toby van der Meer, chief executive officer of Hastings, commented: “We have announced this morning that the Group’s Independent directors and the directors of Dorset Bidco Limited, a consortium comprising Sampo Oyj and Rand Merchant Investment Holdings Limited, have reached agreement on the terms of a recommended cash offer to acquire the issued and to be issued share capital of Hastings, not already owned or controlled by Sampo and RMI.

“The offer will be subject to shareholder approval and the receipt of regulatory and anti-trust approvals.”

New company
Dorset Bidco is a newly incorporated company registered in England and Wales, formed on behalf of, and jointly owned by, the Consortium for the purpose of implementing the offer. It is intended that, at the Effective Date, Sampo’s and RMI’s entire indirect shareholding in Hastings will be held through Bidco. Sampo will hold 70% of the shares in Bidco and Main Street (a subsidiary set up by RMI) will hold 30%.

In 2014 Sampo was touted as a possible buyer for RSA.

The listing on the London Stock Exchange noted that Sampo and RMI have identified certain areas of Hastings’ operations that they believe with their experience and under private ownership can be further developed, which include:

• claims handling sophistication driving both lower claims costs and increased customer satisfaction;
• expansion into home insurance driving growth and diversification;
• increased customer retention driving greater cost efficiency and premium growth; and
• optimisation of reinsurance strategy driving higher earnings at attractive return on capital.

The consortium also said it believed the offer and operational improvements will deliver certain financial benefits to Hastings, including:

• increased insurance risk retention providing for an attractive return on capital deployed;
• loss ratio improvement as a result of leveraging Sampo and RMI’s underwriting expertise; and
• expense savings as a result of removing costs related to the public listing.

Valuation
Analyst Ming Zhu, of Panmure Gordon, commented: “We view this as the top end of the valuation range for UK motor M&A and it should provide support for the whole sector.”

At the same time Hastings published its half year results.

Gross written premiums were up 3% to £514.9m for the six months ended 30 June 2020 (30 June 2019: £499.2m).

Hastings noted that the increase in LCP has been offset by a reduction in average premium primarily as a result of a change in the risk mix of business, and premium reductions to support customers during the Covid-19 pandemic in the second quarter.

It reported adjusted operating profit of £78.3m (30 June 2019: £59.7m, or £68.1m before the impact of the Ogden rate change) and profit after tax of £54.8m (30 June 2019: £38.2m). 

The provider said the increase in adjusted operating profit is predominantly driven by policy growth and the improvement in the calendar year loss ratio, offset by customer actions in light of Covid-19, including the waiving of fees, reduced policy adjustments and increased operating expenditure for IT enhancements to support colleagues working from home.

The COR also improved to 92.2% from 96.9% in the same period last year.

Hastings was forced to restate operating profit predictions in January this year, reducing it from £125m to £110m – a 12% fall. In 2019 it also reported a fall in revenue.

Performance
Van der Meer continued: “In regards to the business’ performance for the first half of 2020, I am immensely proud of how the Hastings team has adapted and responded to COVID-19 to make sure we continue to do the right thing. We have taken support measures and actions amounting to tens of millions of pounds during the pandemic, focussed on our colleagues, customers and our local communities.

“We minimised interruption for our customers, with our colleagues able to work and serve customers from home within a few weeks of the Government’s lockdown being announced. We are also pleased to have supported our NHS and care worker customers, established a dedicated community fund for local charities and a colleague hardship fund to assist those colleagues and their families that find themselves in need at this time of financial hardship for many.

“We have also waived fees, provided payment support for those with financial difficulties and encouraged customers to adjust their mileage where appropriate, providing refunds to those customers who have told us that they are driving less as a result of the pandemic.”

He added: “We continue to make great progress on our strategic initiatives towards our vision, including our digital investments, with even more customers now using our online services and 950,000 downloads of our mobile app. Underlying business performance continues to be strong and, as always, I would like to thank the entire Hastings team for the hard work and commitment in supporting our customers and the communities in which we work.”

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