By Scott Kanowsky
Investing.com -- Shares in Saga (LON: SAGA ) shed more than 10% of their value on Monday after the U.K. leisure and financial products firm slashed its full-year income guidance, citing the impact of surging price growth on its insurance business.
The company, which specializes in providing services to over-50s, said it now expects underlying pre-tax profit in the range of £20M - £30M "and grow future earnings from this level." That is down from its previous estimate of £35M - £50M.
Although the outlook for its expenses, as well as its cruise and travel units, remained unchanged, Saga warned that inflationary pressures within the U.K.'s insurance market "are anticipated to continue."
The group's underwriting division in particular has seen a 13% jump in the cost of claims over the first half of its fiscal year, which Saga flagged would hit its overall profitability.
The insurance unit is also facing a "challenging" trading environment due to regulatory changes in the U.K. that required the equalization of pricing between new and renewing motor and home policies, Saga noted, reiterating concerns raised in its annual results in March. Sales of these policies fell compared to the previous year, even though customer retention improved and margin per policy was in line with 2021/2022.
"We expect the current high levels of insurance claims inflation to continue and the sales of motor and home insurance policies to be similar to the first half," Saga said in a statement.
However, underlying pre-tax profit for the first six months of Saga's trading year rose to £14.0M, recovering from a loss of £2.8M in the corresponding period last year, thanks to solid demand for ocean cruises despite lingering effects from the spread of the Omicron variant earlier in 2022.
In the second half, Saga predicted that the rebound in its cruise and travel units will continue, adding that its exposure to a recent spike in fuel costs in the U.K. "has been largely offset" or "hedged."
"[A]t present, we are not seeing any impact to demand from our customers," the group said.
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