By Angus Berwick
LONDON (Reuters) - British insurer esure Group Plc said on Wednesday that an inflated number of claims had taken the shine off an increase in the insurance premiums charged to customers, causing shares to fall by over 2 percent.
Esure, which provides insurance products to almost two million drivers, home owners, pet owners and holiday makers across Britain, said gross premiums rose 5 percent year-to-date to 430.5 million pounds ($652.5 million) in the third quarter due to a hike in the price of insurance.
This comes after several years of low prices due to strong competition in British motor insurance, where esure earns the bulk of its revenue.
"The rate increase has still some way to go before it balances out the cumulative impact of claims inflation," said Stuart Vann, esure's chief executive officer. He added that claims have being increasing for the last 17 months.
"In Q3 we've been pushing rates, we believe, at a harder rate than the wider market, which is keeping broadly in line with claims inflation," he said.
Esure's shares fell 2.3 percent to 249 pence per share by 1054 GMT, compared with a rise in the mid-cap FTSE 250 index (FTMC) of 0.34 percent. They have risen almost 22.8 percent over the past year.
Although insurance prices have increased in the last few quarters, higher fraud levels and greater economic activity have caused the number of claims to mushroom, Shore Capital Markets analyst Eamonn Flanagan said in a note.
"UK personal motor remains a tough market with average comprehensive rates up a mere 1 percent in Q3 ... with immense upward pressure on claims," Flanagan said. He rated esure a "sell."
But others struck a more positive note.
"Going forward we expect pricing to increase faster than claims inflation," analysts from JP Morgan Cazenove said in a note.
Esure said gross motor premiums rose by 5.9 percent to 364.1 million pounds, and home premiums rose 0.3 percent to 66.4 million pounds as the pressure on pricing continued.
The total number of policies rose 1.9 percent in the quarter to 1.991 million.