Close Brothers has announced plans to downsize its premium finance division, aiming to reduce expenses and concentrate on its business-oriented services.
The financial institution declared on Wednesday that it would shift its focus towards insurance products tailored for businesses within its commercial lines, citing superior risk-adjusted returns and prospects for long-term growth, as reported by .
Consequently, the bank will move away from personal insurance offerings like home, car, and travel policies, turning its attention to business-centric coverages such as property, cyber, and liability insurance.
Following the news, Close Brothers saw its shares plummet by over seven percent in early trading, dropping to 379.60p.
As part of this strategic realignment, the FTSE 250 bank anticipates a 30 percent contraction in its premium finance loan book over the forthcoming three years, with an expected short-term impact on operating profit.
However, the group is targeting higher income per case and enhanced profitability and returns in the longer term.
Close Brothers projects annual savings of £20m by 2030, although the restructuring efforts are estimated to incur costs of £15m.
In its semi-annual report, the bank noted 2.3m customers and a loan book valued at £958m, with a relatively balanced split between personal and commercial lines at £441m and £517m respectively.
The lender has faced increasing challenges within the premium finance market, highlighting "rising costs... broker consolidation and increased operational complexity" as factors diminishing the appeal of personal lines compared to other segments of its portfolio.
Analysts at Panmure Liberum have expressed: "There is a hope that growth in Commercial premium finance will, over time, take up the slack."
They also noted the difficulty in predicting the exact outcome, stating: "Modelling exactly how this plays out over time will be tricky, but the point is that there is another headwind to estimates and compared with consensus profit before tax for 2027 estimate of £156m this looks to be a material downgrade."
Furthermore, they highlighted the significance of the Supreme Court's decision regarding Motor Finance, saying: "It remains the case that the outcome of the Supreme Court process with respect to Motor Finance remains the most important, and potentially binary, outcome for the company but this is a reminder that even should the Supreme Court outcome be 'positive' there are still issues to address."
Close Brothers to bulk up tech
Close Brothers has announced plans to enhance its technology as part of its "strategic repositioning" which includes optimising the division's cost base to modernise its tech offering.
Mike Morgan, Close Brother's chief executive, commented on the strategy: "As outlined previously, my priorities remain to simplify the group, improve operational efficiency, and drive sustainable growth. This decision brings us closer to a more sharpened portfolio of core businesses positioned to deliver attractive risk adjusted returns."
The update arrives as Close Brothers, along with the wider banking sector, anticipates the pivotal motor finance verdict from the Supreme Court.
The bank has been battling to reverse the Court of Appeal's October verdict, which deemed it illegal for banks to pay commission to car dealers without the customer's informed consent. This case was taken to the Supreme Court in April.
A decision from the court is anticipated in the forthcoming weeks.
While the bank has earmarked £165m for provisions, RBC analysts speculate that costs could escalate in a less favourable scenario.
