Jim Armitage: Shareholders’ pain isn’t sure to lead to customers’ gain

Saga says that this is a good day for customers, a bad day for shareholders.

For the former — older folks buying insurance — it’s about time they caught a break. They’ve been putting up for years with insurers punishing loyalty by offering cheaper rates to newcomers. Saga reckons it’s now going to end the practice by offering “fairer”, three-year fixed deals.

But will this newfound saintliness gull customers into joining? I’m not so sure.

They’ve been conditioned not to trust financial companies and, if the oldsters of my acquaintance are anything to go by, are better than the rest of us at shopping around for the best deals. With time on their hands, Which? magazine readers among them even relish the challenge.

They’ll be suspicious of Saga tying them down for three years, especially when it admits they’ll pay more in year one.

As for shareholders, too right, it’s a bad day. But they’re used to those. Since Saga’s private equity owners persuaded them to buy the debt-laden company off them five years ago, they’ve watched the shares plunge 62%.

Today they’re told their dividend is to be slashed and the insurance side of the business is worth, erm, £310 million less than the company previously said.

But while that is painful for shareholders, it’s possibly more honest than the new insurance products. Since the float, Saga’s dividend payout has been rising every year while operating cashflow has been falling.

That never felt like straight dealing.

Saga’s financial structure looks more trustworthy than it has been for years. Whether its customers will think the same of its products remains to be seen.