Why Freedom Insurance Group Ltd shares plunged 31% lower today

The Freedom Insurance Group Ltd (ASX:FIG) share price plunged 31% lower today. Here's what you need to know…

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One of the worst performers on the market this morning has been the Freedom Insurance Group Ltd (ASX: FIG) share price.

In early trade the life insurance company's shares are down 31% to 48.5 cents.

What happened?

This morning Freedom Insurance released a business update to the market which revealed an expected decline in first-half profits.

According to the release, sales started strongly in the first-half of FY 2018, lead performance issues have impacted call centre efficiency and conversion rates.

Although the issues are being addressed and its sales run rate is expected to recover by the end of the half, first-half sales are forecast to be between 9% and 15% lower than the prior corresponding period.

Unfortunately, as operating expenses are to increase during the half to support the ramp up of sales of its new Life products and increased maintenance expenses on the larger in-force book, the combination of declining sales and increasing operating expenses is expected to lead to EBITDA coming in between $7.5 million to $9 million.

This will be a drop of between 19% and 32% on the prior corresponding period.

Should you buy the dip?

With management confident that sales and earnings will return to growth in the second-half, I believe that Freedom Insurance could be worth a look following this sharp decline.

While this is undoubtedly a big disappointment, the issues have been addressed and resolved now.

All being well, this isn't something that will repeat itself and the company can continue on its quest to oust CommInsure by Commonwealth Bank of Australia (ASX: CBA) as the second largest direct life insurance seller and then become a contender for market leadership.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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