Archive for Insurance Mergers and Acquisitions

RBS Sells Off Direct Line Insurance Cheaply!

City Analysts are stating that the flotation of  government owned Direct Line is priced well, as the share price is up 7% today on the grey markets from the initial offering of £175 per share. The official floatation is not until the 16th of October.

However this begs the question that the company is being sold cheap and the taxpayer losing again.

The UK government has pumped more than 21 billion pounds into RBS, and the insurance side is one of the most profitable areas.
The Stock market listing of the company, which also owns the Churchill and Green Flag brands,  is the largest in London this year.
Private investors have been less sceptical about the float than other institutions.

At 175p a share, Direct Line would have had a market value of £2.63bn, which is much is lower than a £2.8bn-£3.5bn value placed on the insurer by the IPO advisor. Clearly the private investors see a quick profit to be made.

The future of the Croydon based company, which invented call centres, might appear rosy to those looking to make a quick buck, however the UK car insurance market is already saturated and the competition enquiry into car insurance might crimp future profits, however the brand under new management has been seen to perform well over the last two years.

End of The Line For Insurance Mergers & Acquisitions?

There is conflicting evidence as to whether the UK Insurance M&A Market is contracting.
Certainly it looks like some of the much bigger UK Insurance boys are up for sale! We sent our Insurance Newshound Kris Oldland out to find out who is up for grabs; and just what is going on in the UK Insurance Mergers And Acquisitions Markets?

UK Insurance Mergers and Acquisitions: Rumours round up!

First up is Insurer Provident, who are looking good for acquisition after having had their long-term counter-party credit and insurer financial strength ratings upped from stable to positive and affirmed at BB+ by ratings agency Standard & Poor.

An S & P spokesman commented that the revision was “based on the possibility that there will no longer be any parental constraint on the ratings on Provident Insurance following its sale, thereby allowing the company’s ratings to move by up to two notches to that of its stand-alone credit profile.”

Provident’s current parent GMAC has suffered a weak credit quality which has impacted upon the insurers rating.

However with the company effectively up for sale the parental constraints are less likely. S&P’s credit analyst Nigel Bond commented “The outlook also continues to reflect our understanding that the company’s financial strength will be protected to a significant extent by its supervisor, the UK Financial Services Authority.”

Bond also added “If the sale does not occur, or the financial strength is not adequately protected, it could lead to a negative rating action.”

Meanwhile the Kwik Fit Financial Services (KFFS) is looking to be sold for the fourth time in just over a decade.

French private equity firm PAI Partners have put a £200m price mark on the company after contracting Credit Suisse to perform a strategic review of their current business operations. However, it would seem that they won’t have to look too hard to find a suitable buyer with insurers, brokers and rival private equity firms all being rumoured to be voicing an interest in the private lines motor insurer.

Managing Director of KFFS Brendan Devine commented “KFFS is now a major financial services organisation; it is getting fart to big to be part of what is a tyre and exhaust company”

The insurance company recorded an £82.7m brokerage in 2008 ranking it as the 15th largest broker according to IMAS and also includes Green Insurance Company and motorbike specialist Express.

Getting back into the acquisition trail are Kerry London who are in good shape after rather smartly side stepping the difficulties suffered in the construction sector and diversifying to maintain a healthy cross sector portfolio.

Following on from the launch of an MGA with Fortis in May last year in the sports and leisure field (which is currently operating 20% above predicted revenues) Kerry London have posted impressive figures for the last year with annual turnover up to £15.9m in 2009 and a bank debt being reduce to £5.75m from £9.3m.

Despite an embarrassing “oversight” which led to a winding up order being served due to a failure to register full year accounts for 2008, the company are bullish about being in a good position to get back on the hunt for new acquisition and have confirmed that they have brought in a specialist adviser to work on their acquisition strategies.

Household brand E-Sure has also been snapped up recently by E-Sure founder Peter Wood backed by Private Equity firm Tosca Penta Investments and Electra Partners.

Mr. Wood founded the company in 2000 with the support of Halifax which has since become firstly part of the Bank of Scotland group and subsequently became part nationalised as a direct result of the recession. He has now taken a 70% stake in the company once more.

Taking an immediate step away from HBoS any existing policies underwritten by E-Sure will now be passed back to Halifax on renewal.

A spokesman said “As we are now independent it does not make sense for us to underwrite a Halifax named brand.” However, the existing deal between E-Sure and Sainsbury’s is likely to remain in tact despite originally being a joint venture between Halifax and the Supermarket giant.

“Everything is the same except one major shareholder has been replaced” the spokesman added regarding the Sainsbury’s deal. “The Sainsbury’s contract is still at E-Sure”

Finally, Lloyds broker RFIB’s new chief exec Marshall King has also indicated that he expects them to become acquisitive in the near future, although he is shying away from the seemingly mandatory desire to float on the London Stock Exchange just yet.

After a successful Private Equity backed MBO just under three years ago RFIB have had a phenomenal success posting a 73.52% annual profit growth to £6.06m last year. Now it appears that King wants to move them into the next tier. “Will we consider acquisitions in the future? Yes we will. When you get to a certain size then it makes sense to take slightly bigger bites if there is a good fit.” He said adding that he would be “surprised if we do not make one or two [acquisitions] in that time”

With Pricewaterhouse Coopers currently reporting M&A levels have dropped throughout the financial crisis by a staggering £30bn/year since the halcyon days of 2007, one could be forgiven for taking this brief flurry as an indication that we are starting to get back on track.

And with the onset of Solvency II possibly providing a catalyst for a further rise in M&A activity in the industry, as capital providers from a wider range are enticed into a well structured and regulated industry, then maybe, just maybe we may be getting ourselves back on track?

Hmm, Intersting stuff Kris! Insurance blogger then phoned up Insurance Mergers And Aquisitions specialist Anne Moran of Insuretec, who confirmed our suspicions about the UK Insurance Brokers Market.

She told Insurance Blog,

“We are seeing much more activity on the buying front, from Insurance Companies who are seeking to purchase insurance brokerages and accounts, offering both exits and continual active roles, making the offers available both more flexible and attractive to the seller.”

“Insurance companies are looking to build and strengthen the brokers they are purchasing.”
Sellers have many options available to them now. Our introduction service is free to all sellers and we help make the options available to them.”

“Brokers are still active purchasers, looking for varying areas of insurance portfolios and brokerages.”
“Wholesale and underwriting agencies are back in demand.”
” We always have a demand for property owners, quality commercial large or small, household and motor( especially specialist)throughout the UK so if you are considering selling or looking at other options please talk to us first at http://www.insurancebrokersellers.com

UK Insurance Mergers & Acquisitions: Could HSBC sale see Marsh and Aon on par again in 2010?

As 2010 warms up Insurance Blog has let resident Insurance journalist Kris Oldland give his UK Insurance insiders view as he plays Nostradamus with HSBC Insurance Brokers…..

In a year that has seen considerably less Insurance Mergers & Acquisitions activity than we had become accustomed to in the latter half of the noughties, the UK Insurance press at large has seemed occasionally a little desperate for gossip. So when one company keeps returning to the forefront of the latest trade press pages we can’t be blamed for thinking that we may have heard it all before…

However there is a certain persistence in the continuing rumors that Marsh are intent on purchasing HSBC Insurance Brokers to make me think that there could be just the tiniest hint of truth behind all this.
Of course from a strategic point of view it would make absolute sense for Marsh to make a bid also.
The market speculation is that Marsh has offered to buy the bank’s broking arm, HSBC Insurance Brokers. The inference that is being made in somewhat hushed tones however, is that this is all just part of a wider strategy by Marsh to get the banking giants on side. The long-term aim it is suggested is then to broker an affinity deal with the bank.
To date both companies have refused to comment on the speculation despite the rumor being reasonably widespread for some time now.
What is clear though is that a decision of HSBC to sell the division would fit in with plans for a wide reaching shake up of its insurance operations. In the previous financial year the bank disposed of its insurance operations based in Malta, Guernsey and Bermuda. The latter being perhaps the most telling move of all that the bank sees insurance as becoming non-core to their overall strategies.
Then as if further re-enforcing this position HSBC Insurance made the announcement that it was to cease underwriting motor insurance completely, swiftly putting HSBC Insurance (UK), its UK motor insurance vehicle into run-off.
It was at this time – when HSBC made the announcement that the corporate strategy was now to be focusing on pensions, investments business and life insurance and moving away from (motor) underwriting in the UK, that tongues really started to wag regarding the other insurance elements.
Various suitors have been referred to in the insurance press ever since, however for me, the fact that through this one acquisition Marsh could make a serious dent in the gap between themselves and their largest and oldest rival, super broker Aon (who of course pulled a similar trick last year when they bought Benfield) would suggest there is more than idle gossip involved here.
Based on the figures produced by IMAS corporate advisors earlier this quarter, the gap between these two giants of the broking sector is currently at £214m. HSBC Insurance Brokers are currently ranked ninth in the UK and should there revenue of £146m come under Marsh control then the gap between Aon and Marsh would come down to a rather more competitive £68m. What this would mean for the rest of the UK Insurance Brokers market is a topic for another article entirely though!
So for Marsh the attraction of picking up HSBC Insurance Brokers, especially from a parent company who appear keen to exit this sector, could be a little to tempting to resist? Well add into this mix the fact that the current CEO of HSBC Insurance Brokers, Phillip Gregory is an ex Marsh man. (CEO Europe, Middle East and Africa)
So with a tailored made CEO to oil the process of transition, should the question perhaps be when rather than if this deal is going to go through?
Well I’m not one to gossip but….

Interesting analysis Kris!
We’ll keep you posted here of any developments.

Insurance Companies are Going Cheap! – Recession Latest!

The recession has hit the insurance industry particularly hard and no sector has to date escaped. Aggregation has been a prominent feature of the market for a long time. Before the recession Insurance Brokers were the main target with the number of independent providers reduced by more than half as aggressive agglomerators swooped on books of business up and down the country.
The recession has brought with it major troubles for large bank owned brands such as Churchill and Direct Line and it looks like RBS will finally be forced to sell it’s crown jewels
Recent activity has also seen many large re-insurance companies going for a song!
However you really know the recession has hit home when you can pick up forward thinking Insurance Websites for peanuts….

Here is an Advert from this weeks insurance news

Now that is Cheap!

“One event away from a hard market” says Willis CEO

“One event away from a hard market” says Willis CEO

By Insurance blogger Kris Oldland

It appears that somebody else has spotted some of those fabled green shoots as Tony Ursano CEO of Willis capital markets and advisory, a unit of Willis Group Holdings made bold predictions that their will be significant increase in Mergers & Acquisitions (M&A) activity within the insurance industry as we move into 2010.

With the soft market creating a greater need for growth, diversification and specialization as insurers fiercely fight for every competitive edge, Insurance Mergers and Acquisitions deals may soon prove to be a much more valid alternative than perhaps they have been, throughout what has been a year of consolidation at best for most of the industry.

Citing key factors such as the increasing importance of the size and scale of companies for ratings agencies, investors and clients alike, Ursano sees the level of M&A activity increasing as financing capacity and terms begin to improve, more positive valuations increase confidence and markets begin to stabilize once again.

A bold statement indeed, especially when we consider that throughout the current year we have seen the average price of M&A deals fall to just 1.09 times the book value. It seems a lot longer than a year ago that M&A activity was a frequent occurrence and the average price in a deal was a whopping 2.46 times book value doesn’t it? The big question is can we really expect the market to come good again just as quickly as it fell apart?

Whilst maintaining such a positive outlook Ursano is no fool and he also remains cautiously realistic, as you would expect from a man in his position, as he reminds us that over 50% of insurance deals have “failed to create shareholder value”. Ursano again cited a number of factors including difficulties assessing the profitability of the target, the volatile nature of financing markets and of course the cyclical nature of the insurance markets as being responsible for the unsuccessful ventures.

However such caution is more to do with the nature of the M&A process rather than the external current external economic factors. If well thought out, thoroughly researched and expertly executed, an M&A deal can of course succeed on a shareholder level. The odds are further improved by a deal which has not only financial but also strategic benefits.

Companies looking to develop their position within the sector through acquisition need to ensure that the deal is positioned correctly and not just a reactionary move. Net earnings, return on equity and book value per share all need to be showing to justify the expense, but also there should be strong reasoned thought behind the strategic benefits to the acquisition. It is also imperative that there is total transparency of loss reserves available and committed financing placed upfront.

Of course one position that is often criminally neglected is ensuring that there is enough incentive to maintain appropriate staffing levels after acquisition – particularly the key management personnel that have made the target company such an interesting and compelling prospect in the first place.

Mr. Ursano certainly seems to think that the next chapter for the industry is not too far away. “We are one event away from a hard market” he said adding that the fantastic strains that are currently being placed on profitability and returns, alongside the reduced investment income now available in the sector and valuations being at an all-time low are creating a buyers market. With over 50 insurance and re-insurance companies trading at below their stated book value Ursano believes it could only take one major investment to “catapult the industry into a hard market.” We can but hope that he is right.

Whatever the next year holds however we can be certain of one thing in 2010 – the rules have changed this time round and it’s going to be one heck of an interesting year.

………………….

Thanks for that very useful insight Kris! You can find out more about what businesses are for sale in the Insurance world and register your interest by visiting Insurance Broker Buyers and Insurance Broker Sellers