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 counterparty 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 "
Labels: acquisitions, Insurance Mergers and Acquisitions, mergers, Mergers and Acquisitions, UK Insurance, UK Insurance Market
Euro On The Point Of Collapse - Victim Of A Trojan Horse?
If the Franco-German alliance fails to bail out the Greek debt then the Euro will most certainly collapse!
Mass Devaluation.
Cheap Holidays in the Sun!
Suddenly Europe will not be worth half as much as it was!
Worse still for the Euro Bankers is the fact that the amount of Greek debt appears unquantifiable due to some smart bookeeping by the previous conservative government who were incumbent for most of the credit crunch and the subsequent recession.
This is not going to impress those financial entrepreneurial illuminati who have their money tied up in the Euro and itchy fingers on the sale button!
Europe is supposed to be growing itself out of recession faster than the UK or USA.
Some say that this is a mirage and was a temporary bounce due to the Eurobankers encouraging consumer spending coupled with the christmas seasonal factor.
The overall trends appear to be down!
If the Euro collapses on the money markets, all participants will pay the price of the Greek tradegy.
I can already hear the British Euroskeptics say 'I Told You So!' as the Irish economy collapses.
So what will it mean for the UK and in particular the
UK Insurance Industry?
Well Insurance Blogger thinks it could be a very good thing for the UK financial services industries as a whole.
After all when the Money markets sense a tsunami coming; the smart money always runs to the safest shores!
Of course the right wing euro-sceptics will claim victory in the advent of a Cameron led election victory; but the real praise must go to
Gordon Brown and Barack Obama for not following the Euro pump priming recovery route.
Labels: Bank of England, Barack Obama, Currency Exchange, Euro Bankers, Gordon Brown, Greece, Greek Economy, Money, MoneyMarkets, pump priming, UK government, UK Insurance
UK Insurance Regulation Is Changing The Face Of The Market
In 2005, two years before the credit crunch, the British government imposed far reaching financial and structural controls over the
UK Insurance Market by bringing the sale of General Insurance into the controlling hands of the Financial Services Authority, the FSA. Legal regulation and authorisation for the first time of the sale of UK personal lines and commercial risks.
Anyone large or small who wishes to market and sell the majority of insurance products in the UK must be authorised and regulated by this very large Quango.
Prior to this the UK Insurance industry was self regulated through professional bodies.
Five years on, what has this meant to the way we buy Insurance as consumers in the UK?
The regulation has certainly had a large impact on the available distribution channels, with a contracting market and barriers to entry.
Although regulation came into force during a period of Insurance broker consolidation and aggregation coupled with skewed figures due to new entrants from the Internet, it appears that our old friend the high street broker is the one to have suffered the most.
The problem with metropolis style regulation is that there is no point having it unless you have enforcement.
The UK Insurance Industry likes to use the nice word compliance as a synonym for the cost.
This has breed a whle new industry in itself, outside of the additional thousands of pen pushing bureaucrats in the FSA.
Compliance, generating a whole new industry and wealth base....the compliance officer or consultant.
The problem is ... it hasn't generated any wealth has it?
Where's the money for all this compliance come from?
Out of the pockets of the Insurance companies involved!
And where do you think that money is going to be retrieved from?
Quite Right! Higher Insurance Premiums for me and You!
So what we initially thought might be a boring insurance story has turned out to be very intriguing.
What's happening in the world of compliance and Insurance Brokers?
we thought we'd catch up...........
Insurance Blogger Kris Oldland Reports...
Regulation and Compliance: FSA Fees a “burden on smaller firms” Says Institute of Insurance Brokers’s Bradshaw
I imagine that there are no small amount of
insurance brokers out there at the moment wondering what on earth they have done to upset the financial authorities so much.
First we see her majesties wonderfully efficient revenue and customs chaps getting it completely wrong with Insurance Premium Tax and piling unnecessary and unwarranted taxation on the broking sector. Probably too busy trying to doubling erroneous tax bills to pay to much attention to what the role of the humble broker is.
But like the pantomime baddy that tries to steal every scene in the show in wade the FSA to show these clowns in the HMRC that when it comes to completely missing the point and costing brokers a lot of time, money and emotions – they have the market cornered by proposing a minimum regulatory fee of £1,000.
As they have done so many times before they really seem to have tried so hard to do the right thing but somehow just managed to get it so wrong. The move to review the fees and levies structure is the correct thing to do, but it needs done in a considered and intelligent manner.
When will the FSA understand that sometimes a one size fits all approach to all things financial just doesn’t work. Sometimes that square peg just won’t fit into that round hole – no matter how hard you smash it with that sledge hammer.
Well they’re in trouble now because Barbara Bradshaw, chief exec of the IIB and defender of the humble broker has the FSA in her sights. For the record I think that Barbara is a wonderful and very likeable lady, that said I wouldn’t like to get on the wrong side of her either, she is also a very powerful and determined lady who strikes me as being able to achieve anything she puts her mind to.
Referring to the proposed minimum fee as ‘totally disproportionate’ Bradshaw went on to comment that the fees were likely to become a major ‘burden for the smaller firms’
She added “While we welcomed the FSA's commitment to review the fees and levies structure, we're nevertheless concerned that the proposals really do penalise the smaller broker. The FSA's proposed fee structure means many smaller brokers could face up to a 200% increase."
Showing a complete lack of understanding for the complexities of the broking community as well as fundamental disregard for the smaller brokerages the FSA have claimed in their consultation document ‘Regulatory fees and levies: policy proposals for 2010/11’ that "These proposals simplify and significantly increase transparency as it is clear what the minimum fee covers and why”
The document goes on to later state that the new system will “be fairer as the basis for calculating it will be the same for all firms." Again they are so close to getting it right aren’t they? Again the theory behind it sounds like it is ticking all the right boxes but the delivery is just far too heavy handed.
The biggest worry is if we get rid of this incompetent lot, who are on earth are we going to get to replace them? Part of me would say that its better the devil you know. Perhaps if they just started listening to people like Barbara, Eric Galbraith or even god forbid a few
insurance brokers, they may actually be able to make the leap from having good ideas to actually doing some good? But can we afford to give them the time to learn from there mistakes when their mistakes are costing us so dearly?
Sort ‘em out Barbara for all our sakes.
Labels: Compliance, Financial Services Authority, fsa, Insurance Brokers, Insurance companies, Regulation, The FSA, UK government, UK Insurance
How Insurance Companies Use Your Credit Rating To Decide Your Premiums
UK Insurance Companies have been using credit scoring to determine policy acceptance, flag potential claims risks and load premiums for over ten years now.
What this means for the consumer is that if you do not fall into the credit/lifestyle brackets determined by the credit rating companies and identified by the Insurance Companies as the most profitable people sectors for their particular products, you will be either declined cover or offered it at a loaded rate commensurate with the amount of extra risk that the lifestyle group that you fall into presents, and designed to deter you from taking up cover.
In other words if you aren't what the insurance companies are looking for.... they don't want your business!
Here are the examples of the Experian Groups of type of person that YOU are! These are used for what is known as 'customer segmentation'. For Insurance purposes these are then grouped into four quadrants.
Low Conversion / Low Risk of Claims - An Insurance Company's desired customers
1. Wealthy Retirement
2. Mid Life Affluence
3. Surviving Singles
4. Elderly Deprivation
Low Conversion / High Risk of claims - An Insurance Company's least preferred customers
1. Ageing workers
2. Happy housemates
3. Credit Hungry Families
4. Advancing Status
High Conversion / High Risk of Claims - The customers an Insurance Company would like to be rid of
1. On The Breadline
High Conversion / Low Risk of Claims - An Insurance Company's most preferred customers
1. Gilt Edged Lifestyles
2. Modest Mid Years
3. Successful Starters
4. Flourishing Familes
So.....which one are you?
In the UK credit scoring was first introduced in the household and
car insurance markets in the late 1990's.
It is important to remember that credit scoring in the UK as carried out by 'big brother' credit scoring company Experian plc, is postcode and not people centric.
Where you live is the database primary key!
Nothing much has changed in the last decade with regards the database structures with the exception of the
amount of data that Experian holds on each and every one of us and
how the data Experian holds on each and every one of us is used!
When a customer applied for home insurance in the 1990's, the insurance company collected the data regarding all new policyholders and sent the extract overnight to Experian. Experian then took the extract and applied it to its credit scoring database and sent the file back a day or so later with the credit scores for the applicant attached. The Insurance companies could then use the database to see the likelyhood of claims by the type of people they'd underwritten the policies for.
At renewal those likely to make a claim could have their premiums loaded to discourage renewal and in theory protect the fund.
That is if you believe the Experian categorisation of propensity to claim!
When I first was asked to design these systems I thought that propensity to claim by lifestyle had some merit, for example young drivers, but to judge someone by the house the live in, job they do, credit cards they hold, and nowadays even by the school reports they were given... as being rational variables in a model to determine propensity to claim....was complete and utter bullshit... and I still do!
Yes Big Brother Experian even holds your school reports these days and it won't be long before they get your medical records as well.........
Thanks to the Internet and Experians new offshoot company Hitwise, all these things can be done online and the decision to offer insurance made instantly.
If you'd like to see an interesting if flawed analysis by Experian of the UK Insurance Industry online for 2009, but more importantly an excellent demonstration of how Experian data is used by UK Insurance companies to bracket and categorise each and every one of us before deciding how much to charge us in premiums...... -
watch this!
Labels: Credit Scoring, Experian, Insurance companies, Premium Calculations, premiums, UK Insurance
