Verity Adams looks at the recent acquisition of Hastings insurance by Australian insurer IAG and its potential impact on the UK market
After last month's £140m acquisition of Hastings Insurance by relatively unknown Australian insurer Insurance Australia Group (IAG), questions have been raised about IAG's strategy and how this will impact on the UK insurance market.
The advantages for IAG, a giant in its home market, seem obvious: increasing its geographic business and expanding its product lines, while offering the prospect of making future acquisitions. Hinting that this is the tip of the acquisition trail for IAG, the insurer described the purchase as: "The perfect entry point into the UK market."
IAG added that its "strategy in mature markets like the UK is to target successful general insurance businesses, primarily in motor, where we can access new customers and local expertise." It reported a considerable GWP of £2.53bn at the year ending 2006.
Hastings chief executive Michael Hawker says IAG will accelerate the growth of Hastings, and it is expected to contribute about 3% of the group's GWP target growth of 5% -10% by the end of June 2007. But Hastings' sister company Creechurch was not part of the sale, leaving its future uncertain.
What will be the impact on the UK insurance market? Datamonitor analyst Andrew Birkett doubts that the emergence of IAG in the UK will herald a wave of companies coming into Britain, but expects continued growth at Hastings. He suggested that more products, including travel insurance, could be on the cards for IAG. With the motor market desperately underpriced and companies struggling to maintain a profit, there is a chance that IAG could turn this around with the success and continued growth of Hastings.
But analyst Eamonn Flanagan, of Shore Capital, says there will be no immediate business impact as a result of the acquisition. "Having spent all that money, I don't suspect they will use it and waste it on crazy rate reductions. If they have got the timing right, the market will move automatically."
Flanagan brushed aside the possibility of a Budget or Admiral acquisition and suggested Highway may be a more attractive purchase.
Martin Earley, commercial director at general insurance software solutions company Harlosh, says IAG's purchase of Hastings is the way of the modern world. "The fact is, we are living in a global market. If IAG wanted to look now at making more acquisitions would they look at Admiral, and what would that do, push prices down? In theory, the bigger they get, the more they should be able to cut costs."
Interestingly, Earley suggests Budget could be another likely company on IAG's shopping list of perhaps six smaller companies.
A further market source says: "I don't feel this [the acquisition] will have a huge impact on other insurers. It's more a question of what IAG will do to develop Hastings within the broking market to take on the likes of Budget and KwikFit."
On a broader level of foreign companies entering the UK insurance market, Graeme Trudgill, manager of technical services at Biba, says: "Biba will be looking out for new players to see what their intentions are. It may become an ABI member co-operating and helping brokers, but maybe it wants to compete against brokers and buy direct markets."
IAG's move into the UK is a stepping-stone into Europe, which has been strengthened by the acquisition of Hastings' sister firm, Gibraltar based-insurer Advantage Insurance. Hastings is expected to achieve about £200m in gross written premiums this year and Advantage is a leading underwriter of motorcycle policies and underwrites lower-risk motor policies. This year, it is expected to underwrite £100m in gross written premiums.
Paul Chaplain, underwriting director at Fortis - whose client base includes Hastings - admits that although little is known about the Australian insurer in the UK, Fortis is looking forward to discussing the plans for Hastings.
Simon Burgess, managing director of British Insurance, offers an interesting broker perspective: "In my view it's very positive. Instead of jobs being exported to India, there is investment in UK companies. It's a really positive step and will help to boost the industry. Companies like Hastings are attractive to investors and the British workforce has a lot to offer. Norwich Union is exporting jobs and losing decades of talent and skill. There are big opportunities. The British insurance industry is a world-class player. It [IAG] is competition for those exporting jobs elsewhere."
Richard Griffiths, director of recruitment specialist Hays Insurance, says there are future global challenges on the horizon for the insurance industry.
"This is a global trend. The key growing insurance markets and potential global players to watch out for over the next 20 years are Korea and China. Acquisitions in the future will not just be about acquiring licences to operate in overseas markets with established infrastructures, it will be because setting up from scratch and acquiring the necessary talent will be so difficult."
So this acquisition could well be a boost to the UK insurance industry. But what impact IAG's move into the UK will have on the broker market, only time will tell. There is little doubt however, that given the nature of globalisation within financial services, insurance companies have to acquire or be acquired. IT
IAG at a glance
