Biba 2012: Review of the year

1. Consolidators

The shake-up of the consolidator market was one of the biggest developments in 2011/12.

In a changing of the old guard, Towergate, Oval and Giles all brought in new men at the top.

Towergate swooped for Aviva UK chief executive Mark Hodges to replace insurance stalwart Andy Homer as group chief executive in June last year.

Hodges has since been linked with a return to his former employer following the departure of group chief executive Andrew Moss after a shareholder revolt over pay.

Among Towergate’s main takeover targets over the past 12 months was Cobra, which the consolidator has gone head-to-head for with Alto Intermediary Group, the acquisition vehicle formed by current Cobra chief executive Steve Burrows.

The deadline to buy the fellow broker has been extended until the end of this month.

In December, former Willis UK and Ireland chief executive Brendan McManus was appointed the new chief executive of Giles, with his predecessor Chris Giles moving to the role of group executive chairman.

Known for his direct and no-nonsense approach, McManus has been very clear about the scale of his ambitions in the acquisition market.

Another significant departure was managing director Sarah Lyons, who left to “pursue other interests”.

Earlier this year, Oval group chief executive Phillip Hodson stepped aside to be replaced by his deputy, Peter Blanc.

Under Blanc’s leadership, Oval has already adopted a different strategy, putting acquisitions on hold for the next six to 12 months to concentrate on organic growth.

2. Groupama

Groupama hit the headlines at the start of this year after putting its UK insurance arm and broking assets, Bollington, Lark and Carole Nash, up for sale.
A string of potential bidders has been linked with the insurer since it was put on the market.

Names said to be interested in the underwriting business included private equity firms JC Flowers and Charterhouse (through Giles and Acromas via the AA).

On the broking side, Giles was also believed to be in the running, while MBOs have been planned at Bollington and Lark with the backing of private equity firm Gresham and an insurer respectively to finance the deals.

Fellow insurers Allianz, AXA and Aviva are understood to have dropped out of the bidding race.

Aviva itself has been the subject of sale speculation after the clamour started for the insurer to sell its UK general insurance arm, valued at £3.2bn by analysts, amid hopes that the successor to former group chief executive Andrew Moss will split the life and general insurance businesses.

RSA tried to buy Aviva’s general insurance arm in a £5bn bid in September 2010, but was knocked back. But, since then, the eurozone debt crisis has struck and Aviva’s share price has tanked.

Groupama took a €1.8bn (£1.4bn) hit from the eurozone debt crisis after it made big writedowns on its Greek bonds and its shares in French banks and utility firms plunged.

But with the bidding process ongoing, Groupama’s UK chief executive, François-Xavier Boisseau, has warned potential bidders that the parent company will not sell the business on the cheap.

3. Motor insurance

The issue of whiplash and referral fees took centre stage at February’s meeting between David Cameron and insurers at 10 Downing Street.

At the summit, the PM vowed to tackle the UK’s “compensation culture”, specifically pledging to cut the £1,200 fixed fees that lawyers receive for successful personal injury claims put through the Road Traffic Accident portal.

The government also promised to bring the £2bn-a-year whiplash claims costs under control through tougher medical evidence, barring claims below a certain speed limit, and use of technology.

At a follow-up meeting this month, justice secretary Ken Clarke re-affirmed the government’s commitment to crack down on whiplash claims, making it harder for claimants to get medical certificates and easier for genuine personal injury claims to be handled in small claims courts.

Most of Lord Jackson’s suggested reforms on whiplash and civil litigation costs were also included in the Legal Aid Bill, which was given Royal Assent in April, although some will have to be brought in separately by the Ministry of Justice.

As ever, the issue of motor premiums, which soared by 15.3% in 2011, continued to dominate the market, according to the average quoted AA Shoparound Index.

Another significant factor looming large for insurers is the EU gender directive, which has resulted in rises in premiums for women to bring them in line with male drivers.

4. London market

2011/12 heralded a wave of M&A activity in the London and Lloyd’s markets.

In a changing of the old guard, one of the biggest movers and shakers was Gallagher International, which bought Heath Lambert for £97m in May 2011 and later renamed the business Gallagher Heath.

The purchase was followed by a number of London market-style raids on executives and teams at Gallagher’s rivals.

In June, Gallagher poached Towergate commercial underwriting director Simon Read and homeowners underwriting managing director Scott Banks, who left along with a number of their colleagues.

And in August and September, Gallagher moved for Oxygen, including its 21-strong London market team and the Leeds-based corporate risks business.

In the Lloyd’s market, Hardy was acquired by CNA Financial for £143m, Chaucer was bought by US insurance group Hanover and the Jubilee Group was sold to Ryan Specialty Group.

Another deal in the offing is Canopius’s £164m bid for Omega, while executive chairman Michael Watson is also eyeing other deals.

QBE, which acquired the renewal rights to Brit UK’s regional business in April 2012 to a mixed reaction, will also be hungry to make more acquisitions given its strong position and the number of well-priced deals available.

The year was a better one for insurers, most of which returned to profitability after a tough year of trading in 2010.

5. Solvency II

Solvency II has been top of the agenda for insurers over the past 12 months as implementation looms.

Under the new legislation, insurers will be required to meet tougher rules on holding capital and judging risks.

Solvency II, which was designed to harmonise the different insurance regulations across members of the EU and force insurers to hold enough capital to prevent bankruptcy, moved a step closer after the crucial vote on Omnibus II was passed by the European parliament, with the deadline for it to be transposed into law being brought forward to January next year from 31 March 2013.

As the debate intensified over the issue, the European Commission came out fighting in defence of the new legislation after insurers, including Prudential, threatened to leave the UK over the cost of complying.

Public figures such as David Cameron and Boris Johnson also waded into the debate, urging Prudential to stay and vowing to lobby the EU over Solvency II.

Recent research has revealed that more than three-quarters of insurers believe that Solvency II’s implementation will be delayed beyond the current date of 1 January 2014, according to actuarial firm Barnett Waddingham.

Figures

€1.8bn

The extent of Groupama’s exposure to the eurozone crisis

£1,200

The fixed fees lawyers currently receive for successful personal injury claims

£2bn

The annual cost of UK whiplash claims

15.3%

The amount motor premiums have risen in 2011, according to the AA

£97m

The price Gallagher paid for Heath Lambert

£143m

The price Hardy fetched when it was sold to CNA

2014

The date for Solvency II implementation

£33.7bn

The capital impact of Solvency II to insurers

£3.2bn

The value put on Aviva’s UK general insurance arm by analysts

10

The average number of man months large general insurers have spent implementing Solvency II, according to the FSA