Jelf’s chief executive talks about the state of the market and why the company isn’t making acquisitions right now
What are your plans?
We haven’t made an acquisition since 2008. Our focus is entirely on organic growth and building up the business. All of the parts of our business have objectives to grow organically but organic comes in different ways, whether through acquiring new customers and new people or selling more of our menu of services to our existing clients. That’s not to rule out acquisitions, but they would be opportunistic in nature, basically.
What about M&A?
We’re very clear that we’re looking at acquisitions but at the moment we are yet to find anything of real value at the right price. We’re having lots of discussions but we are not looking to contemplate an acquisition in the near future. The world back in 2008 when we had a lot of deals is completely different from the environment today. There are few firms out there making acquisitions but there are also a lot of firms not making acquisitions.
What is your view of the current market?
In the UK market I think we’re in a prolonged soft market. There’s overcapacity, almost all of the composite insurers and the specialist insurers are trying to capture the sweet spot, which is the lucrative SME, and there is just too much capacity. And so, for the foreseeable future, that coupled with the wider economic pressures will not drive any hardening of the rates. That said, my assessment is that composite insurers have pretty much cleared out all their reserves, so the question is how long they can go without trying to raise rates? But they are not the market in entirety – for every one of them that has a problem there is a new pool of capital trying to capture the market share. I think also, if I look at personal lines, which has enjoyed a relatively hard market in rating, that is coming off the boil. Brokerage, in terms of the market, is fiercely competitive, both in the competing for and obtaining clients, but also the recruiting and retaining of staff.
What about the wider economy?
I see some basic fundamentals that are restricting credit. We tend to act as a bellwether for what the wider economy is doing and everything is telling us it’s a mixed economy – some areas are doing well, some are not. I think the very fact that the banks aren’t loosening their purse strings in terms of credit will restrict any kind of growth in the market. An awful lot of our economy is dependent on the motor industry and the property market and I think the former is starting to recover but the latter is still very much in the doldrums.
How is your employee benefits and health business faring?
It’s done very well. During the beginning of the recession and throughout 2009 most of what we saw on the employee benefits front were companies going through redundancy programmes and looking to tighten the strings in terms of recruitment. So we saw a difficult period of that where people didn’t want to make decisions and there was a delay. In 2010 that confidence started to return because, once they had shed their staff, a lot of firms were looking to re-engage with their staff through employee benefit programmes and also reward them adequately. So since 2010/11 we have seen a very active market in employee benefits. Health is a very resilient market. Health care insurance is not one of the benefits that you take away from an employee’s benefits and so it’s got a lot of stickability. There is not an awful lot of growth in the overall market but certainly if you can advise, you can capture market share and once you provide a very good customer service you find that it sticks with you.
How about your Alternative Investment Market listing?
I think we have probably suffered in terms of our share price because of AIM. We have not regretted it but at the same time it’s difficult in a small cap market as an insurance broker to attract inward investment and a share price movement. However, that said, it provides our staff with the ability to trade and own shares. We have probably more than 300 that are shareholders. It’s useful to have with staff and clients.
What is your take on the consolidation market?
It’s an inevitable consequence of business. From our perspective we have a highly unusual degree of continuity within the team. But if you put that aside, it is a natural business cycle for a management team to move on and do different things. You should expect it and I think as long as you manage it in an orderly fashion it’s not an issue.
What is your outlook on commercial rates?
I think they are flat. If you look at the larger risks in the UK it still remains fiercely competitive because there’s a lot of capital charge in it. If you look at the mid-market it’s still very competitive. If you look at SME there tend to be more block deals done when you look for a solution for a clutch of business. All of which tells you there is a lot of capital out there chasing that, so I can’t see commercial rates rising in the near future and we’re certainly not planning for it.