Hastings and Advantage combined results indicate 145% EBITDA increase to £27m

Motor insurer Advantage Insurance Company is moving to emulate Admiral by ceding more business to its reinsurance partners through
co-insurance agreements.

The Gibraltar-based company will soon be renamed Hastings Insurance Company (Gib) Ltd after it joins broker Hastings Insurance Services in a new holding company, Hastings Insurance Group Ltd, in early 2012. This company will then be floated on the stock market.

Advantage currently retains 40% of its business, passing some business to its panel of insurers where it lacks underwriting expertise and ceding 50% of the remainder to its panel of reinsurers, which includes Swiss Re, Scor and Faraday.

“We would estimate that, over the next couple of years as our business keeps on growing, that will reduce below 40%, whether that’s 20%, 25% or 30%,” said Hastings chief executive Ed Fitzmaurice, who will head up the new group entity.

For the 2011 year of account, Admiral retained 27.5% of its UK premiums. It has a main co-insurance agreement with Munich Re subsidiary Great Lakes for 40% of the business, and cedes the remainder on a proportional basis to its panel of reinsurers, which includes New Re, Hannover Re, Swiss Re, Mapfre Re and XL Re.

Fitzmaurice admits that he is an admirer of Admiral. “We like the Admiral business model a lot,” he said. “They are able to be very capital-light in how they run their business, and that allows them to run quite a cash-generative insurance company.”

Hastings revealed the first combined Hastings/Advantage results on Thursday. Earnings before interest, tax, depreciation and amortisation (EBITDA) for the year to 30 June 2011 rose 145% to £27m from £11m the previous financial year. Gross written premium increased 52% to £310m from £204m, and the combined ratio improved to 95% from 99%.

Hastings is also predicting strong growth for the future. The company now expects to become a top five personal lines broker in early 2012 instead of its original projection of 2014. It has also set a goal for 2020 of a 10% UK market share.

While there have previously been strong indications that the flotation of the combined Hastings/Advantage entity would take place in 2012, Fitzmaurice says that he is not ruling out any date. “We will do the IPO when the markets are ready and we are ready,” he said. “Who knows what the markets will be like next year or the year after? We are under no pressure because the business is performing well and there are no artificial time scales being imposed on us.”

Fitzmaurice declined to reveal how much Hastings makes from referral fees, but said that they “are not a major part of our income”.

However, Hastings supports the proposed ban on referral fees. “We think it has added costs into the industry, it should be stopped and we would be a net beneficiary from that happening.”
He added that the ban “would allow all good insurance companies to reduce rates, and with rates reducing in the industry that gives a low-cost operation like us a much better chance to grow”.

Pass notes: Hastings Group

What is Hastings’ current structure?
The broking arm, Hastings Insurance Services, is owned by Hastings 888 (UK) Ltd. All the shares in Hastings 888 (UK) are in turn owned by Hastings 888 (Holdings). This is in turn owned by a company called Lucky 888 Global. Advantage Insurance Company, based in Gibraltar, is directly owned by Lucky 888 Global.

How do the results break down?
Roughly 75% of the 2010/11 EBITDA is attributable to Hastings Direct, and 25% to Advantage.

Has Hastings done what it said it would?
Fitzmaurice said after the previous annual results for Hastings Insurance Services were released that the company was aiming for
a £20m EBITDA in 2010/11. Based on the proportions above, Hastings Insurance Services alone made 2010/11 EBITDA of £20.3m.

Where will Hastings float?
Fitzmaurice has previously said that the company is aiming for a London listing.