‘Full implications’ of the referral fee ban on future profit as yet unknown

Broking group Swinton is on track for improved profits in 2011 after a small dip in 2010. The company is also planning to continue growing through mergers and acquisitions.

However, the impact of the pending referral fee ban is an unknown quantity hanging over the company’s head.

Swinton Holdings made a profit before tax of £33.9m in the year to 31 December 2010, down 6% on the £36.1m it made the previous year. While turnover increased 2.3% to £278.1m from £271.7m, this was offset by a 3.6% increase in administrative expenses to £238.2m from £230.1m.

According to Swinton chief executive Peter Halpin the increased expenses were generated by investments in a number of projects during the year, which did not come online until towards the end of 2010 and did not start bearing fruit until 2011.

These included developing new products, improving systems and making electronic documentation available to clients. “There are some higher costs in there that didn’t in the year produce a significant amount of income, but we are seeing that coming through in this year’s results,” Halpin said.

In addition to the new products and improved systems, the 2011 results to date have also enjoyed a boost from the higher rates in personal lines. Halpin said that the rate of price increases is starting to fall, but this is only making the increases easier for clients to swallow.

“Customers are getting used to the increases they are seeing at renewal, which means that less churn, re-broking and discounting is required,” Halpin said. “As a consequence more of the premium increases that insurers are putting through are coming through onto our own bottom line. This year, we are looking at a much improved position against where we were last year.”

However, while the rate of price increases is slowing, Halpin does not expect a return to underpricing in personal lines, especially motor. “While claims costs are still increasing, the incentive is there for insurers to continue increasing the premiums,” he said.

The company is also continuing its strategy to grow by acquisition. Halpin says Swinton has completed more than 20 deals so far in 2011 and is on the lookout for more.

“Acquisitions represent a good opportunity to grow the business, and provided you can get them at a sensible price and it makes sense for our business, we continue to look at and seize good opportunities,” Halpin said.

He added, however, that the seizes of the companies being acquired on the personal lines side of the business in particular is dwindling. “That potentially reflects the fact that the average book of personal lines business that the brokers hold at the moment is smaller than it once was,” he says.

While Swinton’s 2011 prospects look good, the effects of the government’s pending ban on personal injury referral fees on the company’s income are unclear. Halpin declined to disclose how much his firm makes from the controversial fees, but he added: “We do have referral fee arrangements in place. Like everybody else, we are waiting to see how that develops to understand the full implications for ourselves.”

Another possible unknown featured in Swinton’s 2010 results is its securitised debt facility, which comes up from renewal in 2012. But Halpin confirms that the facility’s renewal is all but signed and sealed.

“That is currently in the process of being renewed as we speak,” he said. “It has been approved and agreed. It is just a case of dotting the ‘i’s and crossing the ‘t’s.”