Elliot Lane says that major international banks are circling the insurance market for acquisition candidates
Watching The Apprentice finale this week, many viewers were shocked to see high-risk candidate Simon Ambrose beat the steady, hard-nosed Kristina Grimes.
Sir Alan Sugar’s decision to be the “bloody old fool” of business and gamble on the energetic outsider displayed the riskier side of high finance, whatever pundits believe of his business acumen.
Behind the scenes in the insurance industry over the past few weeks, there has been a tectonic shift reflecting the fact that the broker market is at its peak. The distribution war in some respect is virtually over. Towergate’s unique proposition is no longer unique against the AXA, Groupama, Equity and Allianz strategic moves. And of course Aviva remains the pinnacle of success as the dominant carrier.
So what’s next? The prices paid for brokers recently, sometimes 13 times or even 17 times brokerage, has also caused the reverse psychology of pricing many traditional insurers out of the market. But the Towergate headlines, and probably Peter Cullum’s greatest legacy, is that UK insurance and broking is attracting the major high risk players.
Last month property services company Erinaceous Group is understood to have received a £350m takeover approach from Vincent Tchenguiz, brother of Robert Tchenguiz, the property development magnate. Vincent is renowned as the sensible and prudent brother versus his playboy sibling, but sources say he is attracted to the insurance division of the group which he sees as highly dynamic and lucrative.
Most venture capitalists expect return on equity (ROE) of roughly 30% when buying businesses. Reinsurers, after the horrendous hurricane season of 2005, did achieve ROE of roughly 25%-30%. That was exceptional circumstances. But most brokers bought over the past three years have averaged 12%-15% ROE.
However speculation in the money markets is that the liquidity in the investment banking community, worth billions and the reason for such eye-watering City bonuses, is burning holes in the Saville Row suits of major bankers.
All the major investment banks, US and European, such as Goldman Sachs, Morgan Stanley, Credit Suisse, UBS, Candover, Rothschilds et al are circling the market for investment opportunities.
These banks are looking for apprentice-like investments in the UK, equity stakes of between 50%-70%, where like Sir Alan, they want the best of British.