MIchael Wade points to investment benefits if quoted insurers merged
The largest quoted insurers at Lloyd's should merge to create a "must-have" super insurance stock, a leading investor told the market last week.
Michael Wade, chief executive of the investment vehicle the Rostrum group, said a Lloyd's insurer with a market capitalisation of more than £3bn would reap huge cost savings and be a mandatory item on institutional investors' shopping lists.
Wade told an audience at Lloyd's that the market's quoted insurers, the largest of which are Brit, Amlin, Hiscox and Wellington, were missing out on the value they could offer investors if some of them merged.
The largest, Brit, had a market capitalisation of £745m. This was a fraction of the size of Aviva's £11bn or Royal & SunAlliance's (R&SA) £2.6bn.
Their current small size brought them lower liquidity in their stocks, greater volatility and vulnerability to losses.
Wade argued that a consolidated Lloyd's insurer would be the UK's third largest insurance stock, behind Aviva and R&SA.
He said: "It would offer an investment market a facility for the first time to invest in a specialist London insurance market."
Similar ideas have been criticised previously for failing to cater with the infamous egos and amibitions of Lloyd's underwriters.
Wade, speaking at a lecture organised by the Insurance Institute of London, proposed the creation of a separate underwriting company which would work in partnership with a capital provider.
He said: "It's quite wrong to assume that the best underwriters should always sit on the capital provider (ie, the plc) board."
And in return for success, the underwriters could perhaps be paid more than the plc's chief executive.
Wade hoped that at least one board of the larger quoted Lloyd's insurers would "assume the role as a beacon" for the investment market.
For Lloyd's insurers to become a good long term investment demanded consolidation, he concluded.