It could be a great move strategically, but dismantling Brit’s management would cause broker unease
At first glance, QBE’s acquisition of Brit’s UK regional arm looks like a good one.
QBE is a liability specialist keen to expand in property in the UK, and Brit has a decent-sized property book.
Brit’s UK regional book was worth £441.2m gross written premium in 2010. The insurer has historically written around half of its UK business in property and commercial combined. An acquisition by QBE would boost its UK regional property book by at least £200m gross written premium. Furthermore, both Brit and QBE typically operate in the mid-market sector, so there’s synergy there.
Another factor is that the Brit UK acquisition will allow QBE to offer more package business to its clients.
That should help also help lower its combined operating ratio in the UK as package is more diversified with its risk than single lines.
Looking at the broader market, it surely can’t be long before rates harden in both property and commercial. Commercial motor is suffering, with combined operating ratios well past the 100% mark (Aviva’s was 113%) and liability, which is being hit by fraud claims, is also in the doldrums.
So QBE is well-positioned to use Brit’s business as a natural bedrock to pile on premium when the market hardens.
The challenge for QBE will be what to do with the Brit’s regional offices as they operate in similar territories. Will there be redundancies? QBE has offices in Birmingham, Bristol, Chelmsford, Glasgow, Leeds, Manchester, Norwich, Stafford and London. Brit offices are in Birmingham, Bristol, Darlington, Glasgow, Leeds, London head office, Manchester, Reading.
Also, Brit, for all the unsettling gossip over the deal, is highly rated by brokers. If QBE was to dismantle the management, it could send out a bad signal to brokers.
Finally, all this puts yet more responsibility on the shoulders of QBE’s head of property, casualty and motor Ash Bathia, who is also in charge of the UK distribution. Given the breadth of Bathia’s role, will QBE European Operations chief executive Steve Burns decide to bring in extra help?
Challenges aside, it’s an interesting move strategically. QBE, a cash-rich Australian insurer largely unaffected by the eurozone, could have spent its cash on emerging markets. Instead, it snapped up Brit UK, a relatively small player in one of the most mature markets in the world. QBE has laid its cards on the table: it believes the UK commercial market will soon turn a corner and harden.