French mutual to keep Provident and MMA separate as £70m deal ends buying saga

Covea finally completed the acquisition of Provident Insurance for about £70m, ending an 18-month battle to buy the insurer.

The deal confirms the French mutual giant – which now owns Swinton, Provident and MMA – as a powerhouse motor broker-insurer in the UK, commanding about a 3% insurance market share, according to EMB data.

The long-running saga of the Provident sale began 18 months ago when bailed-out GMAC, desperate to repay the US Treasury, signalled its intent to sell the Yorkshire-based firm, having paid £170m for the business in 2007.

Sensing a bargain, Markerstudy chief executive Kevin Spencer and Hastings non-executive chairman Neil Utley signalled their interest. Utley emerged as the front runner and, as leader of a consortium of investors, last year he put together an attractive package to buy Provident.

The potential was obvious: Provident would make an excellent fit with personal lines intermediary Hastings and, along with Gibraltar underwriter Advantage, it would give real momentum to the group’s planned flotation in 2012.

Back in Paris, however, the French realised they could not afford to lose one of Swinton’s key trading partners. Swinton, the retail arm of MMA, could have been left exposed by a link-up between Provident – one of Swinton’s major markets – and a rival broker. As Covea chairman Thierry Derez has confirmed: “The activities of Provident Insurance are highly complementary to our existing UK operations.”

Covea recruited investment banker BNP Paribas, which thrashed out a £70m offer with GMAC corporate adviser Goldman Sachs. This emerged as the highest bid on offer.

Due diligence negotiations then dragged on for five months before the deal was agreed last week.

Covea has said it intends to run MMA and Provident as two separate businesses, and the private motor books of the companies will be kept separate. And, according to the French firm, it will continue to scale back unprofitable business at Provident, which in 2009 racked up a £31.1m operating loss.

The insurer’s 2009 loss ratio deteriorated to 94.7% from 87.6% in 2008, and the current year’s combined ratio worsened to 121.2%, from 115.1%. Provident’s staff increased from 284 to 333 last year.

Its results also revealed an 11% drop in the number of policyholders to 495,000 at the end of 2009, and a 12% fall in gross written premium to £165.3m, compared with an increase of 24% in 2008.

Former Provident director Mike Smith said: “Provident had a poor year, but the rest of the market had a poor year. Before that it was known as a ‘little gem’ as it continuously made profitable returns. There’s a good management team there, and they’ve all been together for a long time. It’s a great acquisition that will be profitable.”

The acquisition has also pleased brokers, many of whom were becoming increasingly concerned about the draining of private motor capacity from the market following the run-off of HSBC and NIG.

Gary Humphreys, underwriting director for Markerstudy, a rival major motor insurer with strong broker relationships, said: “[Provident] is very strong in the non-comprehensive and younger female market and there are not many writing, so it would have been a shame for it to disappear.

“It also demonstrates that Covea is committed to the broker market.”

We say ...

- Covea now has the chance to increase the flow of premium from Swinton into Provident.
- The acquisition is the latest signal that insurers are banking on motor turning a profit with the help of rate rises.
- Provident is now owned by a mutual insurer, as opposed to its previous owner, US-listed GMAC. Mutual ownership should give Provident space to make steady earnings rather than chase volume and risk profit erosion.