Banks toppled over, AIG stumbled and several brokers nearly collided. But most insurance companies managed to stay on their feet in a precarious year dominated by the global economic crisis. Michael Faulkner looks back at the worst – and best – of 2008
January: well, it’s a start
The year did not begin well for the industry when it emerged that the government’s long-awaited reform of the personal injury system was to be watered down – or scrapped – following pressure from the trade unions. This was a blow for insurers who had been lobbying hard for reforms that, they argued, would make the compensation process more efficient. They had to wait until July for details of the changes.
Insurers were also squaring up for a row with the Home Office over proposals to hike the statutory charges incurred by insurers when ordered by the police to recover damaged vehicles. The ABI was incensed at proposals to bring in charges of up to £8,400 in some cases.
Andrew Paddick, director-general of the Institute of Insurance Brokers, died suddenly on 23 January. Tributes poured in for this dogged champion of the industry.
Meanwhile, Stuart Reid was appointed chief executive of AXA-owned broker Venture Preference. Co-chief executives Chris Blackham and Paul Meehan (see page 16) then departed.
February: how to lose $14bn in a day
The problems of AIG continued with a $5bn (£3.35bn) write-down on its investment portfolio. The insurer’s auditor PricewaterhouseCoopers said there were material weaknesses in its internal auditing practices and $14bn was wiped off its share price in one day. Ratings agency Fitch threatened to downgrade AIG.
Tensions were running high at Lloyd’s, with Lord Levene, its chairman, facing rebellion from a number of council members. The rebels were concerned about proposed changes to the Lloyd’s Act and Levene’s determination to seek a third term in office.
Meanwhile, Peter Cullum, Towergate’s executive chairman, was seeking to sell a 25% stake in the business to a private equity company for £850m. The deal would value Towergate at more than £3bn.
The government looked set for a collision with insurers after it said it would look to change a ruling by the House of Lords that pleural plaques, a symptomless condition caused ‘‘ by exposure to asbestos, was not compensable.
March: who’s eating whom?
Giles Insurance boss Chris Giles raised hundreds of millions of pounds of acquisition finance after selling a 60% stake in the broking firm to private equity house Charterhouse. Giles set out his plan to grow to more than £1bn in annual premiums and talked boldly of buying rivals Oval and Jelf (see above). The two brokers swiftly rejected the suggestion that they would be interested in a deal.
In another major deal, AXA continued its aggressive broker acquisition strategy, swooping on SBJ Group, the UK’s 15th largest broker. AXA’s offer was unanimously recommended to SBJ shareholders.
The FSA published its long-awaited report on commission disclosure. The regulator said the market was not transparent enough about broker remuneration and warned that it would regulate unless the market devised its own solution.
The Treasury published far-reaching proposals to reform the way Lloyd’s is run, so ending Lloyd’s brokers’ exclusive access to the market. Meanwhile, insurers prepared to mount a legal challenge against the government’s proposals to increase vehicle recovery charges.
April: buying and selling
There was a flurry of last-minute acquisitions in the first week of the month as brokers sought to avoid changes to the rules on capital gains tax. Towergate sold a £100m stake to US hedge fund Och-Ziff after talks to sell a 25% stake to private equity firm Candover collapsed.
The capital crisis in the UK banking sector reared its head as the Royal Bank of Scotland unveiled its plans for a record £12bn rights issue. The bank also put its insurance division, which includes Direct Line and Churchill, up for sale with an estimated price tag of £5bn-plus. Allianz, Zurich, AIG and Generali were tipped as potential bidders.
Health Lambert announced it would sell its wholesale arm to Cooper Gay, while Erinaceous Insurance Services was taken over by its banks after sale talks with Zurich collapsed.
AXA lost two senior executives in one week. Peter Hubbard, chief executive of AXA Insurance, stepped down suddenly after seven years at the helm. He was swiftly followed by Mark Cliff, markets managing director, who had accepted the role of managing director of Fortis. Philippe Maso replaced Hubbard.
May: ‘The economics have changed’
The situation at AIG worsened as the giant insurer reported a net loss of nearly $8bn in the first quarter of the year. Former AIG boss Hank Greenberg heaped pressure on the incumbent chief executive Martin Sullivan, claiming the company was in crisis.
Michael Hawker, boss of Insurance Australia Group (IAG), resigned less than a week after IAG’s board rejected a £4.2bn takeover offer from Australian rival QBE. Hawker had been under pressure over the performance of the business, including its purchase of assets in the UK, such as motor broker Hastings.
Norwich Union (NU) continued its battle with the consolidators, declaring it would rather lose business than pay high commissions. “The economics have changed; the margins aren’t there anymore,” said Igal Mayer, chief executive of NU’s general insurance business.
June: the jobs start to go
UK insurers announced thousands of job cuts as economic pressures began to hit home. Norwich Union said it would cut up to 1,800 jobs by 2010 and Zurich said as many as 900 jobs would go by the end of the year (see below). Analysts warned of further cuts across the general insurance sector. In contrast, broker Swinton said it would create more than 600 jobs in the next five years.
Martin Sullivan was ousted from AIG following successive quarters of losses and pressure from shareholders. He was replaced by chairman, Bob Willumstad, who began a review of the insurer’s operations.
Andy Homer, Towergate’s boss, said the company would scale back its acquisitions and focus on integration after slow organic growth in 2007.
Meanwhile, it emerged that Paul Meehan would return to AXA later in the year.
July: fair deals and foul
The ABI agreed a landmark deal with the government over spending on flood defences. In the deal,
the government committed to developing a long-term investment strategy for flood prevention. In return, insurers said they would continue to provide flood cover for high-risk properties until 2013.
The government published its proposals for reform of the personal injury system to much derision from the industry. As expected, the plan had been watered down – Stephen Haddrill, director-general of the ABI, described some of the measures as “bizarre and illogical”. One senior lawyer said the government’s response was a “waste of time”.
IAG announced plans to offload part of its UK portfolio, including Hastings and Equity Insurance Brokers. Trade and private equity buyers began circling; a management buy-out was also considered.
August: summertime – but the living ain’t easy
Further job losses were announced. AXA said it would cut 500 jobs in the UK as it restructured business units. Marsh said 900 jobs would go, adding to the 500 jobs already cut this year.
Meanwhile, broking giant Aon agreed to buy Benfield for £844m, creating the biggest reinsurance broker in the world.
Rumours circulated that a European insurer was preparing a bid for RSA.
Premium finance house Close acquired the premium finance arm of Kaupthing Singer & Friedlander from its parent, the troubled Icelandic bank Kaupthing. Close had acquired Amber Credit earlier in the year.
September: AIG’s $85bn rescue and other hurricanes
The financial crisis nearly claimed its first insurer victim. As it faced spiralling cash calls on credit default swap obligations, AIG was saved from collapse by an $85bn package from the US government.
Brokers were poised to pull out. AIG UK, led by Lex Baugh, stressed that it was separately capitalised and managed to stave off a mass migration of business. AIG began selling off non-core assets.
Bridget McIntyre, the UK chief executive of RSA, shocked the market by resigning suddenly after three years in the post “to spend more time with her family”. She was replaced by Adrian Brown, the insurer’s chief operating officer.
AXA, RSA, Zurich and Norwich Union were preparing to take the Scottish government to court over its plans to overturn a House of Lords’ ruling and make pleural plaques compensable (see above).
Hurricane Ike was on course to become the third costliest hurricane ever, after Katrina and Andrew.
AXA’s broking arm, Venture Preference, announced it would be rebranded as Bluefin in 2009.
October: more bail-outs
The financial crisis continued to rage. The government nationalised Bradford & Bingley’s loans book and sold the savings book to Abbey. The insurance industry was angry at having to bankroll the deal through contributions to the Financial Services Compensation Scheme.
The Belgian bank Fortis was bailed out by the governments of Belgium, Luxembourg and the Netherlands. Barry Smith, Fortis UK chief executive, insisted it was “business as usual” at home.
The CBI warned thousands of jobs could be lost from the financial services sector.
AIG said it was considering selling more than 15 business units as it looked to raise cash to repay its government loan.
Meanwhile, Aviva assured investors that its capital position was strong. Its share price leapt as it revealed a £1.3bn surplus.
Irish insurer Quinn closed its European operations to new business in the wake of the global economic downturn.
Separately, the company was fined £2.6m by the Irish regulator for a breach of regulations relating to loans. Sean Quinn, the company’s founder, was also fined.
November: post-tax losses – boring and otherwise
It emerged that Oval had been approached by Charterhouse, private equity backer of Giles Insurance, with a takeover proposal. The broker rejected the advances, under which Oval would have been reversed into Giles and the combined entity rebranded under the Oval banner.
Towergate published its annual report for 2007, revealing a £14m post-tax loss for the year. Chief executive Andy Homer described the loss as “boring and technical” and pointed to the company’s earnings before interest, tax, depreciation and amortisation of £108.5m.
AIG reported a $24.5bn loss in the third quarter of the year. The US government increased its bail-out package to £150bn.
Lex Baugh, the insurer’s UK boss, urged brokers to continue to support the company.
Trade credit insurance claims rocketed 58% to £97m in the third quarter, according to the ABI. Brokers reported they were struggling to find capacity for trade credit risks, but insurers said they were sticking by small businesses.
December: thank God that’s over
Peter Cullum was tipped as a potential backer of a management buy-out of some of IAG’s UK businesses.
The implementation of Solvency II, the Europe-wide risk-based regime, suffered a blow after the Council of Ministers backed a watered-down version of the system.
The legislation, which was due to come into force in 2012, is now almost certain to be delayed as the European parliament is unlikely to accept the council’s version. The ABI said the council had put at risk five years of hard work.
Listed Bermuda-based insurer Omega announced plans to raise £130m in fresh capital to grow its underwriting. The move was the Alternative Investment Market’s biggest fundraising exercise this year. The insurer said the outlook was positive in its lines of business as rates were expected to rise.