Towergate Underwriting and Broker Network drag broking group’s profitability down

Broking group Towergate reported earnings before interest, tax, depreciation and amortisation (EBITDA) of £116m in the first nine months of 2013, down 3% on the £120m it made in the same period last year.

The EBITDA decline came despite a 2% increase in revenues to £334.8m (year to date 2012: £327m) and a 2% increase in gross written premium (GWP) to £2.35bn (year to date 2012: £2.32bn).

Profit was hit by higher costs, continuing decline in profitability in the network division, and a fall in profit at Towergate Underwriting thanks to rising costs.

Despite the falling EBITDA, Towergate chief executive Mark Hodges said: “We remain well positioned to deliver long-term profitable growth in our chosen markets, combining our scale and breadth of distribution with market-leading positions across specialist personal lines and SME insurance.

“Growth in group income remains a key priority and it is encouraging to see continued progress.

“Year-on-year operating earnings have been affected by two specific items: the continuing impact of insurer income reductions in Broker Network and the increasing cost base in underwriting relative to net retained income.

Hodges pointed out that Towergate had completed 15 acquisitions in the first nine months of 2013 and that there was a “healthy pipeline” of acquisition opportunities. Towergate’s bondholder report revealed that the company has spent £22.4m on acquisitions in the year to date.

He also said the restructuring of Towergate’s retail broking division into two divisions, announced in October, would “build further on its success by bringing additional management focus to our different customer segments”.

He added: “We are also well under way with the rollout of a new strategy for Broker Network, which we believe positions the division well for the future. Our continued ability to add high-calibre talent as demonstrated by recent senior appointments is further testament to the attractions of our unique model and strategy.

Divisional breakdown

Towergate’s retail broking operation, which accounts for the bulk of the business, boosted its EBITDA by 6% to £63.4m (year to date 2012: £59.9m). Retail revenues were also up 6%, to £199.8m from £187.8m.

The next-biggest division by revenue, Towergate Underwriting, fared less well despite being a star performer in previous periods. EBITDA was down 5% to £30m from £31.6m. This was despite a 2% revenue boost to £69.7m from £68.2m.

Towergate said it had boosted Towergate Underwriting’s GWP by 10%, but costs had increased at a similar rate. Retained income from the underwriting division was hit by increased commissions paid.

The Paymentshield division was able to boost EBITDA by 1% to £40m from £39.7m despite a 2% decline in revenue to £51.6m from £52.5m.

The network division continued the downward slide reported in previous periods. EBITDA was down 47% to £4.2m from £.9m, and revenue fell 29% to £9.3m from £13.1m.

Towergate rebranded its network under the single Broker Network brand in September.

Towergate nine-month 2013 results in £m

 YTD 2013YTD 2012Change (%)