The rise of aggregators, plus a ‘catalogue of errors’, led to Zenith’s eventual writedown

Motor insurer Zenith, with sister company Link Insurance, cost its former owner Guardian Holdings Ltd (GHL) £129m, it has emerged. The losses are twice the £65m Guardian paid for it five years ago.

Trinidad-based Guardian eventually sold it to Markerstudy in December last year, but not before pumping £11.6m in reserves into the struggling broker-only insurer, according to 2009 accounts.

Guardian chairman Arthur Lok Jack described the losses as “just plain painful”. Lok Jack blames the rise of the internet and the aggregators for the demise of Zenith and Link.

Lok Jack said: “When we bought Link and Zenith, almost all private motor insurance was purchased through insurance brokers. Today, almost half of all policies are bought directly through the internet, bypassing the traditional broker channels.

“The consequence of this market change has been to commoditise the product sold by Zenith,” Lok Jack said in the company’s 2009 results. “We fully recognised that the sale of this company would generate huge, non-cash accounting losses and would shrink our balance sheet. However, the alternative was to stay with a business that we believed had little to no prospect of turning a profit, let alone delivering our required return on capital. The choice, as we think you will agree, was obvious.”

Guardian posted an £88.6m loss in 2009, the biggest in its history, because of the writedowns. After isolating the effects of its discontinued operations, for its full year, GHL’s continuing operations produced an operating profit of £56.9m, 17% above last year’s figure of £48.8m.

An industry source said a ‘catalogue of errors’ led to the eventual writedown of Zenith, including paying over the odds for the business initially, a failure from the start to merge it with Link Insurance to achieve economies of scale, and an unsuccessful outsourcing arrangement.

The source added: "Quite honestly, they also lost their way. Instead of being a niche market player, it tried to go mass market, where it began to compete with big composites in a very competitive world, and it lost a fortune."

Markerstudy underwriting director Gary Humphreys said he was aware of the reserve top-up and that it was all as a result of the review of the business carried out in September.