Consolidation in the UK Commercial Broker Market

Published by: Datamonitor

Published: Feb. 5, 2007 - 53 Pages

Table of Contents

CHAPTER 1 EXECUTIVE SUMMARY

The fragmented nature of the broker market, the age profile of many principals, venture capital and more recently FSA regulation have combined to create the consolidation in the broking sector

There are a number of consolidators aiming to increase their market share of commercial lines distribution

Towergate Partnership operates a hub and spoke strategy to acquisition

The Broker Network was founded in 1994 and currently controls £450 million in GWP

COBRA was formed in 2003 and aimed to buy ten insurance firms in 2006 as part of the Group's longer term aim of controlling £600 million in GWP

Oval Insurance is a consolidator that controls approximately £280 million in GWP and is backed by Caledonian Investments

Smart & Cook was founded in 1968 and now controls approximately £200 million in GWP

Layton Blackham has a fully integrated business model and controlled £150 million in GWP before its acquisition by AXA

Giles Insurance Brokers plans to increase premiums to £250 million by 2009

Jelf aims to become the dominant commercial lines broker in the South of England and Wales

Vega Insurance Services is part of Bermuda based Primary Group, and aims to control £100 milion in GWP

Consolidation is set to continue

Strong consolidation among brokers will continue

Banks or large insurers may continue the recent spree and buy into the consolidators, potentially increasing their share of the commercial market

A larger consolidator may buy some of the smaller consolidators thereby reducing the number of consolidators in the market

A bank might buy a consolidator

Large insurance companies may continue to buy into consolidators giving the insurers increased market share, particularly in commercial lines

CHAPTER 2 INTRODUCTION

What is this report about?

Who is the target reader?

How to use this report

CHAPTER 3 MARKET DYNAMICS

Introduction

The fragmented nature of the broker market, the age profile of many principals, venture capital and more recently FSA regulation have combined to create the consolidation in the broking sector

The broker market is fragmented

Venture capitalists and investors see strong commercial opportunity in consolidating a number of brokers

Many principals are nearing retirement age

The costs and administration requirements of FSA regulation have provided a further driver for consolidation

A handful of consolidators exist but they are having a big effect on the distribution dynamic in commercial lines

The consolidators are having an impact on the distribution of commercial insurance

There are a handful of key consolidators

The corporate strategies of the consolidators contain a number of similarities

CHAPTER 4 CONSOLIDATOR PROFILES

Introduction

Towergate Partnership operates a hub and spoke strategy to acquisition and aims to control £3 billion in GWP by the end of 2007

Towergate Partnership offers both specialist underwriting and broking services

Towergate Partnership dates back to 1997

Towergate Partnership re-financed in 2006 raising further funds for expansion

The Towergate Partnership is comprised of two divisions: Towergate Risk Solutions and Towergate Underwriting

Towergate Risk Solutions' acquisition strategy comprises its hub and spoke regional broker model and its scheme broker business

Towergate Risk Solutions operates a hub and spoke strategy

Towergate has begun to consolidate the consolidators

Towergate Underwriting focuses on acquiring scheme related brokers

Towergate has a target of controlling £3 billion in GWP by December 2007

The Broker Network was founded in 1994 and currently controls £450 million in GWP

Broker Network was founded in 1994

Broker Network began acquiring brokers in 2004

Broker Network aims to control £750 million in GWP

COBRA was formed in 2003 and aimed to buy ten insurance firms in 2006 as part of the Group's longer term aim of controlling £600 million in GWP

COBRA was established in 2003

COBRA began its acquisition strategy in 2005 and intended to buy ten brokerage firms in 2006

COBRA also plans to incresase the size of its network and its underwriting agency

Oval Insurance is a consolidator that controls approximately £280 million in GWP and is backed by Caledonian Investments

Oval Insurance is a consolidator that was established in 2003

Oval is backed by private equity company Caledonian Investments and has recently secured further funding to make more acquisitions in 2006

Oval has so far acquired 14 regional commercial brokers, including one Lloyd's broker, and aims to be a national broker with a European presence controlling £1 billion in GWP by 2010

Oval has focused on creating a strong presence in the Midlands

Oval has also got its foot in the door at Lloyd's through the acquisition of Lochain Patrick

Oval aims to be a large national broker with a European presence

Smart & Cook was founded in 1968 and now controls approximately £200 million in GWP

Smart & Cook was founded in Knaresborough in 1968

Smart & Cook has made approximately 50 acquisitions and controls over £200 million in GWP

Smart & Cook aims to grow premium income by approximately £40 million per year and it is likely that the company will be sold within three to seven years time

Layton Blackham has a fully integrated business model and controlled £150 million in GWP before its acquisition by AXA

Layton Blackham was established in 1984 by Chris Blackham

Layton Blackham has a fully integrated business model

Layton Blackham currently controls £150 million in GWP

Layton Blackham was acquired by AXA in January 2007

Giles Insurance Brokers plans to increase premiums to £250 million by 2009

Giles is an insurance broker based in Glasgow

Giles plans to double its premium income by 2009

Jelf aims to become the dominant commercial lines broker in the South of England and Wales

Jelf offers a range of services to business

Jelf is enhancing the talent within its organisation

Jelf aims to become the dominant commercial insurance broker, corporate healthcare and employee benefits provider in the South of England and Wales

Vega Insurance Services is part of Bermuda based Primary Group, and aims to control £100 milion in GWP

Vega Insurance Services is part of the Primary Group, a Bermudan based insurance organisation

Vega aims to control £100 million in GWP

CHAPTER 5 FUTURE DECODED

Introduction

Consolidation is set to continue, with the profiled brokerages potentially controlling 14 per cent of the entire UK market in the future

Strong consolidation among brokers will continue

Consolidators may control up to 14 per cent of the total UK insurance market

Banks or large insurers may continue the recent spree and buy into the consolidators, potentially increasing their share of the commercial market

A larger consolidator may buy some of the smaller consolidators thereby reducing the number of consolidators in the market

A bank might buy a consolidator

Large insurance companies may continue to buy into consolidators giving the insurers increased market share, particularly in commercial lines

Panel insurers might be concerned if an acquiring insurer were to transfer panel business to its own book

There may be an opportunity to transfer some panel business to an acquiring insurer's direct business

An acquiring insurer would also have to consider the cost of transferring panel business to its own book and the likely conversion rate

Consolidation will continue and could lead to some large scale changes in the industry

CHAPTER 6 APPENDIX

Definitions

Definitions of general terms

Research methodology

Current readings

Future readings

SPP writing team

List of Tables

Table 1: Towergate Partnership's last ten major acquisitions, 2005-6

Table 2: Acquisitions made by Broker Network, 2004-6

Table 3: List of Oval Group acquisitions, 2003-6

Table 4: Selected list of acquisitions by Smart & Cook

Table 5: Jelf Group insurance acquisitions, 2002-6

Table 6: Vega Insurance's acquisitions 2004-6

Table 7: Market share of consolidators and projected growth to 2010f

List of Figures

Figure 1: FSA regulation is a significant cost for many brokers

Figure 2: A number of factors are driving consolidation in the broker market

Figure 3: There are a number of consolidators in the UK of differing sizes

Figure 4: The Towergate Partnership is comprised of two divisions Towergate Underwriting and Towergate Risk Solutions

Figure 5: The Towergate Partnership's target is to reach £3 billion in GWP by December 2007

Figure 6: COBRA Holdings is comprised of six businesses

Figure 7: COBRA plans to control £600 million GWP by 2011

Figure 8: Oval intends to build its business to control £1 billion in GWP by 2010

Figure 9: Layton Blackham's insurance services

Figure 10: Vega's stated target is to reach £100 million in GWP

Figure 11: The consolidators would control nearly 14 per cent of the UK insurance market by 2010, if they meet their growth plans

Abstract

Introduction

This report provides an in-depth look at the consolidation taking place among commercial brokers in the UK and the impact on insurers.

Scope

Profiles of the main consolidators based on in-depth interviews with C-level executives

Insight into the driving forces behind the trend of consolidation among UK commercial brokers

Forecasts of the market share of the consolidating brokerages in 2010

Highlights

When looking at potential acquisition targets, Towergate looks for companies with what it calls a "good track record", of which the most important factor is a good set of underwriting results. It also looks for scheme business that is part of a substantial niche and has the potential for growth.

Oval told Datamonitor that by 2010 it aims to have a presence in the five major parts of the country: North, South, East, West and the Midlands and control £1 billion in GWP. During this time it may float on the stock market, allowing Caledonian Investments to realize the profit on its investment.

A further strategic rationale for an insurance company acquiring a consolidator could be to transfer some of the panel business to its direct business, assuming that the acquiring insurer had a direct business in place.

Reasons to Purchase

Identify and ascertain information on the main consolidating brokerages including their growth plans

Understand the potential impact of these consolidators on the insurance market

Develop your commercial insurance distribution strategy using Datamonitor's forecasts

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