THE PERSONAL lines insurance market has been the less sexy relation to its commercial cousins in recent months. Zurich and RSA are dancing around the idea of a union, following the marriage of Aviva and Friends Life, not to mention XL Group’s successful play for Catlin Group. However, while corporate insurers can’t keep away from each other, their personal lines counterparts are seeing far less action.
Consolidation may not be on the horizon, but motor insurer Hastings Direct ignited some interest back in the sector yesterday when it announced its intention to float on the FTSE index of the London Stock Exchange next month, to raise £180m.
It is not quite M&A, but the initial public offering (IPO) will sell at least 25 per cent of the Goldman Sachs-backed company to institutional investors and is expected to value Hastings at up to £1.5bn. A success story would undoubtedly pave the way for more flotations in the sector.
Steering the helm at Hastings is Gary Hoffman, the former Northern Rock boss who turned around the troubled lender after it was bailed out by the government and who was once mooted as a possible successor to disgraced Barclays head Bob Diamond.
He is as confident about Hastings’ future as you would expect for a man who shrugged off the unwanted tag of “Britain’s most expensive gardener” by turning down a £500,000 taxpayer-funded golden goodbye when he left Northern Rock.
“Everyone who has a car needs compulsory insurance,” he told City A. M.. “There have always been disruptive players who can take market share. Direct Line did it 20 years ago, Admiral did it and we are doing it now.”
Hastings’ financials support Hoffman’s bullishness. The firm’s operating profit soared by 50 per cent to £105.7m in 2014, while revenue rose 17 per cent to £400.9m.
Hoffman said that there had been “very positive” interest from investors both in the UK and overseas and repeatedly emphasised the likelihood of a healthy dividend.
The company is aiming to expand its number of customer accounts from 1.9m to more than 2.5m by the end of 2017.
With high growth aspirations and a competitive market, could consolidation finally be on the horizon? That’s an emphatic no from Hoffman.
“There is no need for acquisitions as they tend to go wrong,” he said definitively. “I think M&A should be a servant of strategy, not a master of it.”
Nick Johnson, director of insurance research at Numis Securities, is not surprised by Hoffman’s lack of acquisition aspirations.
“Historically, there has not been much M&A in the personal lines market, particularly motor,” he said.
“Companies have decided that it is more cost effective to grow their customer base aggressively without buying any of their rivals.
“There is not much loyalty from personal lines customers as they tend to shop around for the best price, so there is less to be gained from acquiring a competitor.”