To Affinity and beyond

“We’re always up for a laugh”, says John O’Roarke, chief executive of LV=’s general insurance business. Dressed in black, topped off with a pair of sunglasses, and with four of his senior executives in identical garb, he’s as good as his word. The founding fathers of the business agreed to go Reservoir Dogs-style for an Insurance Times photoshoot – proof they’re not bound by corporate rules or too terrified of the board and shareholders to do something different.

O’Roarke, operations director Peter Horton, managing director (broker) Phil Bunker, finance director Steve Castle and company secretary Paul Cassidy have come a long way. These five men – and 150 of their staff – used to work over the road from their current Croydon office, for RBS following its acquisition of three insurance businesses – Direct Line, Churchill and NIG. They didn’t last long though – the takeovers happened in 2003 and by the end of 2005, they had all left the business. All from entrepreneurial backgrounds, the corporate culture wasn’t for them – not to mention being at the beck and call of the infamous ‘Fred the Shred’, Sir Fred Goodwin, erstwhile chief executive of RBS.

Now, with the backing of the world’s best funded mutual LV=, they are recreating the RBSI model – and doing pretty well so far, thank you very much. The insurer’s 2008 results showed GWP up by £141m to £491m, with 952,000 motor policies in force and a motor loss ratio of 82.5%. It is well on track to meet its target to become a top five motor insurer by 2012, helped in part by the acquisition of Highway in August last year – although there has been some speculation it overpaid.

Back in 2005, Cassidy and Bunker, who had worked together at NIG, left RBSI and founded Affinity B2C. Horton and Castle followed, part of an exodus of senior management from RBSI – of which more later. Finally, O’Roarke, who was chief operating officer of RBSI, joined. As the group were all from senior management roles, it was a shock to find themselves in a rented office in Croydon with a coat stand Bunker had brought in from home.

But things soon started moving, as the group began talking to potential private equity backers. The plan was to set up an insurer along the lines of Admiral, with the support of a reinsurer – but that changed when LV= came knocking.

LV=, a mutual, already had a GI business – but it was in the doldrums. By the time of the deal, incoming group chief executive Mike Rogers had promised the five autonomy; the incumbent MD had stood down; and the group staged what O’Roarke smilingly calls a “management walk-in”. They acknowledge it was an unusual situation: “It was very strange,” says Bunker. “Courtesy of RBS, really,” chimes in Horton.

What was so bad about working for one of the country’s largest banks, long before its financial woes arose? “You need a certain mindset to work there – it’s a different culture,” says Bunker. “The focus is on cost there,” adds Horton. “The people who joined us all have great personalities and skills – they didn’t seem to fit with RBS.” Ouch.

And Goodwin? O’Roarke is winningly diplomatic as the others display poker faces, casting the odd nervous glance at the Dictaphone. “We would meet Fred as part of the annual strategy setting exercise, and there would be routine updates on performance against and plan, and …” there’s a weighty pause and the odd smothered titter, before: “He took a disproportionate interest in the insurance business – he had a fascination with cars and anything to do with motoring, so he was naturally interested in the insurance business, which made it difficult for those charged with running it.”

There’s an obvious question here: the group had left a large organisation, disliked bureaucracy, and had potential private equity partners lined up to back their own business. So why sign up to another large company? ­“Initially, we were keen on private equity, because they give you the money but don’t run the business,” admits O’Roarke. “But LV= is a mutual, so it doesn’t have shareholders. PLCs are focused on that year’s results, whereas here, Mike [Rogers] and the board can take a long-term view, and invest in building something substantial.”

Would they be well placed for a future management buy out? Poker faces again. “It’s not on the cards,” O’Roarke says.

O’Roarke and the gang have a high degree of autonomy, with the business operating as a separate unit. Moreover, they have staffed it with their own people, bringing huge numbers over from RBS – and half of the 150 are management grade. Has this given them any legal problems? Silence, before O’Roarke replies: “There is no comeback if people have voted with their feet and resigned. We have honoured to the full any non-compete or non-solicit obligations that we had.”

The group walked into an existing business, and rebuilt it according to what they knew – which was, of course, the RBS model. LV= had a healthy partnership business in place: between them, they brought expertise in direct insurance – from Direct Line and Churchill – and broker – from NIG. Over the past two years, they have been busily recreating what they knew over the road – but, they would hasten to add, doing it better. The motor business is steadily growing with the Highway acquisition giving their market profile a big lift. Household is building up more steadily, and they are developing lines of business, such as travel. The partnership business continues to thrive with major new accounts including Nationwide and Help the Aged – both of which they won from RBSI, funnily enough.

Most importantly, Bunker is using his NIG know-how and broker relationships to launch an SME business – initially called ABC to differentiate it from the direct arm, but now coming under the LV= brand, with the ABC name kept on for one or two products.

What does the future hold? As well as that plan to hit the top five in motor by 2012, SME is key. LV= has opened offices in Croydon and Bristol and has a string of awards, including the Insurance Times Newcomer of the Year 2008, to its name. And look – they’re even having fun while they’re at it.

So it’s a “case of watch out RBS”. LV= has got the expertise, the experience, the staff and the market relationships. They’re coming for you.