A driving force

Sitting in the boardroom of Equity Group’s Leadenhall Street offices, the company’s chief executive Neil Utley is in good spirits.

Amid the somewhat stark paintings of factories that adorn the boardroom (from the days when the company’s precursor, Cox, insured nuclear facilities) he chats about the travails of recent years.

The last three years have been something of a frenzy for the affable Yorkshireman.

Having been fired from Cox in 2004 for planning a management buy-out, he eventually succeeded in buying the business a year later, leading a private equity-backed consortium.

Eighteen months later, and Cox, rebranded as Equity in an apparent dig at Utley’s former bosses, changed ownership again and was bought by Australian insurance giant IAG in a deal worth £570m.

The acquisition by IAG, three months after the Australian company bought motor broker Hastings Insurance Services and its subsidiary Gibraltar based insurer Advantage, came as a surprise to the market.

Rumours that an Australian company was to buy Hastings began

circulating the week before the deal was announced, but the Equity buy was kept more tightly under wraps.

Utlely, who is also group chief executive of IAG’s UK operations, says the acquisitions were a “good fit” for IAG.

The acquisitions gave IAG, which was looking to aggressively grow its presence in the UK motor market, “critical mass” immediately, he says.

Hastings is the UK’s fifth largest motor insurance broker, while Equity Red Star, Equity’s Lloyd’s operation, is the fifth largest UK motor insurer.

Wind the clock forward to the present day and the integration of IAG’s UK businesses is underway.

Utley says: “There is a lot of overlap, such as call centres. The aim is to create the best insurance company in the UK, taking the best bits from each.”

IAG is looking to make cost saving of approximately £20m by combining the businesses, which have a total cost base of £650m including liabilities.

Utley says the eventual cost

savings will be bigger than the

3% targeted.

Some of the cost savings will be achieved through reducing staff numbers. The UK business employs about 3,000 staff.

“Lloyd’s is generally more expensive than Gibraltar. If you are a pound more expensive in motor then you lose the
business

Neil Utley

Utley says the number of jobs cut will be in the “hundreds” with the vast majority through natural wastage. “Most savings will come out of not replacing staff rather than redundancies,” he says.

He highlights call centres, where there is a high turnover of staff, as being an area where cuts could be achieved.

The integration will be completed by the end of the year, although system changes will take longer, so as not disrupt customer service, he adds.

IAG’s UK operations consist of Equity Group, with its retail branch network Equity Insurance Brokers and Lloyd’s insurer Equity Red Start, plus Hastings and Advantage.

Gibraltar based Advantage deals mainly with Hastings, while Equity Red Star underwrites business produced mainly from third party brokers – less than 20% of its business comes from IAG-owned brokers.

Utley concedes that some

personal lines motor business

produced by Equity Insurance Bokers and placed with ERS will be transferred to Advantage. This is to take advantage of the lower cost of trading in Gibraltar.

“Lloyd’s is generally more expensive than Gibraltar. If you are a pound more expensive in motor then you lose the business,” says Utley.

Less than £50m of business will move from Equity Red Star to Advantage, says Utley.

At present, IAG UK’s underwriting businesses are nearly twice the size of the broking operations, accounting for £750m in premiums against £400m.

Utley says the aim is to achieve more of a balance between the underwriting and broking operations, with acquisitions playing a significant part in achieving this goal.

Equity Insurance Brokers (EIB) has been rapidly buying brokers, last week making its eighteenth acquisition in 12 months. It currently has nearly 80 branches and is aiming to grow to 100 by the end of 2008.

Utley says EIB’s rate of acquisitions is accelerating, with the number of deals amounting to between 15 and 20 annually, compared to between five and 10 previously.

The acquisitions are also larger in size. In January, Equity bought Northern Ireland broker Open + Direct, controlling £46m in gross written premiums. The deal, EIB’s first since being bought by IAG, made it the largest broker in the region.

Utley says Equity is looking to make sizeable acquisitions. “A Hastings-type size is one we would be looking to do.” Hastings has an annual premium income of approximately £200m.

“IAG has helped our credibility,” Utley concludes.