Tom Downey: Pen Underwriting plans to use M&A to build ‘a much more specialist, niche business’

Gallagher-owned MGA Pen Underwriting is “increasingly looking” at complementary M&A opportunities in order to build the company into “a much more specialist, niche business” that offers a greater number of “boundary-less” products across Europe, according to Tom Downey, the firm’s chief executive.

Speaking exclusively to Insurance Times at 2024’s Biba Conference last month (May 2024), Downey confirmed that Pen plans to build on its recent slew of deals that have sought to “provide brokers access to products that they either can’t get in the marketplace or find it difficult to” obtain.

This mentality not only includes expanding into “new and specialist” product lines, but also extending the firm’s geographic reach – mainly further into Europe, cementing Pen’s existing presence in the Republic of Ireland and Scandinavia.

The most recent example of this approach was Pen’s purchase of Republic of Ireland-based MGA Wrightway Underwriting on 5 June 2024.

Wrightway Underwriting provides motor and liability insurance to the transportation and haulage sector, as well as underwrites light commercial vehicles, plant and machinery, non-standard household risks and private motor policies.

Looking further back, the MGA bought professional indemnity (PI) specialist Manchester Underwriting Management (MUM) in October 2021, followed by marine underwriting business Tay River Holdings in April 2023 and Norwegian marine MGA Fender Marine AS in July 2023.

As a result of this specific acquisition, Pen now has 25 staff based in Norway.

“We’re increasingly looking for businesses that are complementary [to] something that we have,” Downey explains.

“As an MGA, our view is that we should be able to provide brokers access to products that they either can’t get in the marketplace or find it difficult to [access], so [to] bring more choice and bring our capacity providers a specialist product and specialist underwriting that they can’t do or invest in themselves.

“It’s about building what we currently have and taking it out to other countries. I don’t care whether you’re a broker in Germany, a broker in the UK or a broker in Sweden, you’ve got a customer who needs something fixed and solved and we can do that. For anyone.”

Downey wants to complete one or two M&A deals this year, favouring firms in Europe due to the regulatory and cultural similarities with the UK.

‘Boundary-less’ product set

Discussing the products and specialisms that appeal to Pen Underwriting, Downey says the focus is on lines of business that “know no boundaries”.

For him, this relates to expanding Pen’s existing technology professional indemnity product globally – this has already grown into a team of six staff over the past couple of years – as well as exploring cyber and intellectual property classes.

Although he cites that the MGA is already “one of the leading insurers for universities in the UK”, Downey is additionally interested in exploring how cyber cover and intellectual property insurance could “interlock”.

He continues: “It’s about building Pen as a much more specialist, niche business – that’s where our acquisitions will focus. That’s where our geographic expansion will focus.

“Having products that are a bit more boundary-less – so marine, cyber, tech PI, intellectual property. A focus on more intangible things.”

Acquiring ‘great people’

Downey is adamant that M&A is not purely about the nuts and bolts of products and territories, however.

He firmly believes that M&A is fundamentally about the “extra brains we can bring into the organisation” – he explains that if M&A does not support career progression for those within the acquired firm or Pen, then this would be “very wasteful”.

He says: “We can do a lot of M&A if we really wanted to. We don’t because we try and find the right people. It’s so important that we find the right people.

“I’m absolutely steadfast in my view, great people do great things and you have to have businesses [that] can align to our culture [and] we’re aligned to their culture.

“We want to make businesses better. We’re not acquiring them for acquiring’s sake, we’re trying to help them in their journey to grow.”

He demonstrates this by flagging that Manchester Underwriting Management has grown its business by 30% since joining Pen – with greater leadership from MUM’s Richard Webb, who is now Pen’s managing director of UK financial lines and specialist liability – while Tay River Holdings has experienced growth of 35% since its acquisition.

“I always want Pen to be the best,” Downey notes. “Do we make mistakes? Of course we do. Are we perfect? Of course we’re not. Do we try to learn? Of course, we try to. And that’s really what I want it to be.

“I want people to wake up happy. Every day, somebody has a choice to decide to come into Pen.”

Pen Underwriting is also looking to develop its own employees alongside those that join via acquisition. For example, two and a half years ago, the MGA launched a development course for 18 of its ringfenced emerging leaders.

Downey says that in the last 12 months, nine of these employees have received promotions.

“My job is creating the future leaders of this business,” he adds.

“We talk about our industry and we talk about the gender pay gap and what we’re going to do. We are not going to fix things overnight, but what we’re doing is giving people opportunities.”

Boosting business

Underpinning Pen Underwriting’s acquisition ambitions is the quiet rumbling of financial success.

In 2020, the MGA announced its primary strategic objective was to reach £1bn gross written premium (GWP) by the end of 2025.

However, Downey confirmed in May 2024 that Pen was likely to check this particular objective off the company to-do list by the end of 2024, or early 2025 at the very latest.

Although the MGA is on track to achieve its GWP target ahead of schedule, Downey is keen to emphasise that the firm will not be resting on its laurels – as soon as £1bn GWP is obtained, Pen will instantly set its next objective.

Downey says: “It’s about getting to our £1bn – that’s the common denominator that translates across this industry.

“If we hit £1bn GWP, we [will then] step back and say: ‘what’s next?’. We’re starting to think about that. What would that look like? If we were an insurance company today, we’d be the 14th biggest insurance company in the UK. So how do we get to [be] the 10th biggest insurance company?

“How do we reset ourselves – we always want to reset ourselves. We don’t stop. Pen doesn’t stop. Momentum creates itself.”

Looking at 2023’s year-end financial reporting, this momentum is evident. Downey highlights that Pen Underwriting has doubled both its GWP and revenue over the past five years, as well as recorded “a positive organic growth trajectory” that he expects to sit around 5% or 6% this year.

“As an MGA, we measure and track our revenue. So, we’ve doubled that and we’ll look to double that again in the next five years because that’s what we really want to do. Keep doubling the business. That creates opportunities for everybody,” he says.

Capacity connections

The one axe that MGAs have to grind revolves around capacity – especially as these agreements are often scrutinised by brokers when placing business.

Downey says that Pen has no difficulties when it comes to arranging capacity.

In fact, the firm has just renewed its deal with Zurich in the Republic of Ireland for its hazardous goods and environmental business – an arrangement that has been in place 25 years now.

The MGA has also made a new three-year deal with SiriusPoint in April 2024 to support its niche social housing business, which amounts to about 5% of Pen’s operations, as well as renewed its marine war capacity via a Lloyd’s syndicate arrangement, upping the GWP limit by 40% to facilitate an increase on the per vessel size that can be insured (£200m).

This deal was also confirmed in April 2024.

Downey notes that Pen wants “long, stable, good quality” capacity arrangements and that the quality of capacity relationships trumps commission profits.

He explains: “Could we move some stuff and earn a few extra points of commission? Probably, of course, we could. But we don’t want to do that. We want long, stable, good quality relationships, that people go ‘we love dealing with Pen’.

“And I use that word ‘love’ deliberately because it’s about emotional connection. It’s about an emotional connection and people aligned to what they want to do.

“[That’s] what we try to bring, that’s what we want our capacity partners to feel, what we want our brokers to feel – that connection, that emotional connection. To me, it’s so important.”

Role of MGAs

For Downey, MGAs play a very unique role in the UKGI market, which he describes as “the magic in the middle”.

He explains: “Our job is to make sure that we deliver for the broker, for their customers and for our capacity writer. That’s what I call the magic in the middle. That’s what we try to do.”

Downey is also an advocate when it comes to the broader role of the insurance industry – something he believes is typically overlooked, but which could be used to entice more talent into the sector.

“Let’s make our industry attractive,” he urges. “I stumbled into insurance and most people did stumble into insurance by accident.

“We enable UK PLC. Sometimes we don’t say that. Roads can’t get built. Industries can’t get built. Aeroplanes can’t take off. We can’t go on holiday. All things that this industry does enables UK PLC. And we don’t talk about it enough.”