Michael Pavey Holdings: Growth at a rapid MPH

Michael Pavey Holdings has more than doubled its premium income in the past two years. Andrew Tjaardstra went to visit Michael Pavey to find out how

While parking is becoming almost impossible since the introduction of new draconian laws across Torbay, chairman Michael Pavey is finding making money in a soft market less of a struggle. If the company's projected income for the end of the current fiscal period in December is right, it will more than double its earnings in 2004.

The catalyst for this change was, says Pavey, formulating a succession plan for the firm because of his age. Pavey reflects: "The plan turned into a significant expansion. What we have achieved in the last two years has surprised me. We have made some good decisions but we have also been lucky."

At around £5.5m of gross written premium, with an approximate 65% commercial bias, Pavey rejected the option of selling the business, and instead recruited Graham Brown from Marsh in Exeter. Pavey says: "We'd been in competition for many years so I knew he'd fit in here and he knew he would as well." Since then, partly as a result of uncertainty caused by the Spitzer enquiry, he has recruited eight more 'Marshians', as Pavey describes them. A holding company, Michael Pavey Holdings was set-up with Brown as head of Michael Pavey, which looks after general insurance, and Malcolm Swift, managing director of Michael Pavey Financial Services.

In the past two years, MPH made two acquisitions yielding an additional £3.75m GWP. This included Pavey leveraging shares to the two brokers. Pavey says: "When you do this your bottom line benefits immediately because there is no acquisition cost."

The business mix is now around 80% commercial and 20% personal and the financial services division has a turnover of £550,000. Last year MPH looked after the portfolio of the National Trust, which led to Pavey setting up an Exeter office - one of the conditions of the deal. There also followed an influx of commercial business when the staff from Marsh moved across. Overall the business mix includes leisure, commercial, industrial and country stores and MPH is looking to expand its schemes, charities, construction and professional indemnity business.

The majority of the brokers' clients are in the South west but it has a presence across the UK, including the National Trust and scheme business. The schemes are Cottagesure for holiday cottage complexes (12.5% commission), with Axa, and Homeoffice for those working from home with Fortis (10% commission).

The broker also accesses the London market through Jardine Lloyd Thompson and the THB Group. Swift comments: "It does seem very fragmented when dealing with insurers because underwriting, servicing and claims are all dealt with by different teams."

MPH has recently conducted a comprehensive strategic review, which means that each director has been given a responsibility for a different area of the business. Brown says: "A strategic board meets two to three times a year to analyse progress."

In terms of recruitment, MPH has successfully attracted school-leavers and nurtured them. Pavey says: "We have a young staff - over half the staff in this [head] office joined us from school. We have half a dozen in their early thirties. It is very difficult in a place like Torquay to recruit qualified insurance staff. It is far easier to take on bright school-leavers and train them, and they in turn have trained others."

Pavey, which is one of the largest members of the Westinsure alliance, uses Open GI and will review its technology in a few years time with the possibility of looking for something "more bespoke".

Will they continue expanding? Already one of the largest brokers in the South west, Pavey says: "We want to consolidate but if the right broker and people came along then we would merge or acquire if the management was youngish. We didn't plan the others either - we took advantage of opportunities." Pavey adds: "There are one or two that are buying very quickly without having succession plans in place. We want to grow organically by 25% and improve our efficiency by 30% - we can be slicker in IT and the way we handle our business."

As with many acquiring brokers in the market at the moment, funding appears to be the least of its concerns. In the meantime MPH is renovating its head office as part of its continued expansion.

MICHAEL PAVEY HOLDINGS

Chairman: Michael Pavey

Established: 1972

Number of offices: Five

Locations: Torquay (2), Totnes, Exeter and Teignmouth

Number of staff: 50

Main lines of business Commercial

Gross premium income £13m.