Appetite for acquisition

Despite being a member of Lloyd's, Equity Insurance Group is situated in Essex and does not enter the prestigious Lloyd's building, although it does have an office in the City on Leadenhall Street. The insurer has the largest motor book at Lloyd's with around half the market, and is the fifth or sixth largest UK motor underwriter. In addition, it is the eighth largest UK personal lines broker.

Equity was formerly Cox Insurance, where Utley was managing director of its retail division before becoming chief executive in 2002. The switch in jobs followed Cox's decision to dispose of its specialist division, Syndicate 1208, after it went bust following the World Trade Center attacks of 11 September. A deal was struck with Lloyd's to ring fence the loss. Utley reflects: "We were a mid-cap insurance company trying to insure nuclear power stations and satellites."

Private company

A year later, Utley was involved in a bid for Cox alongside Peter Wood, the founder of Direct Line. The deal was backed by Halifax Bank of Scotland but was blocked by senior Cox management. In June 2004, Utley was fired after it was discovered he was plotting a bid with venture capitalist Englefield Capital. Although it was an unwelcome departure, Utley believes, on reflection, this made him more determined to buy the firm. However, finances were tight and he says a host of advisors and lawyers were working on his behalf on contingency fees.

The idea was to de-list from the stock exchange and make the company private. The share price spiked after an offer in October 2004 when Cox at last began to talk seriously about selling. Cox's condition was that it would carry out its own due diligence in order to spark a bidding war. On June 24 2005 the deal was completed, valuing the company at £297.9m.

Two private equity houses, Duke Street Capital and Englefield Capital bought 40% stakes in the business respectively. A management team led by Utley took a remaining 20% share; out of this 20%, 4% is available to staff.

When asked about the advantages of being a private company Utley is grateful for having more time away from investors to concentrate on running the business. He says: "There was always speculation about what was happening at the company. There were also numerous investors which involved a lot of time. Now we are not hamstrung by regulations, while the business has become more malleable."

A succession of staff appointments has also signalled Utley's intentions. Andrew Gibson, formerly chief executive of Highway - which is around 500 yards from Equity's offices, joined as finance director. Utley claims this was not an attempt to buy Highway, a deal which Cox had attempted in March 2004 (Post Magazine, 6 May, 2004). Utley says: "Good people are good people."

Meanwhile, Keith Charlton, who helped set-up Tesco Insurance, has become Equity's volume underwriter, while John Castagno, formerly chief executive of loss adjuster GAB Robins has become managing director of the direct broking arm. Another edition to the team has been David Grant, formerly at broker-only insurer NIG, owned by Royal Bank of Scotland, who has become marketing manager for Equity Red Star.

Despite these changes, Utley stresses that one of the main reasons he wanted to buy Equity was because of the management team which was already there and includes John Josiah, underwriter of specialist risks such as classic cars and haulage.

Equity's underwriting business is conducted through Equity Red Star which uses Lloyd's Syndicate 218. It has a Lloyd's claim to fame - it is the only UK motor underwriting syndicate to have recorded a profit, after investment income, in the last 36 years. 64% of the capital is underwritten by Equity, while the remainder is provided by third-party Lloyd's names.

However, there are several drawbacks for Equity's arrangement with Lloyd's. Utley says the relationship costs Equity over £4m more each year in fees than if it was Financial Services Authority regulated. There are also great hurdles for Equity to overcome if it wants to acquire another insurer, which is also on the agenda. He says: "It is harder for us to acquire a FSA-regulated insurer being in Lloyd's. Moving out would be expensive and time consuming, while our priorities are on growing the business."

However, leaving Lloyd's may prove the easiest option for Utley to acquire another insurer.

Utley remarks about consolidation in the industry: "There are too many markets declining in profitability. We want to look at a big acquisition. Englefield has made a five-to-six-year investment and there could be further funds available (for acquisitions)."

Another disadvantage of Lloyd's for the insurer is a rule which stipulates 85% of a Lloyd's motor syndicate's book must be motor-based. Utley thinks this was a rule "dreamt up by some guy in 1915" and that it is not applicable in any way to today's market.

Currently Equity's non-motor book is around 12% of its business model, so there is limited room for its growth. Overall, gross written premium is over £500m. 24% of this is fleet cover, while 30% is cars, 20% specialist and 8% household.

Research conducted by Equity has revealed that 20% of its broker partners do not realise it provides insurance for motorbikes, despite it being the largest motorcycle insurer in the UK. Utley is bemused by this statistic and is eager for this to be rectified at the earliest opportunity. He comments: "Communication to brokers is an area where we are looking to improve."

Significant broker relationships include Altrincham-based broker Carole Nash, which has a large motorcycle book. Utley is impressed by Carole Nash's management team and says there is regular dialogue with its key broker partners once every four to six weeks.

Meanwhile, Equity's own broker house, Equity Insurance Brokers is actively acquiring in the high street broker market. However, there has been strong competition. Consolidating broker Swinton, for example, made sixteen acquisitions in the first half of the year, while Equity made seven. Equity wants to double its branch network within five years (see PB Electronic, March 2006), and has three dedicated staff on the road approaching brokers. At the time of writing, there were 63 branches controlling around £60m of GWP. The preference is to buy books of business which, if they fit, can be integrated into Equity's call centres and brokers can continue referrals.

Nick Potts is managing director of Equity's broking division and is a former colleague of Utley's at Colonnade Insurance Brokers.

Equity Insurance Brokers re-branded on 1 May and has incorporated Bennetts in the south of England, Insure Shop in the Midlands and north and JMW in Northern Ireland.

Meanwhile, Mike Hutton, another Colonnade 'old boy' is managing director of Branch Broking.

Affinity player

More significantly for Equity, broking via affinity schemes is becoming a predominant source of income. More and more affinity partnerships are being targeted by insurers, for example, Fortis has recently won a three year deal to write the travel account for the Coventry Building Society - and they are becoming integral to many insurers' strategies.

The latest deal for Equity is with Ryanair, the European low-cost airline and has the potential to sell car and home insurance products to tens of millions of customers. Equity is the only underwriter. Utley is excited by this deal, and says there are more to come.

Equity also has deals with: Cardif Pinnacle via first4cover, Fiat, Harley Davidson, Chevrolet, Skipton Building Society, Audi and Volkswagen. Each deal varies and sometimes includes a panel of insurers as opposed to Equity being the sole provider. First4cover, for example, is a joint household insurance and mortgage payment protection insurance platform. Household insurance is provided via a panel of insurers: Equity Red Star, Fortis and Zurich. Cardif Pinnacle (a trading style of Pinnacle Insurance) is the MPPI provider.

There is also direct broking via Equity's websites, including insure, which is set for a re-launch in July.

Utley says: "Our aim is to be in the top three personal lines brokers in the UK." However, there is strong competition in this area with Swinton acquiring aggressively and Budget increasing its affinity partnerships via its Junction arm.

He is confident that the affinity partnerships and direct broking will not make a difference with Equity's relationships with its other brokers.

Another recent deal has been the acquisition of the renewals of Legal and General's motor book. This could be worth around £20m GWP of business, and signals the end of L&G's involvement with motor. An L&G spokesman said: "We believe that to be in motor you have to have scale, and we are not prepared to put that investment in."

Soft market

Despite insurers such as Allianz Cornhill struggling with their personal lines' combined ratios, Utley is philosophical about the current softening of the market. When asked if the 'big' players should be pushing up rates, he says: "Aviva and the Royal Bank of Scotland control most of the market but they are sensible business people and will not push prices down below a certain level." He adds: "There is no need to under cut them - we need to match them."

Equity has call centres at Southampton and Bradford as well as offices at Colchester and Brentwood. All claims at the insurer are managed in-house. The company is adding an additional 150 staff to its workforce in Colchester. It has over 100 workers in India who are doing non-customer facing work such as data entry. Utley, who has visited them, is encouraged by the high quality of staff.

Neil Utley was brought up in Yorkshire and went to the same school as William Hague. His career started out at banking giant HSBC, where roles included heading the profit and loss account for HSBC's retail products. In 1989 he became marketing and sales director for Halifax Insurance, part of the Provident Financial Group - now Provident Insurance; he helped grow the business from 200,000 to 600,000 customers.

Then in 1992 he became managing director of Colonnade Insurance Brokers, before becoming chief executive of Privelege, and joining Cox in 1997. He now lives close to head office in Essex and is the owner of a London Routemaster bus, although he does not consider himself to be flamboyant. For a chief executive his feet appear firmly on the ground while he drives his prospering business forward with new partnerships.

CV

2005: Chief executive, Equity Insurance Group

2002: Chief executive, Cox Insurance Holdings

1997: Head of retail division, Cox Insurance Holdings

1994: Chief executive, Privelege

1992: Managing director, Colonnade Insurance Brokers.