Iain Henry - A broking Don

Unless you are called Chris Giles, Scottish brokers are notoriously press shy and many of them distance themselves from the London-based insurance media, despite numerous requests to venture north. The British Insurance Brokers' Association conference in Glasgow was a great opportunity for Scottish brokers to make a mark in the media but few, if any, were willing to step forward.

It was a surprise, therefore, to find myself on a plane to Aberdeen - which means literally 'at the confluence of the Dee and the Don' (the two rivers that flow either side of the city on their way to the North Sea) - to interview one of the most fiercely independent brokers in Scotland. I believe it was a result of the combination of perseverance and a sympathetic and persuasive public relations executive.

Move

When you see Central Insurance Service's £3m purpose-built offices, you can understand why the company chose to sacrifice its central city location to move to an industrial park on the outskirts that is surrounded by countryside (although try to visit on a sunny day to witness its full splendour). Aberdeen's economic bread and butter, the oil and gas companies, have joined the broker by moving out of the city centre in droves and the granite city, with its coastal location and stunning rural surround, is set in an area so compelling in its natural beauty that Donald Trump has chosen Grampian for his billion-pound golf course (if it is ever built).

The move to its new location went smoothly for Central - except for the telephone system's failure - and no less a figure than First Minister Alex Salmond came to open it. Its chairman and founder, 72-year-old Alistair Ballantyne, was so determined for the broker to remain independent that he gave his management team the opportunity to buy him out at what many would have considered the knock-down price of £13m. Iain Henry is the principal driving force behind the management buyout of the £40m gross written premium broker and now owns 45% of the business.

Five other members of the board own 11% of the business each. The MBO took 10 months to complete. It was financed entirely through debt finance from the Royal Bank of Scotland, with which Ken Matheson - the group's non-executive chairman - has a close relationship. Despite the credit crunch, they pulled off the deal and managed to save money through not having to hire external advisers, saving them over £100,000 in costs, although accountants and lawyers were still needed. Commenting on the succession planning involved, Henry says: "The process started in 2000 and a lot of brokers leave it too late. All you are buying is the goodwill and if you are the seller and want to see through an MBO, then you are probably going to have to compromise on the sale price." Another broker that achieved an amicable management buyout last year - one of the hopes for the future of independent broking - is Berkeley Burke, whose management team Andrew Bedford and Tim Maxted featured in the PB Interview in November 2008.

Financing

The contrast between Central and its debt financier is stark. RBS is now an institution under pressure after its disastrous, ill-timed part-acquisition of Dutch bank ABN Amro in conjunction with Fortis and Santander - large is not neccessarily best anymore. The Scottish bank's recent decision to hold on to its insurance interests - including Churchill, Direct Line and, for the moment at least, NIG - again shows how insurance is perceived to be a stable revenue and profit generator, even in times of immense economic uncertainty, although it also reflects the unwillingness of purchasers to stump up multi-billion pound acquisition fees. How times have changed.

Gain

The success of Central's MBO has seen the broker's management already being able to overpay on its debt obligations. Significantly, it has also led to its being able to raise funding for the cross-border acquisition of Kendal-based high-performance car wholesaler broker Peart from former Carole Nash managing director Damian Keeling, who has decided to concentrate on his other business interests.

It is a marked change in strategy for the Scottish broker and took the market by surprise. The rise of Central since its inception in 1973 has been based on organic growth, buying small local brokers, acquiring teams and beating the competition.

Henry is relishing the challenge of sub-broking to 150 brokers, a number that could well increase. He says: "Peart is the starting point of entering England." The idea behind Peart is to employ staff that know and care about the cars that customers drive and it has a similar philosophy to Carole Nash, which serves motorcycle enthusiasts across the UK and was sold to Groupama Insurances in a deal worth over £50m at the end of 2006.

Peart, which has approximately £3m of gross written premium, was bought for £1.5m and has 11 staff. It specialises in cars such as Aston Martins, Bentleys, Lamborghinis and Subaru Imprezas, as well as motorbikes such as Triumphs and Harley Davidsons. The broker claims on its website: "If you are over 25 and have previous experience on similar, high-performance vehicles, we can offer you a quote that is low cost, yet high quality."

Ambitions

Henry says: "We have no significant plans to change the business but want to push forward its Performance Marque branding (a company Peart bought in January 2008 that specialises in Porsches). We want to develop the high net worth opportunities and look at commercial lines opportunities. There are 150 brokers we sub-broke to and we want to carry on providing the quality and support they need."

Although local service is important in insurance, the nature of transactions has evolved steadily over the years to the extent that large insurers have reduced their number of offices. There is now only Norwich Union (Aviva if you are reading this after 1 June) left, so this will mean more trips for the underwriters from Glasgow and beyond.

Another insurance company making regular visits to the north is Lloyd's broker Windsor, with which Central has a significant book and strong relationship.

The majority of Central's book is SME business that is held with the leading five insurers. It has more than 10,000 clients as well as delegated authority and there is a strong emphasis on risk management.

Major incident

One of the largest accidents the broker has been involved in so far was the Piper Alpha disaster of July 1988, when an explosion on the North Sea oil production platform - operated by Occidental Petroleum - resulted in a fire which destroyed it. Of 226 people on board the platform,167 died and it is still considered as the world's worst-ever offshore oil disaster.

One of Central's clients suffered two deaths in the incident and the total insured loss for the disaster was in excess of £1bn. Legal wrangles over compensation for those involved in the accident lasted for years and the complications surrounding liability for the incident led to greater contractual conditions and clauses to ensure less confusion in the future. In addition, there were 106 recommendations made for changes to North Sea oil rig safety procedures.

New business

Further to the acquisition of Peart, Henry is eyeing opportunities in Scotland's central belt, including Edinburgh and Glasgow, though he would not be drawn on specifics.

Though wholly in charge of Central for only a short period, Henry's management philosophy is clear: "It is about understanding the relationships with staff and also picking up qualities from other managers. There is a large amount of trial and error, listening to people and learning from mistakes. You have to develop your own skills and the best way is to throw yourself in at the deep end." One of his challenges was explaining the switch of office location. He says that all 61 staff were supportive and that they "avoided any casualties" with the exception of one who decided to leave, though now she is returning because she misses her former colleagues. Henry is also aware of the need for training and, in conjunction with Unitas, has sent some of his staff to the Manchester Business School to be trained in strategy, people skills and financials.

Networks

Aberdeen has an international outlook because some of the world's largest companies use it as a base to service oil and gas operations. Central is similarly outward looking as a member of two broking groups - Unitas and the Worldwide Broker Network. However, Henry admits that Unitas has not utilised its broker-selling capacity as much as it should and, citing plans to change this, he describes its past role as more of an "information sharing" and insurer-relationship building platform.

The aim of the business now is to double its GWP in the next five years to £100m. Although this may be considered ambitious in the current economic gloom, when Henry says it you feel his determination might just make it happen and, with one of the youngest management teams in broking at his disposal, there is plenty of energy, time and ambition for them to do it together. Since interviewing Henry, Central has already strengthened its board with the appointment of Chris Tosh - the company's commercial schemes account manager and a fellow shareholder. It has perhaps never been a better time to be a medium-sized independent broker because much of the competition has now been swallowed up into larger, less nimble organisations.

Having had so much difficulty setting up an interview in Scotland, it has been a surprise to find out how press-shy Scottish brokers have been, especially considering that they have plenty to shout about.

A GRAND OPENING

First Minister Alex Salmond opened Central's newly built offices, Crown House in Westhill, in February 2008. At the opening, albeit in a different economic climate, Salmond said: "The financial services industry is vital to our plans to build a Celtic lion economy in Scotland and we are committed to the industry and growing independent companies like Central Insurance Services, with the support we need to flourish." Standing alongside, managing director Iain Henry said: "The management buyout and move to a modern headquarters heralds the start of a very exciting period in the development of Central Insurance Services ... I am delighted the First Minister, Alex Salmond, has been able to join us today ... We are pleased he is taking a close interest in the development of our company and the insurance broking industry in Scotland."

Crown House was named after the street in Aberdeen in which the broker was based before last year's move and it was the first company to open in phase two of the Arnhall Business Park in Westhill.

BROKER ACTIVITY IN ABERDEEN

Aberdeen has seen several consolidator acquisitions in recent years. Oval bought the now not-so-aptly named Independent Insurance Brokers last May, while Towergate bought McAra Associates in January 2008. Both are relatively small compared to Central, which also became a target for the consolidators before the management buyout. In 2007, Giles bought large Scottish independent broker Crosbie & Jack, which has an office in Aberdeen. Its former managing director, Gordon Crosbie, was promoted to head Giles' Scottish strategy, however he resigned towards the end of last year. Intriguingly, in November last year, Aon declared that it had had its best year ever in Aberdeen, growing its business by 30% year on year. Also in April 2007, Heath Lambert moved into an expanded Aberdeen city office.