Like others, Norton sees a chance for more M&A in the sector. As fixed costs increase, he says, smaller players may have to boost business volumes. “Infrastructure costs have been driven up by regulation in the last couple of years, and it will get worse — you have Solvency II coming along the line, you have much stronger regulation in most territories,” he says. “In Germany, the myriad small mutuals with tiny premium volumes, when they’re forced to do Solvency II and have all these regulations that come out, [they] are going to find that their cost structure increases considerably. Unless they can at least create their own capital from profits, they’re going to have to do some kind of deal.”
It’s not a situation that Norton believes Helvetia is likely to face. He reckons the company’s international units could “probably have a certain amount more premium without having more fixed costs.” But the pressure from analysts and investors to present a compelling growth story remains, as does the knowledge that the company’s balance between life and non-life business needs adjusting. “We need to get the balance if we want to be a full service provider on a service basis,” Norton says. “In the life business, we’ll have to develop that or rethink our strategy.”
Putting itself up for sale is unlikely, the finance chief adds. The company values its independence and sees “no reason” to sell itself, while mergers of equals are difficult to pull off. Instead, organic growth and smaller deals are the preferred strategy, which may include acquiring a distribution business. “Our aim is to look for stuff that is basically below the radar screens,” Norton says. “It’s large enough for us but it’s probably too small for the big boys to worry about because it doesn’t really add anything to them. And we are seeing opportunities like that around.”
Better to Bolt On
Other insurers are being more aggressive in pushing ahead with their M&A strategies, despite the ongoing financial turmoil. Some are repositioning themselves in new parts of the value chain, such as distribution. Others are entering new markets. In the former camp is AXA UK, the British arm of the French insurer, which has £74 billion (€94 billion) of invested assets. During the past 18 months, group finance director Philippe Maso y Guell Rivet and his colleagues have been buying up brokers and other distribution firms.
“Clearly one of the difficulties we had in the UK was distribution,” says Maso y Guell Rivet, finance director of the British business since 2003. “We operated 80% through intermediaries — on the life side with independent financial advisers, on the property and causal side with brokers, be it for personal lines or commercial lines.” This meant the business model was overly reliant on channels that didn’t allow AXA to get close to its customers.
The decision to move into distribution led to a raft of acquisitions starting in early 2007, including non-life takeovers of brokers Stuart Alexander, Layton Blackham, Smart & Cook and SBJ. Some 20 other targets have been snapped up behind those four pivotal acquisitions. The team also decided to move into direct distribution with the acquisition of Swiftcover.com, a website offering car, pet and travel insurance based on technology that the CFO says could eventually be used in other international AXA businesses. These deals give AXA UK an initial foothold in the distribution sector, and Maso y Guell Rivet adds that “this is a journey” along which the company still has further to go.