Saturday 29 April 2017

Life after Sean Quinn

Significant surgery has been taking place at Quinn Insurance since late March when the founder and his family lost effective control of the company. Price increases, job shedding and less investment risk have been the key remedies. Now all it needs is a well resourced buyer to step forward

He was the founder of the company and for a time its inspiration. His name adorns offices of the company all over Ireland and at various locations in the UK. His vision, of using price to dramatically undercut established players in the insurance industry, still remains the core philosophy of the firm. But despite all this, Quinn Insurance is apparently doing just fine without Sean Quinn, once Ireland's richest man.

Speaking to the remaining top tier of management at the company this week, one gets a sense that while many of them may have reservations about the departure of Quinn and his executives, time is a great healer and the wheels of commerce turn quickly and unsentimentally.

While Sean Quinn himself declared the decision to put the firm into administration a disaster, the business, albeit with significant job losses, seems to be staging something of a comeback.

Yes, writing new business has been difficult, but there have been few cancellations despite a tide of negative publicity in April and May, and the UK business model is finally getting a permanent fix.

The company is going from a "deeply troubled", according to the Financial Regulator at least, business model to what the administrators call "a sustainable business model''.

There has been a tendency to question every decision, strategic and otherwise, taken by the previous management team, but it is clear Quinn Insurance's problems were largely caused by a lopsided UK business model, which seemed to concentrate almost blindly on pinching short-term market share.

Price

The way the price issue has been handled by the administrators tells its own story about why Quinn Insurance ended up over-staffed, making losses and lacking in solvency at the end of 2009.

For example, not a single price increase has been introduced on any of the Irish business lines by the administrators, but in the UK, where Quinn Insurance writes a sizeable €442m gross premiums each year, the product has been significantly priced up, by about 25pc on average.

This vital decision to re-price the entire UK operation (although UK commercial insurance cannot be offered pending clearance from the regulator) has been the most important piece of surgery performed by Michael McAteer and Paul McCann of Grant Thornton.

It has been a two-edged sword however -- it has allowed the company to avoid crippling losses on its UK insurance book, but it has also reduced the volume of business, reducing the need for so many staff.

This has effectively led to the departure of 900 staff, although the insurance business in Ireland has been shrinking, so some level of job losses might have been needed anyway at Quinn, which lost money in 2008 and 2009.

On the other hand, no further job losses will be necessary, says McAteer.

"We think 900 job losses will be the maximum,'' says McAteer. Of course he can't speak for any future buyer of the company, who might do things differently.

For example, it is believed Quinn Insurance is sitting on a number of sites that are far bigger than it actually needs, leaving options for a future buyer looking to return the company to profit.

The company will be attractive to buyers, but McAteer wonders whether the non-traditional assets owned by Quinn Insurance, through various subsidiaries, will really be wanted by a traditional insurance player. For example, a windfarm at Derrylin, Co Fermanagh; a hotel in the Czech Republic and a landfill site in Armagh are among assets owned by these subsidiaries.

"We have taken the view that an interested insurer would not classify them as general insurance assets, it's not what a traditional insurer tends to do, so in our head we have taken them out of the balance sheet,'' he explains.

"We've built a sustainable business, someone else might want to take it further, but they'll have the capital to do it, that's what we don't have,'' admits McAteer.

Among the Irish players interested are FBD, with a host of overseas players eager to take a look, potentially including Travelers, Axa, Aviva and possibly Eureko. Anglo Irish Bank are also looking to take over Quinn Insurance and are proposing an independent board to run Quinn, staffed by insurance experts, rather than Anglo itself.

The problem for any new arrivals in the Irish market is they don't hold a licence as a regulated entity, which could slow them down in terms of consummating the deal for Quinn Insurance. For example, a brand new company entering the market might have to wait as long as six months to get regulated.

In the meantime, the existing management team is trying to stabilise the business and in that way suitors are likely to come forward. Speaking to the Irish Independent this week and asked to make a pitch for the company, McAteer said that unlike other insurance operations, Quinn could offer an existing infrastructure, a motivated staff and a proven claims model.

"It's all here already,'' says McAteer, who emphasises that the actual sales process is being handled by merchant bank Macquarie Capital Europe. They are likely to whittle down the 40 expressions of interest already submitted to a far slimmer shortlist of suitors.

This group will be asked to supply three basic pieces of information -- what is the bidder's indicative price, what is their business plan and how do they intend to fund the purchase price.

Both Quinn Insurance and Quinn Healthcare are for sale, although it's not clear if buyers will want to purchase both. Clearly the chief asset is Quinn Insurance itself, a company that has lots of problems but does boast €1.1bn of written premium income -- turnover by any other name.

"The company has historically made money, it will make money. It's just in a cyclical moment, it could be a very nice business for someone,'' says McAteer.

"It traded well for nine to 10 years of its life, so they must have been doing something right,'' he adds.

The value locked in the business is not so much being grown by McAteer and his management team, it is more about preserving that value, he points out.

For example the company's investment portfolio is being de-risked, with the firm moving out of various investments and putting the money into cash instead. McAteer is not taking any risk and doesn't want to trade Quinn Insurance back into health.

"We are very much minding the shop,'' he says. The Quinn administration is the biggest insurance administration since PMPA and one of the biggest in Europe. Key to making it work is retaining customers and retaining the staff, beyond the 900 who are scheduled to leave.

In fact despite this high loss of staff, some applications for the redundancy package were actually turned down, explains John McCarry, head of HR at the company. He says those who have left (or are due to leave) are setting up their own businesses, travelling or joining other companies in the insurance industry.

John McDonagh, head of consumer insurance, says the company has been resilient during the recent upheavals, but he points out the entire insurance industry in Ireland is shrinking. He points out premium income has fallen from €4bn to €3.1bn over recent years. "The days of the third car in some homes is over," he muses.

He says the future for Quinn is to get a greater share of the Dublin market, which should supplement its traditional base in rural Ireland. He says the firm is back on the aggregator sites in the UK and because it was so lowly priced before, fresh increases have not been as disastrous for Quinn as some in the UK industry predicted.

The future is greater advertising and greater visibility, he says, and the company intends to resume its promotion of the Late, Late Show in the autumn.

Richard Stafford, head of the company's commercial insurance arm says SMEs remain the mainstay and while a large retailer recently came on board, the company is not trying to grow the business by snapping up multinational customers. While the construction downturn has ravaged the firm, some of the worst hits have already been taken.

"Our commercial book has held up well despite the administration," he says. New business is down, but existing business has not disappeared. "There has been no run on the book," he comments.

Claims staff, meanwhile, deny the company has been hardnosed in dealing with claims, and instead point to the quick turnaround the company offers on claims.

"Time is money for us, so we try to get claims settled quickly," explains McAteer.

After the surgery is the patient making a fully recovery? McAteer says even the losses in the UK are reversible and in recent weeks the UK business has started to move into the black on a week-to- week basis.

The business overall is only down by "single digits" when measured against the same time last year, probably by between 8pc and 9pc.

While the company was associated with a big personality in the past and traded on that, the slimmed down new company, minus the personalities, appears to be moving the right direction.

But to get to a truly sustainable path, the right kind of buyer still needs to step forward.

Irish Independent

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