Monday 24 July 2017

Rivals tend to go for gold -- we're patient, we'll grind out a result

Irish born CEO believes that in time Liberty Mutual could end up owning the whole Quinn Insurance business, buying out Anglo Irish Bank's 49pc stake in the company. By Emmet Oliver

Liberty Mutual CEO Ted Kelly is an Irishman, but not a Celtic tiger kind of Irishman. "We are patient, we are realistic'' is how he sums up Liberty's slow methodical approach to the business it has just agreed to buy -- Quinn Insurance.

Unlike many of those who dominated Irish business and banking in the final years of the boom, Kelly is not expecting any quick results from Quinn Insurance. That may be a good thing, because the business is only expected to break even in 2011.

"We are not going to say things like we're going to double the business by next year, you grind it out in this business,'' he declares.

Liberty hopes to own Quinn "forever'', says Kelly and his company barely ever exits national markets, even when there are challenges.

Japan is the only one he can think of and that was because of sweeping regulatory changes that made life impossible for Liberty Mutual, a Fortune 500 firm.

Kelly admits that private equity players, who are believed to have made bids for Quinn, expect a return on their capital of 20pc. While he declines to say what kind of return Liberty expects, he is not looking for private equity type results.

"They are always going for the gold, we are more patient, it is just a different model,'' he says of the private equity industry. Liberty for its part is a mutual, not a quoted company.

Kelly, while focused on wringing profit from Quinn in time, is not distressed about the starting position -- an insurance company in administration.

Liberty has taken companies out of bankruptcies in California and Venezuela for instance, he explains, so the current position of Quinn is not a problem.

In fact, Kelly seems genuinely excited about taking over the Irish firm. "We're looking forward to getting the keys to the car,'' he laughs.

He adds that in time Liberty could end up owning the whole company, buying out Anglo Irish's 49pc stake. He says Liberty does not even "contemplate'' the deal not working out.

Kelly is determined to emphasise that Liberty lets local management run local companies and that will apply to Quinn Insurance, although he concedes that the Quinn Insurance CEO will be recruited from "within the Liberty family''.

Liberty, as part of the deal to buy Quinn, made it clear it didn't want to buy the UK assets of Quinn Insurance, which Kelly points out have a "negative worth''.

In time after this UK book is "cleaned up'' Liberty will have the option to buy it, but Kelly says the "patient'' will need "surgery'' before it can walk. He says insurers have to take a "hard-nosed view'' of something like the UK liabilities and often put prices up on new policies so the losses on old policies are absorbed.

"Essentially you are re-underwriting the business,'' he comments.

UK business

He says Liberty hopes to eventually buy the UK business.

"It's highly unlikely there is no value there,'' he says, once Liberty gets rid of the "bad stuff".

Diplomatically Kelly is keen to avoid any discussions of how Quinn Insurance ended up in administration and he has never met Sean Quinn. While from Armagh and a graduate of Queen's University, Kelly doesn't claim to be greatly familiar with the "legacy'' issues at Quinn.

"I just know what I read in the Independent,'' he jokes.

While the arrival of Kelly has been greeted in the main warmly by employees, what is the message for Ireland's insurance customers?

"We provide high quality product at competitive prices, everyone claims that, but we really do,'' he claims. But he cautions that price will not be used as a sledge hammer to break open the market here. "If the only thing you sell is low price, its a loser's game,'' he says. He says such an approach would be a "race to the bottom" that ultimately would benefit nobody.

"Quinn has a very young demographic, it's a good demographic,'' he adds. But he shies away from any suggestion that prices will be slashed by Liberty to win market share. From his comments it sounds more like a slow burn. But he does say incumbent players should be "worried" about Liberty's arrival.

He hints that once the Quinn brand disappears, the Liberty brand will have a lot of money put behind it. "We will be investing in the brand,'' he says several times in the interview.

Kelly fiercely resists any suggestion Liberty is getting a sweetheart deal buying the insurance business. "We are not getting a clean slate here, we are assuming the liabilities. We are stepping in mid-stream. It's a challenge,'' he says, preferring not to use the word gamble.

Irish background

Despite his Irish background, Kelly is not particularly misty eyed about doing a deal here. "In the end it is a commercial decision,'' he bluntly says.

Kelly says he only comes back to Ireland once a year at most, often to play golf with a group of friends. He does not expect Quinn workers to like him or Liberty because of some kind of spurious Irish connection.

"You've got to credit the Quinn Insurance employees, they have been under pressure and they kept the business going. We are very very pleased with the reception we got,'' he admits.

The genesis of the deal happened last year when financial regulator Matthew Elderfield put Quinn into administration. Within a few weeks Kelly was on a plane to Dublin to meet Elderfield and his colleagues.

Liberty does about three acquisitions a year on average, he points out. "We are always looking at what is available and how it can fit into our strategy. Quinn being Quinn, we knew about the company,'' he says.

His message to Elderfield was a blunt one. "Our concern was the longer a company stays in administration, the more likely it is to become a damaged product.''

At first the complications of the deal put off Liberty, particularly trying to extricate Quinn Insurance from the Quinn Group. But Anglo put forward a joint venture deal that unlocked the complexities, says Kelly.

He now says Liberty would be happy to buy out Anglo's share of the business, although no firm timetable has been set for this. What it means is that the Irish taxpayer has a vested interest in seeing Kelly and his colleagues make a go of its latest acquisition.

Liberty's scale suggests it could be successful -- it insures 14 million cars worldwide for instance. In some countries its entire claims process is a paperless process and in other markets it actually owns its own body shops to repair crashed cars. It's all about whatever works in each market, Kelly emphasises.

In September, Kelly and his team get to see what works in Ireland and also in Cavan and Fermanagh and Blanchardstown. "We want to hit the ground running,'' says Kelly.

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