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All the Aces
THE poker-playing propensities displayed by Economic Insurance managing director Peter Cullum in negotiating terms for the company's management buy-out some nine months ago have been put to good use again. This time, it's the purchase of the commercial lines portfolio of Royal London General's broker division that has displayed his ability to spot a winning hand.
RLG's commercial business from brokers has been growing steadily, administered by a super-duper computer system, and producing good underwriting results but perhaps top-heavy on expenses of conducting the business. Economic now comes on the scene, and takes on 40 of the division's staff and (crucially) its management chief John McLaren as head of an enlarged division, which will also encompass Economic's schemes underwriting for commercial business.
Coincidentally (or perhaps not so coincidentally) Economic also gets RLG's network of six regional offices. Previously the company has set its sights against a regional structure, but local service is perceived to have been a cornerstone of RLG's highly regarded service to intermediaries, so Economic maintains it and integrates into the regional structure its current open market commercial portfolio, thus improving its own service levels for regional brokers.
The purchase also removes the possible vulnerability of Economic in previously having such a heavy concentration on schemes business. The company will continue to major on schemes, but diversifying into the kind of broker-controlled smaller to medium-sized commercial business (L1,000 to L15,000 premium) which has been RLG's forte will do the overall balance of Economic's portfolio no harm at all.
Mr Cullum and his colleagues were shrewd enough, in negotiating the deal, not to go anywhere near the RLG London market business, which remains in run-off with Royal London Insurance.
When you are looking for growth, based on some solid profits of your own, an opportunity like that presented for Economic by Royal London Insurance's desire to sell off its broker division's commercial business comes along rarely; especially when you are talking about a business which some brokers demonstrably regard as tops--witness RLG gaining the "Best Commercial Insurer" accolade from the IIB poll in both 1992 and 1993.
Hence, Peter Cullum's comment: "Royal London General broker operations division provides considerable synergy with Economic's existing commercial lines operation and the combination of...