Summary of Performance
UNITED KINGDOM OPERATIONS
NEIL UTLEY
CEO, United Kingdom
IAG entered the United Kingdom general insurance market in September 2006 with the purchase of Hastings Insurance Services Limited (Hastings) and Advantage Insurance Company Limited (Advantage) for approximately $350 million.
The acquisition of Equity Insurance Group (Equity) for approximately $1.4 billion expanded the newly established UK division in January 2007.
Combined, the businesses position IAG as the UK’s fifth largest motor insurer, the largest motorcycle insurer and the fourth largest broker in personal lines. They added $725 million to the Group’s gross written premium in the nine months to 30 June 2007.
Hastings, trading under the brands Hastings Direct and Peoples Choice, is a personal lines insurance broker. Launched in 1997, it has grown at a compound annual rate of 20% over the past five years. Advantage was established in 2002 to underwrite personal lines insurance, specialising in motor insurance.
Equity Insurance Group operates through Equity Red Star, the UK’s largest Lloyd’s motor insurance syndicate and the UK’s largest motorcycle insurer, with an unbroken record of profitability since 1969; and through Equity Insurance Brokers, with a multi-channel distribution strategy including telesales, internet and a network of almost 80 high street branches.
Significant progress was made during the year to integrate the Hastings and Equity Insurance Group businesses. With a UK Board and governance framework now in place, the integration aims to deliver synergy benefits by streamlining processes, strengthening IAG’s presence in the volume motor insurance and targeted specialist markets, and positioning the businesses for further growth.
Against this background, our UK businesses operated in a competitive environment. Our goal has been to adhere to disciplined pricing and strive for an optimum business mix, and to ensure our range of distribution channels meets the evolving ways people choose to access insurance.
A growing trend has been for customers to buy insurance products through direct channels such as the internet, now the second largest sales channel for personal insurance products in the UK. Accordingly, we began expanding our online distribution capabilities and product offerings, enhancing our online marketing and loyalty programmes and building a stronger, more flexible and user friendly online environment to capitalise on this rapidly evolving market.
We have also been expanding our branch network and developing new affinity brand relationships with partners including Alliance + Leicester, First Direct, Renault and Nissan.
A major claims event for our businesses occurred when severe flooding affected areas of mid and northern England during June and July 2007. These were among the worst floods on record, with some areas receiving a month’s rainfall in just 24 hours. In January, windstorms swept through an area from the Bristol Channel to Manchester, resulting in a number of smaller claims, predominantly from our home insurance customers.
LOOKING FORWARD
We will continue integrating our UK businesses and have upgraded our synergies target by close to 14%, from &#pound;22 million to &#pound;25 million per annum.
Our focus will be on delivering profitable growth in both the direct and external broker distribution channels by reducing costs through improved operational processes, adhering to disciplined pricing and optimising our mix of business.
We plan to grow distribution revenue by expanding our branch network and offering competitive products, and are well positioned to develop our direct distribution through both channel development and marketing.
Our presence in the volume motor insurance market will continue to be strengthened and we aim to capitalise on our expertise in a number of specialist sectors, such as motorcycle, fleet and haulage.
MANAGING COSTS
“ BELIEVE ME, WHEN IT’S YOUR MONEY, EVERY DOLLAR COUNTS.”
A new car is crashed at IAG’s Research Centre to test repair costs.
Each year, IAG’s businesses worldwide repair or replace hundreds of thousands of cars for our customers.
With such large costs involved, it is in our interest to know a lot about cars.
That’s why, for more than 15 years we have been conducting low speed crash tests at our research facility and actively researching the costs involved in repairing cars.
The findings from these tests and other research programmes have been used to help car manufacturers alter the design of cars, to improve safety, reduce repair costs and reduce the risk of theft. For example, we’ve provided input into the design of many car models, up to five years before the cars have gone into production.
We publish our research findings to help customers factor in safety, security and repair cost considerations when buying a car. A car with a better risk rating means a cheaper insurance premium for our customers.
We also monitor the prices of about six million car parts each year, and the feedback we give car manufacturers helps to ensure the pricing of parts remains as competitive as possible.
All this research means our customers can benefit from safer, more secure cars, which can be repaired more quickly and at less cost. It’s one of the ways IAG works to manage its costs and ensure we can deliver benefits to customers and shareholders, because we know that every dollar counts.
