From the East Coast of America to East Sussex, Richard Hoskins explains what brought him back to his old stomping ground in Bexhill and why he has high hopes for the recently floated Hastings Group Holdings.
Hastings Group Holdings chief financial officer Richard Hoskins describes the start to his new role at the now publicly listed company as “a baptism of fire”. However, his transatlantic transition from the corporate world has been softened by a few home comforts.
Having previously served as CFO for AIG’s global commercial business in New York and before that as CEO of Aviva’s North American operation based out of Chicago, Hoskins’ decision to relocate his family to the sleepy Sussex seaside town of Bexhill appears, on the surface at least, an eyebrow-raising move.
Yet, take the geography out of the equation, and the motives behind Hoskins’ passage to the insurance business that bears the name of his hometown start to become clear.
Born and bred around the Hastings and Bexhill area, Hoskins returned to his old stomping ground in the capacity of CFO in April this year for the local insurance company that is making waves on an international level.
In the subsequent eight months, he has played a pivotal role in bringing an initial public offering to fruition at a float price of 170p per share. He has now set his sights on working alongside CEO Gary Hoffman to attract new investors, while also building on recent growth momentum.
On his start to life at Hastings, Hoskins says: “It’s really exciting and rewarding that we got the IPO away in what was a tough environment. During the couple of weeks that we were on the road, a number of other IPOs were pulled.
“I’ve also spent a lot of time with my colleagues getting to understand the business and really helping to continue to grow the business and driving the momentum that the business has had over the past few years.
“It’s about continuing with the right people and the right systems to maintain the agile model that we have. It’s been a baptism of fire to some extent because of the IPO process but I am loving the role.”
On how the opportunity to return to his roots came about, he adds: “I was introduced to one of the partners who is involved in the Goldman Sachs ownership side of [Hastings] and during that discussion it was interesting – and a complete coincidence – that I was born in Hastings and grew up between Bexhill and Hastings.
“For me, that was quite a novel thing – starting in Hastings, going to London, then Sydney, Boston, Chicago, New York and back to Hastings. When I had the discussion and met with Gary, I thought it was a great business and there was a little sense of karma about coming back to my place of birth.”
Hastings’ float was the first IPO Hoskins has personally been involved in and he admits the opportunity to play a leading role in the process – despite the workload associated with it – was the main driver behind his decision to swap the bright lights of the Big Apple for the pebbly beaches of Bexhill.
He explains: “It’s a big commitment of time. There’s a lot of documentation that you produce and every word and number that is in that documentation has to be right and it has to be verified not just internally but also externally.
“Then, of course, meeting with analysts, investors and potential investors is exciting and an area where you learn a lot about the business and how the investment market looks. However, this is also very time consuming. The past two weeks on the road we had about 50-hour-long investor meetings in London, Edinburgh, New York and Boston, so it’s a pretty intense roadshow.
“At the end, it comes to a big crescendo and you are pricing and listing. We had the opening of the stock exchange and that was great because we took the opportunity to bring along some of our longest serving colleagues, which was a fantastic opportunity for them.”
The move to Hastings
Having spent a large part of his 30-year industry career in high-profile corporate roles in the US and Australia, Hoskins is well placed to weigh up the pros and cons of moving to a smaller operation in a less salubrious setting.
He says: “It’s very different from the type of working environment that you would traditionally see in the big global corporates – the type of companies that I’ve been in most recently. It’s a small building but everyone is together – we don’t have any palatial offices, our Bexhill building is not the most slick that you’ll come across but it serves its purpose and helps us be competitive in our pricing.”
He adds: “There are some great pluses of working in big corporates and there are some negatives as well. One of the things that does make it challenging when you’re in big CFO or CEO roles is that often you’re not only divorced from your teams but you’re also divorced from the business itself.
“That’s completely the opposite at Hastings and it makes it easier to get things done. There are often times when I’ve been sitting with my team and the head of financial planning and analysis, for example, will turn around and talk to me for a minute about an issue – whereas in a previous life someone would have to have reserved an hour in the diary, we would have to have invited three or four other people, do it a week later and then have a follow-up. [At Hastings] we manage to do it in a minute.”
Such flexibility will no doubt stand the two-pronged broking and underwriting business in good stead as it seeks to generate further profitable growth in its post-IPO guise.
The share price had dropped by 7% on the 170p float price at the time of Post’s interview with Hoskins but has since rebounded on the back of positive nine month financial results. Such early fluctuations are to be expected and are not a cause for concern to the Hastings CFO who is in the process of revving up his firm’s investor relations process in a bid to mirror momentum elsewhere.
He says: “I don’t look at the share price on a daily basis, particularly in the post-IPO period where you get some of the market dynamics moving the share price around one way or other. I look to the future and the continuation of the growth trajectory.”
Upwards movement in the share price has been further accelerated by some promising results for the period ending 30 September 2015, in which operating profit increased 19% to £93.8m for the period (9M 2014: £79m) and gross written premium rose by 26% to £454.3m (9M 2014: £359.8m).
Hoskins adds: “Once the market starts seeing that continued progress of our financial performance and once we’ve had an opportunity to get out there and really sell our story more – because in an IPO process there’s only so much you can do in terms of communicating your story and what’s different about you to the market – we will start to make real progress.
“We’re just now ramping up our investor relations programme and we’ll be very proactive in that space to really get out there and meet as many investors and potential investors that want to meet with us to tell them about what we do as an organisation and why we’re different and why we’re confident that we’ll continue to grow on the trajectory that we’ve grown.”
Wider reaction to the flotation has been mixed. Certain market insiders have drawn comparisons with Esure’s stock market entry in 2013, which has since failed to hit the heights initially expected, while other commentators have flagged the fact that Hastings began life on the London Stock Exchange with negative tangible equity as a possible cause for concern among potential investors.
Short shrift on goodwill
Hastings first half 2015 reported shareholders’ equity was £328.5m, as opposed to intangibles and goodwill of £591m, meaning that even after the £180m of new money raised in the IPO, the business has negative tangible equity.
Given the lack of tangible equity in the business, research firm Macquarie suggested that investors will need to be convinced the goodwill they are buying is sustainable.
Hoskins, however, gives such an observation short shrift. “Sophisticated investors understand the nature of our balance sheet and the way they look at it is that we’ve got two well-capitalised, regulated businesses,” he explains.
“We’ve got the broking business that’s very well-capitalised and domiciled in the UK and then we’ve got our underwriting business, Advantage, which is domiciled in Gibraltar and regulated by the Financial Services Commission.
“The only other parts on our balance sheet that don’t relate to those regulated entities are some goodwill – intangible assets – which is just a result of the historic transactions of the organisation. If you look at the balance sheets of other broking businesses that have been through an acquisition trail or have been acquired at other stages, you will see similar levels of goodwill.”
On the financial connotations of the refinancing of Hastings’ debt, he adds: “We’ve gone from a position where we had £416m of bonds in the market at a coupon rate of just under 8% to using some of the primary proceeds to delever our business and replace those bonds – we’re in the process of redeeming all of those bonds – with a £300m commercial loan facility at very favourable rates. Our interest costs across the business will go down from about £31m to just under £10m a year.”
In terms of the continued development of the business, it is very much a case of Hastings sticking to its knitting in that it has vociferously ruled out expansion into non-core product lines and international markets. UK motor insurance and the emerging home book remain the bedrock of growth.
Hoskins, meanwhile, is at pains to highlight his view that Hastings represents a unique proposition in a densely populated market.
He says: “Our operating model is unique compared to other organisations. We have a huge amount of discipline around our underwriting.
“Our underwriting team sets a technical price that they pass to the retail business, the retail business must pay that technical price to the underwriters but then the retail business use various data enrichment techniques looking at customer lifetime value, for example, and competitor intensity in the market that day to set a price that optimises our chances of winning the right business at a profitable price, which is a different model to many of our competitors.
“In terms of our operating model, we’re very focused around profitability, so there’s no way we would grow at the sake of profitability.”
Concentrating on the firm’s motor offering and the optimising of price comparison websites, he says: “If you look at the percentage of new business sales for motor that go through PCWs, that’s close to 70% – our share of that new business now is around 11%.
“Our share of UK motor market personal insurance policies is 5.5%, so just over time the natural dynamics of getting 11% of 70% of the market drives up that 5.5% share and as we maintain our discipline around pricing, our book grows and we become more profitable going forward. So that’s one of the reasons we’re confident around growth.
“We also only quote for about 50% of the requests we get from the aggregators, so we’re very disciplined around the footprint, in other words the business that we will underwrite ourselves. We do see opportunities to expand that footprint but we won’t be doing that in an aggressive way.”
Home insurance remains a relatively new venture for Hastings, yet Hoskins is confident his firm has all the capabilities in place to build significantly on solid foundations.
He says: “Home is a big opportunity for us. From starting in the market a year ago we’ve got to more than 100,000 policies, we’re starting to build our own underwriting capabilities around home and if you look at the trajectory of new business that is coming through PCWs, it is very similar to the path that we saw on motor, but about three or five years behind.
“Two or three years ago, about 20% of new home insurance business was coming through PCWs, now it’s closer to 45% and we believe that a lot of capabilities that we have on the motor side, particularly in relation to data enrichment, is transferrable to our home book. So we do see some opportunities there to build our capabilities around underwriting and continue to build our book in a profitable way.”
After a hectic start to his time at Hastings, Hoskins’ workload is clearly showing no signs of diminishing. But as the former international jetsetter now back in familiar surroundings, he is ideally placed to help build on a success story that – like him – was built in Bexhill.
A huge well done to all involved with organising our Remembrance Day event on Friday, including our Corporate Real Estate team. One of them, Ibrahim, took this incredible footage of poppies dropping as he (along with others) leaned (safely!) over the gantry to let them go. pic.twitter.com/pSbapkWBBR— Lloyd's (@LloydsofLondon) November 12, 2018
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