Legal & General is now the majority capacity provider for a £550m five-year binder with Pen Underwriting, as the general insurance business aims to grow its premium by double digits in the coming year.
L&G will provide more than 50% capacity for the £110m annual facility, which would see the business significantly increase its gross written premium.
In addition, the firm also announced a distribution deal for with Co-operative Bank this week for its two main home products.
The two deals in short succession have raised speculation in market on whether L&G was ramping up its GI business ahead of a sale.
Cheryl Agius, CEO of GI at L&G, declined to say whether a sale was on the cards. “At this stage the remit is to grow the business and develop partnerships that will be beneficial to L&G, both in GI and the broader retail business,” she told Post.
“You can read into that what you like, but some of these partnerships will absolutely have a broader benefit across L&G as a whole.”
Agius said L&G had a ‘double digit pipeline’ of deals, similar in scope to the Co-op Bank and Pen Underwriting deals announced this week.
She declined to say how much income the business was targeting in growth. “It’s difficult to say at the moment, but it will increase our GWP significantly this year and into 2019,” she said.
She added: “We are targeting double-digit growth. But the priority is choosing the right partners and having strong discipline to underwriting and pricing as you go through that process. Anybody can grow a book on the top line, and that is not what we are here to do.”
One market source said: “One could suggest that having been unable to sell the business, L&G has decided to flex the power of its balance sheet via managing general agent distribution - given how costly it can be to grow the household book organically.
They added: “One might speculate that if this type of publicity encouraged a buyer to emerge, L&G wouldn’t say no to selling the GI business.”
The Pen binder includes both household and SME, a sector that is not a traditional heartland for L&G.
Agius said: “A lot of this is an extension of what we already have, and some of it is what we are looking to expand into.
“It is blocks of business that looks attractive. There’s a grey line between some of this stuff. Buy to rent, or build to rent – whatever they may look like – you could argue that’s SME or small commercial. But it’s just an extension of the same underlying risks in completely different areas.”
Jonathan Turner, CEO of Pen Underwriting, said the binder was the consolidation of 15 facilities into a single one. L&G is the majority capacity provider, and it is understood Munich Re is also on the facility.
Turner told Post: “We found there would be more value in having an overarching facility that gave us great flexibility and was a multi-year transaction that gave us certainty and commitment from our capacity providers. We went out to the market in the summer of last year and where we’ve ended up is this fantastic brand leading the charge in L&G.”
He added that guaranteed five-year commitment freed the firm to follow the lead of parent company Gallagher in considering bolt-on acquisitions.
Gallagher returned to mergers and acquisitions this week with the purchase of Risk Services. Turner said that guaranteed five-year commitment in the form of the binder freed the firm to consider acquisitions of its own.
“Gallagher has announced its first foray back into the M&A space,” he said. “That’s very much part of the Gallagher DNA.
“For us, M&A is on the agenda. Over the last two to three years we have been creating the infrastructure and framework that allows us to bolt businesses on to what is a 21st century MGA.”
Sounded a good plan, Exec Team Visit to our wonderful claims team in Morecambe, bit of a ‘Back to the Floor’ & dish out some Easter Eggs. Lovely. So how did I end up with these & having to wear them home on the train? Thanks @helenidle @AXAUK @AXA_Broker #BunnyEars pic.twitter.com/cNd80WnRPd— David Williams (@AXADavidW) April 17, 2019
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