First Central eyes flotation as it looks for ‘new investment base’

Rumours of a sale of the motor and home insurer have been swirling for years now, and Lee, pictured, admitted some of those rumours were true.

“It’s been rumoured that we’ve looked for investment over the years. Certainly, towards the end of 2022 we looked but it wasn’t the perfect time,” he said.

Product diversification

Since Lee arrived in 2019, he said the work First Central has concentrated on is to be able to launch products quickly and efficiently.

“We’ve invested, over the last few years, £100m in our IT system, as well as making the profit,” he said.

“I wanted to demonstrate that on our system, we own all the code, we could create new products, either as a retailer or a manufacturer or as both, and that’s what we’ve proven.

“We manufacture it, and we retail it. With other products, we might just be a retailer and get other people to provide support, but it was important for us to be able to show that diversification.”

Slower than expected

Last year, First Central stepped “cautiously” into the home insurance market.

Lee admits the take up and progression of the product has been slower than expected.

“The cautious approach we said turned out to be even more cautious than we planned,” he said.

“We’ve written fewer policies than we intended. We have written around 30,000 now, which is significantly below where we expected it to be. We would have expected it now to be around 50,000.”

But for Lee, this was the first example of the firm launching a product with its own code.

“We have got to build our own data set,” he said. “We’re using as much data enrichment and AI to help those geo mapping exercises. But ultimately, we’ve got to build up our claims knowledge and experience.

“It was always going to be a fairly slow growth, but we need a certain amount of data in order to learn, and we need to find that data.

“But because the market has been softer than we expected, its not as easy to bring that data in.”

Lee said the firm is not going to be rushed into growing when the market is soft, an approach it replicates in the motor market also, which Lee also said is “softer” than expected.

“Somewhere in the region of 12 to 14 percentage points have come out so far this year,” he said. “That’s a lot more than we expected.

“It has gone faster, and I think there are good reasons for that. It has plateaued a bit, but we are being patient on motor as well.

“We are standing still on growth at the moment, because that’s the discipline that we have.

“If that means I have to wait six months in order to grow home, then so be it.”

New investment

However, if the firm wants to accelerate its growth, Lee said new investment might be the way to do that.

“If we wanted to accelerate faster and go harder on home, then that’s part of why we may potentially need a different investor base.”

While he said new investment is “not needed” for the company to grow, Lee said if the firm wanted to grow “more rapidly” then new investment might be needed.

“With a different type of investor, the acceleration, you can potentially accelerate some of the diversification work.

“That’s partly why I want to demonstrate that we could create our own product from start to finish, including the underwriting and the distribution of it.

“If you wanted to throw a lot of capital behind that, it could grow more rapidly, with less caution maybe.”

Another reality Lee pointed towards was the current makeup of investor First Central has.

“Our largest shareholder is a septuagenarian,” he said.

“The fittest septuagenarian you’ll ever see, but it makes sense for him to give me a remit to grow the business profitably, sustainably, but for him to potentially take some value out of it too. And that goes for all of them.”

Potential IPO

Lee said there is no active process yet, as he is looking at all possibilities, and does not want to rule anything out.

“I’ve got a condition of agreement with the shareholders to continue with the sustainable and profitable growth, and potentially for them to realise some value.”

He said he will consider all options, “from institutional to IPOs”.

When pushed on the likelihood of an IPO, Lee said it could be possible, but “not within the next 12 months” and he is open to investment coming in before that option is realised.

But whatever investment comes in, Lee hopes is because they like the business, and do not want to change anything.

“Anyone who wants to invest in us is going to invest because of the culture that we’ve created, because of the management team, because of the systems and the way that we operate.

“If anyone were to invest in us now, it is because they recognize that we were built for the aggregator world, that we are I’d say better than anyone on the aggregators now from a risk selection pricing perspective, so I wouldn’t expect them to want to come in and change much.”