Analysis: Iprism moving beyond Gable

MGA Iprism is entering a period of consolidation, after its chair Brent Escott declared its turnaround complete. With a replenished top team, including the recent appointment of Mitie’s director for commercial finance and business partner for Europe, the Middle East and Africa, Manuela Roncalli, as finance director, and a brand refresh in sight, it claims to be confident of seeing growth in 2020.

Iprism chief financial officer, Kevin Fleming told Post: “We’ve had 2018 as a transformation year. 2019 is more a consolidation year. Then it’s very much focused on how do we ensure we have that platform for growth from 2020 onwards?”

Difficulties

The MGA's latest available accounts highlight the difficulties it has faced since the demise of William Dewsall's Gable, after which its profits fell exponentially. In 2014, a growth-hungry Iprism inked a three-year £100m gross written premium deal with the unrated Liechtenstein-based insurer.

The managing general agent’s acquisition vehicle has seen its valuation plunge by £55.9m since the beginning of 2016, its latest accounts have revealed.

Profits at the SME and high-net-worth MGA slid by 88% over a three and a half year period, after the Gable hit cost it roughly a tenth of its GWP. 

However, analysts had expected Iprism to take an even bigger blow.

An anonymous analyst told Post: “I was concerned that the figures might be even worse. They are pretty dire, but I thought they might be worse.”

Shrinking numbers

Over the latest 18 months, reported as such because the business was undergoing a turnaround phase that raised red flags for some market watchers, the MGA saw profit after tax of just £761,000 compared to £2.2m in the shorter twelve months of 2016 and £5.7m in 2015.

Operating profits shrank, from £7.2m in 2015, to £2.7m in 2016, down to just £750,000 for the 18 months ended June 2018.

The business’s Ebitda has slid from £7.3m in 2015 to £2.4m in 2018.

Gross written premium also shrank, from £25.6m in 2015, to £23m in 2016, to £27.7m over 18 months.

This was partly due to the loss of Gable policies, but also due to the MGA re-assessing the type of risks it is looking to take on and renew, according to Fleming.

The company expects its GWP and Ebitda to remain relatively flat through the coming year, while it will target growth in 2020.

Fleming said: “In relation to the business we have written historically, one of the reasons for the dip in GWP is we have been very selective in relation to the business that we wrote years ago, that potentially hasn’t performed particularly well, hasn’t delivered acceptable loss ratios. We’ve taken a decision where we are not going to write that, because it doesn’t meet the quality we need going forward.

He added: “On one hand it might be seen as being unambitious [to target flat GWP in 2019], but it’s around quality. We are making a conscious decision to not renew some policies, because we don’t believe the risk is what we want to write going forward. So if we can maintain GWP around the same mark, we will be quite happy."

“From an Ebitda point of view, as part of our transformation and consolidation we are just looking at how we work as a business and making ourselves more efficient in relation to how we use our resources, how we operate our technology. So again we’ve had a very good review of the cost line of the business and made sure it’s aligned to the GWP we expect to write going forward,” he added.

Private equity backers

Aston Lark backer Bowmark Capital, which took a 51% stake in Iprism in 2014, has stepped in to assist with the company’s debts.

A Bowmark company took on £9.1m of outstanding Iprism debt to the Royal Bank of Scotland during the extended financial year.

Fleming added: “We have taken that £9.1m that was on the balance sheet at the end of the year and transferred that into a Bowmark entity. The reason for that is to basically remove a lot of the restrictions the business would have had managing around fairly tight governance. And it gives us a much better platform to be more flexible and entrepreneurial going forward.”

He continued: “We have effectively changed the business model over the past three years. We have moved from being a high volume player that could deliver quite impressive Ebitda numbers. We have realised, if we want to be a truly sustainable business going forward, we need to make sure the level of profits we are taking as the insurance contractor are appropriate.

“On the back of that, we have agreed a much more gradual and much more steady rate of growth. 2019 will be similar to 2018 in relation to GWP. But on the back of that, there was a revaluation on the goodwill of consolidation that was raised at the time Bowmark bought it, which was probably valued more as a software business rather than an underwriting business.”

The year also saw Iprism pay a £6.25m dividend to its holding company.

“We did a dividend payment, which basically was to pay down some of the bank debt. So we had a reasonable portion of bank debt back then. The external debt was hindering us to some extent as to how we wanted to operate. So the decision was made at that point in time to pay that dividend up into one of the holding companies to pay down against the third-party debt. What we have done is that third-party debt has effectively been refinanced,” Fleming said.

Rated capacity

Looking forward, the MGA is hoping to onboard rated capacity and put its former ties to Gable behind it.

Escott had asserted that the MGA will never look to unrated capacity again, but there may be exceptions to this according to Fleming.

He said: “Our focus going forward is more on rated insurers. We are being much more selective with the type of risks we are trying to write and the type of insurer we are trying to deal with."

“One of the comments Brent made as part of the transformation was that we would only work with rated capacity. And I would substantiate that and agree with that, but there are one or two people like the Salvation Army that aren’t rated but are potentially very good partners,” Fleming said.

Looking to 2020

The MGA will look to a brand refresh and new product launches in the coming year, as it seeks to build itself back to growth.

Fleming continued: “For 2019 the management team are fairly new in post and our focus is on what we are calling working under the hood. What we came away with from 2018 was that we are very good at underwriting expertise. So not being just that technology business where it’s a system that brokers go into.

“It’s about having strong underwriting expertise and a very good team of people who are very happy to speak to the brokers. It allows us as we go forward to really change our strategy and really free ourselves as being a partner for the insurer and the broker, so for both parties we can really deliver a proposition that is profitable for all involved, but at a reasonable rate in relation to our cut on the insurance chain."

He added: “One of the areas we are looking to spend quite a lot of time on is the user journey, which is not necessarily something that we have looked into before. But rather than just implement new products or bring new insurers on the panel, what are the foundations that will allow us to grow, probably in 2020 rather than in this year.

“It’s improving the underlying technology, it’s improving the customer journey. We’re about to do a brand refresh. We’re also looking to increase the engagement with the broker, so before we make any changes we have that dialogue and we truly understand the broker’s requirements before we look to go off and develop a product.”