The Life Company Consolidation Group is, for now, little known outside of certain circles in the insurance and financial services industries.
Nevertheless, the London-headquartered, Guernsey-registered business – with operational offices in Dublin, where it is also regulated – appears to have made an formidable start in its stated aim of becoming “a leading European mid-market life company consolidator”.
For one thing, the LCC Group’s three Dublin-based international life insurers are due shortly to become a single, more efficient and profitable company. Meanwhile, another of its most recent acquisitions, the Isle of Man-based business of French insurance giant AXA, is already big enough to stand on its own.
And LCC Group executives say further acquisitions may well follow there (on the IoM) – and elsewhere – in due course.
Their prescience in this area may not be all that surprising, anyone who has followed the careers of the company’s principals.
Both London-based Ian Maidens (pictured) and business partner Paul Thompson, who founded LCC Group in 2013, have had years of experience in the UK’s life company consolidation sector – notably with what eventually became known as Resolution plc and later, as Resolution Ltd and then finally, as Friends Life, before being eventually sold last year to Aviva.
LCC Group CFO Maidens had been group chief actuary and head of corporate development at Resolution plc and Resolution Ltd, while Thompson, who is also based in London, was Resolution plc’s CEO.
LCC Group’s interest in the life sector comes at a time when many companies are struggling to cope with an increasingly regulated environment, which among other things is forcing disclosures of commissions and other charges in the UK and other key markets.
Last November, the Pensions Institute at London’s Cass Business School warned in a report that the UK’s life company industry was headed for “massive” consolidation over the next five years, with several well-known names expected to exit or close their doors, as a “premier league” of pensions providers emerged in their place.
Given the nature of the insurance business, which has long seen strong players gobbling up weaker ones in a way Charles Darwin would surely have approved of, the Pensions Institute’s findings suggest LCC Group could be well positioned for the coming shake-out.
Anglo Irish Bank subsidiary
As it happens, LCC Group has its roots in an earlier industry crisis – that of Ireland’s banking sector, which ran into severe difficulties in 2008, and which saw some of its largest constituent members having to be bailed out. One of these was Anglo Irish Bank, which was ultimately rescued by the Irish Government, sold off piecemeal, and today effectively no longer exists.
When they launched LCC Group in 2013, Maidens and Thompson used as the basis of their new business a former Anglo Irish insurance subsidiary, Harcourt Life, which they acquired in 2014 for an undisclosed sum.
That entity also now manages the Scottish Mutual International life company, which the LCC Group bought in 2015.
Earlier this year, LCC Group acquired the aforementioned AXA business on the Isle of Man – AXA Wealth International – which is a major provider of offshore bonds, with about £9bn under management, and traditionally one of the offshore bond industry’s largest providers.
Then last month, LCC Group announced that it had also reached agreement to buy Dublin-based Aviva Life International, which has about £1.2bn in assets under management, mostly held in single premium offshore bonds. It closed its book of business to new customers in 2010.
That deal is expected to complete in the mid to late summer, according to LCC Group CFO Maidens, who adds that more deals are likely to come, if and when suitable opportunities arise.
“In Ireland, we will shortly have three companies, and we will consolidate them together into one, bigger business, because the dis-economies of scale of smaller businesses can become quite an issue,” Maidens told International Investment.
“The regulatory framework in particular means that there is an enormous governance cost in running a life company, and that tends to be the same whether you’re a £10m company or a £1bn company.
“By putting the three companies in Ireland together, we can run them more efficiently and remove some of those worries about diseconomies of scale.
“Our basic concept now is to invest in a number of portfolios of life business, where we can create a more efficient and profitable result.”
While last year’s Pensions Institute report may have focused on consolidation in the UK life company sector, Maidens says LCC Group is looking beyond the UK’s borders.
“What we’re looking at is predominantly internationally-based business,” he says.
“We’ve bought two businesses and have contracted for a third in Ireland, and we’ve announced the acquisition of what is currently AXA Isle of Man, which is an international offshore bond provider selling primarily into the UK, but also in the Far East, through relationships with AXA.
“Our business model is very much to buy and carry on with the businesses, growing them both organically and potentially through acquisitions.”
The AXA business already employs nearly 200 people, and is big enough to grow on its own, according to Maidens, although he says LCC Group will “seek to enhance and complement the new business growth of AXA IOM through acquisition-led growth”.
As the products sold by the Group’s companies are primarily investment bonds, where tax is automatically paid on investment gains when the policy proceeds are returned to the UK, there are also no issues around operating offshore, according to Maidens.
The fact that the acquired companies are already in business and not start-ups, meanwhile, means that compliance is also less of a burden, although Maidens said that the governance function continues, and that the company will need to manage the businesses with care, so that they are able to become and remain among the industry’s “best of breed”.
The holding company is managed by the Carey Group in Guernsey, which has proved to be an attractive location for LCC Group, as it was for the Resolution.
“It’s quite helpful to have the top entity outside of the EU because of the Solvency II rules, and as we finance our business with a combination of debt and equity it’s helpful from a financing perspective,” Maidens said.
Maidens says how much LCC Group is able to expand across Europe will depend on whether it’s able to find the right companies in which to invest.
“I wouldn’t say that there is plenty of choice, or that a lot of companies are trying to sell their businesses,” he added.
“In the Isle of Man there are a number of companies open to new business and selling business and competing with each other, in the UK and across the globe, and you do get people from time to time who look to sell.
“But it would be fair to say that there’s a lot more supply in Ireland, because years ago there were tax advantages to setting up financial services companies in the International Financial Services Centre, in the former Dublin docks, where there was for a period no corporation tax.
“As a result, Ireland has got a proportionately large number of quite small life assurance companies, many of which have [now] closed, or are having dis-economies of scale issues.
“The secret is to pick the right ones, and to do the due diligence and get a good management team in place locally.
“We’ve got a good team in Ireland and a good team in the AXA business in the Isle of Man, so we let them run the businesses, while my business partner and I are very much focused on oversight and primarily finding the next deal.”
As for the UK market, and talk of the industry consolidating into a few big players in a kind of insurance industry “premier league”, Maidens says a bit of historical perspective is called for.
He notes that most of the business that went through life companies in the UK, until recently, was actually savings business, rather than insurance risk business. It included mortgage endowments, pensions and with-profit bonds that offered a tax advantage to UK taxpayers through life company structures designed for this purpose.
| The LCC GROUP approach*
* An amalgamation of life portfolios protecting customers from the dis-economies of scale* Sound policyholder management with the highest standards of treating customers fairly
* An amalgamation of life portfolios protecting customers from the dis-economies of scale
* A clearer and more engaging path for high calibre management and staff than sub-scale businesses
* A flexible and pragmatic approach to new business opportunities
* A clean exit for vendors
* Prudent capital management
* A long term holder and manager of assets
* From the company’s website
Now, following a number of major changes in the regulations, that’s no longer the case, and he says most UK life companies are reverting back to writing protection and term assurance business, while the annuity providers struggle in the wake of the recent pension freedoms.
“So I think we are going to see more consolidation in the UK life market, because term insurance is basically all about the premium, and you don’t need that many companies competing with each other to have a viable market” in this area, he said.
“I think what you are seeing is that some of the bigger groups that you would think of as life insurance companies, such as Standard Life and Legal & General, they are really focused on investment, but not necessarily in a life insurance wrapper. They are selling ISAs and self-invested personal pensions – the platform products.”