Game changer

AUB’s acquisition of a major Lloyd’s broker will transform the network in more ways than one

By John Deex

AUB Chief Executive and Managing Director Mike Emmett has talked for years about potential overseas expansion for the insurance group.

But, as has become clear, he wasn’t thinking about simply mirroring the Australian network of retail brokers in another jurisdiction – he had something quite different in mind.

The listed company announced on May 9 that it will be acquiring the UK-based Lloyd’s wholesale broker Tysers for $880 million.

Tysers is the sixth largest wholesale broker in the Lloyd’s marketplace, writing annual gross premium of $3.6 billion.

AUB was already going well, thriving through covid and earlier this year upping full-year earnings guidance after a strong performance in the December half.

But Mr Emmett explains to Insurance News that the benefits of the “transformational” Tysers acquisition will be multi-dimensional.

Of about $3.6 billion of premium expected to be placed by AUB this financial year, $300 million will be placed in the Lloyd’s market.

AUB can now monetise that, through Tysers, but more importantly that figure can start to rise having been held back by a lack of complex risk capability.

“Currently, we have constraints around what we can offer clients, particularly, our medium to large clients,” Mr Emmett says.

“Apart from some pockets of our local brokers that have international experience, we almost have to defer to another broker or sometimes we will lose a client. They’ll outgrow us. And it’s normally because they’ve outgrown the local market, and we don’t have a solution to keep supporting them.

“We’ll obviously strengthen that offering and our ability to support clients irrespective of their size and scale.

“So, it’s really a way of broadening our share of the wallet for our existing customers. It gives us the capability to now accelerate some of the growth of the more complex risks. And also, being able to monetise the business that gets placed offshore.

“We see that [$300 million] growing fairly rapidly to about $700 million or $800 million over the next few years.”

The acquisition will also enable AUB to increase the number of products it can offer that are different, or exclusive.

“We can use Tysers’ expertise to work with syndicates in London to design products with specific niche features, and limited exclusions that we can offer through our network to our clients, that other networks don’t have access to.

“Everyone’s talking about parametric solutions. People talk about a lot, but very little gets delivered.

“The ability to use conventional insurance products complemented by a parametric solution, and for us to be involved in designing these and then offering them to our clients, using Tysers’ ability to place that into the London market, will give us a real competitive edge, we believe.”

Then there’s the underwriting agency side of the business, which is growing rapidly. Much of that business is supported by Lloyd’s binders, which are renewed every year through a wholesale Lloyd’s broker.

And Mr Emmett sees current market conditions pushing more and more Australian business towards Lloyd’s.

Domestic insurers are reducing risk appetites, he says, particularly in certain classes of risk and geographic locations.

“In parallel, the Lloyd’s market seems to be expanding its risk appetite. And so that phenomenon means we’re going to see more and more business placement moving from onshore to offshore.”

Mr Emmett sees so many benefits to the move, that his one regret is not doing it earlier.

“With hindsight, it probably is something that would have been better if we’d started pursuing it a few years ago. We’ve missed opportunities as a consequence of not having done this earlier.”

But AUB did set up a “useful precursor” in February last year. Austplacements – a dedicated unit for complex risks is led by former Millennium Underwriting Agencies Managing Director Heath Amber, who has experience as a wholesale broker in London.

Mr Emmett says under Mr Amber’s leadership, Austplacements and reinsurance advisory business AustRe, along with some specialty agencies, will now combine with Tysers’ small Australian and New Zealand operation into one Tysers-branded business unit.

“This will effectively be the onshore Tysers business that our brokers will place business into, led by Heath, and that business will then be placing the business into the appropriate areas and Tysers in the UK,” he said.

“We’ll use the Tysers brand in the Australia and New Zealand market as the

specialty brand. We’ll use 360 as our general commercial agency brand. And then, depending on what we do with strata, we’ll have another brand for strata.”

Asked whether he sees more overseas expansion in future, Mr Emmett says he’s not really sure the Tysers move fits into that bracket.

“It just happens to be that all the wholesale Lloyd’s brokers are in London. We’re not investing because it’s London. We’re not investing in the UK market. We’re investing in a wholesale broker.”

In fact, AUB has entered into a non-binding agreement for PSC to acquire a 50% stake in Tysers’ UK retail division as part of a 50/50 joint venture between the two firms, in what Mr Emmett describes as a “risk mitigation approach”.

“We’re buying Tysers for the wholesale business. But they have a good quality retail business. We want to focus our energies and capacity on maximising the wholesale opportunities but we see upside in the retail business.

“So, we don’t want to sell it but we know that PSC has a good, well-run UK business. We like and respect them. We’ve got a good mutual relationship. And so, it’s a sensible approach – we get to retain 50% share in the upside but we’ll leverage their capacity and their capability in the UK.”

But that’s not to say that AUB won’t look at such options in future.

“I think it’s inevitable at some point, we’ll say well actually we’ve grown to the scale we believe we can be in Australia and New Zealand.

“And at that point, it’s feasible for us to say, ‘what’s the third geography that we want to be a retail broking business in?’

“Usefully, having a Lloyd’s wholesale broker aids that as well.

“For example, if you went to Canada or Singapore, it’s much easier to establish or invest in a retail broking network if you have the ability to support them with product and placement into Lloyd’s.

“But that’s not why we’re doing it. We really are doing it because we see it as an opportunity for us to significantly improve our Australian and New Zealand businesses.”

The network in Australia and New Zealand continues to grow and AUB, like many others, is on the hunt for acquisitions.

When Mr Emmett took on the role more than three years ago, AUB had a list of 300 brokers and agencies identified as “good fits”.

And he says the list remains at about 300 today.

“Some of them have fallen off the list, and we’ve bought some. But there’s still a long list of opportunities.

“We’re very clear on which businesses we want to invest in. We follow what I describe as a long dating process. We don’t normally participate in auction-style sale processes.

“We know which businesses are out there, which ones we’d like to invest in, what we will do with them if we can invest in them.

“We try to buy businesses that want to join us and partner with us. And that’s the benefit of our owner-driver model where we can comfortably take a 50% stake.

“We don’t have to buy the whole thing.”

In early 2020, just before covid hit the country, AUB announced a plan to buy the remaining 50.1% of MGA that it doesn’t already own.

Shortly after, the deal hit the buffers as both parties made a mutual decision not to proceed due to pandemic-induced uncertainty.

“At the time, we were quite protective and cautious about cash. I didn’t know if some of our brokerages were going to run out of cash and we were going to have to prop them up. With hindsight it was a completely unnecessary, conservative action.

“We still remain a 49% shareholder, we still have great relationships, and we have achieved some of the synergy benefits of using MGA as a consolidation platform but obviously we haven’t gone forward with increasing the stake. If an opportunity arose in future we would love to explore that option again.”

In 2019 AUB had 93 operating entities. Mr Emmett says if you normalise, that figure would now be 105. But due to a process of consolidation and bolt-on acquisitions, it’s actually 75.

Two health and rehabilitation businesses were also sold, as Mr Emmett steered AUB away from a diversification strategy back to its core broking roots.

And he still believes in that principle.

“We’re insurance people. We’re insurance brokers. So broadly, our expansion in agencies and the wholesale broking piece is exactly because we’re very clear on who

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Watch what ambition can do

“We can use Tysers’ expertise to work with syndicates in London to design products with specific niche features and limited exclusions, that we can offer through our network to our clients.”

our customers are.

“And we really want to maximise the services we deliver to those customers related to their insurance needs.

“We want to strengthen and deepen our ability to deliver quality risk advice and insurance placements for our customers.”

While larger clients with complex risks are a focus, AUB is also paying close attention to the smaller end of the market.

In February 2020 it acquired a 40% interest in online distribution platform BizCover, to cover off a clear gap in its offerings.

“We didn’t have any presence in that micro-SME space, businesses with less than five employees.”

Mr Emmett says micro-SMEs are the biggest and fastest growing segment in the country, and many of them grow into larger businesses.

“We invested because we wanted a share in that market opportunity. But also because we see a natural handover or evolution. Rather than having to win SME customers against other brokers, let’s rather have them transition from BizCover to Austbrokers.”

The BizCover technology also enabled AUB to develop ExpressCover, a platform that enables brokers to service SMEs quickly and easily.

“It allows brokers sitting with their iPad or their laptop to quote, bind, and issue policies with the client in a matter of minutes. That frees up our brokers to be able to concentrate on the advice piece, on the relationship piece.

“The idea is that we cater for all segments. The smallest SMEs, they’ll use BizCover, they’ll be direct. If they do choose to use a broker, it’ll be a junior broker supported by ExpressCover.

“Then as they grow a bit it’s an ExpressCover enabled broker through to a full service SME broker, then if they get really big we’ve got the Austbrokers Corporate team, which is a much more bespoke piece.

“And now of course we’re confident that with Tysers we can support the biggest businesses and the most complex types of risk.”

AUB also has the Insurance Alliance offering, launched last year, which provides services to brokers without them having to become AUB equity partners. The Broker Co-op cluster group of eight independent brokerages is currently the only member of Insurance Alliance but Mr Emmett sees opportunity for growth.

“They have access to our ExpressCover technology platform. They have access to our Austbrokers wording. They have access to our commercial arrangements with the insurers, but at a slightly dialled back level, and then there are a few other optional extras.

“What we don’t want to do is discount or dissipate the value of what’s special about being an Austbroker. But from our point of view, the fee that [Insurance Alliance members] pay is incremental to the income. We’re defraying the costs of the services that our network paid for. So, the Austbrokers pay less.

“Our intention is that at some point we will start opening up the Insurance Alliance to larger broking groups. But at this stage, our focus is exclusively on supporting the Broker Co-op.”

For the foreseeable future, bedding down the Tysers acquisition will be a key focus.

And Mr Emmett believes, as well as offering a wealth of new options for clients, it will significantly enhance AUB’s standing in the local market.

“In terms of standing, the reality is size matters. The combined business will be $7 billion plus in terms of premium. That’s a big number.

“It upgrades the significance we have, and the types of conversations we have with certain insurers.

“As an organisation I’m really pleased with the progress we’ve made over the past three years.

“It feels like a lifetime ago that I joined. We’ve done lots of things and I’m pleased with the momentum we’ve built and the trajectory we’re on.” 0

Advance of the agencies

Known primarily as a broking network, AUB is also growing its underwriting agencies business.

Mr Emmett says “a significant portion” of FY22 growth will come from the agencies, and he has his eye on a greater share of financial lines.

The general commercial space, which includes the acquired 360 agencies, is “growing nicely”, and AUB also has specialty agencies and a presence in strata.

But the next “area of focus” is financial lines.

“We are unusually concentrated in our agencies on the classic property style type of products, and very weak in financial lines.

“We don’t have cyber, we don’t have directors’ and officers’. We’ve got very, very little professional indemnity.

“So that’s the area that we currently are working on. And Tysers will help us because Tysers actually manages and places 800 binders into Lloyd’s each year on behalf of different intermediaries around the world.”

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