26 June 2015

Towergate Insurance (the “Group”) today releases its Q1 results covering the three months to 31 March 2015, together with its final results for the year ended 31 December 2014.

Commenting on these results, Scott Egan, Interim Group CEO, said today: “In 2014, Towergate went through the perfect storm of both a challenging market backdrop and severe operational issues culminating in significant financial challenges. We are now firmly through the eye of that storm. Whilst the worst is behind us, the effects are not and there is no doubt that 2015 will be a year of recovery. Q1 reflects the period, prior to the completion of the financial restructuring, when confidence in Towergate was at its lowest, materially impacting both new business and retention.

We are now in a very different place. We have completed our financial restructuring, fundamentally improved our liquidity and capital structure and attracted long term supportive shareholders in Highbridge, KKR and Sankaty. We have now implemented much of the historic change programme; have made two material disposals of non-core businesses, in Haywards and Towergate Financial, while integrating the acquisitions made last year.

The fact that we have successfully retained the vast majority of clients and colleagues in such extremely tough times is testimony to the trust there is in Towergate. This has also been echoed in the support we have received from our core insurance partners, epitomised by the recent announcement in relation to the extension of our long term strategic partnership with Allianz. I am also delighted to welcome *Janice Deakin on 12 August and *Sarah Dalgarno on 4 September to Towergate and I look forward to working closely with them, as the revitalised Group continues with its momentum.

I firmly believe that with our strong regional presence, relationships, and, most importantly, our people we are making Towergate fit for the future. Our business model is underpinned by breadth of distribution; depth of expertise; valuable partners, affinities and niches; and strength of insurer relationships. I have seen for myself the determination, resilience, and client focus of our 4,400 employees and we are rewarding that commitment by investing in supporting and motivating our teams, and retaining and attracting the key income producers. We have now regained financial strength and focus, and I look forward to realising our true potential.”

*Subject to regulatory approval

Q1 financial highlights*

* See Notes to Financial Statements

Q1 financial performance update

  • Performance adversely affected by Group financial restructuring and significant change programme
  • 8% decline in income year on year. 10% decline in organic income, excluding trading deals, broadly consistent (within 1%) with Q4 2014
  • Increase in expense ratio driven by drop in organic income
  • Operating margin of 14% affected by the challenging backdrop of the last 12 months

Progress update

  • The Group is back on a stable financial footing with a 60% reduction in net debt and £125 million liquidity injection following the completion on 2 April of the recapitalisation
  • The final part of the financial restructuring will see several, now economically inactive companies, including Towergate Partnership Co Limited, go into liquidation
  • Completed the sale of Towergate Financial to Palatine Private Equity, in line with strategic focus on core businesses following the earlier sale of Hayward Aviation to JLT
  • Transition of business to the small business centre in Manchester nearing completion
  • Long term five year partnership agreed with Allianz totalling circa £770 million gross written premium
  • Enhanced management capability with Scott Egan appointed interim CEO and the recruitment of Mark Mugge as Chief Operating Officer
  • Janice Deakin will be joining on 12 August to head up the new Retail Broking Division which encompasses all the Towergate Insurance retail broking businesses, Towergate Insurance Broking and Direct, across all their respective locations in the UK. Sarah Dalgarno joins as Chief Risk Officer on 4 September. Prospective appointments of David Ross and Adrian Brown also announced. All appointments are subject to regulatory consent
  • John Tiner appointed as Chairman to take effect from 29 June

Q1 2015 divisional performance*

* See Notes to Financial Statements

Divisional CEO comments

  • Mike Lawton, CEO of Towergate Insurance Brokers: “While we saw income decline, this was primarily driven by the Group financial restructuring and change programme, and I am encouraged to see that retention trends are improving following this period of uncertainty. The impact of this lower income on EBITDA was mitigated by reduced expenses as we begin to see the benefits of the change programme emerge, although the full impact will take longer than we’d originally anticipated. Our gross margin remains strong at 20%, which is consistent with what we reported last year, and we continue to be well supported by both internal and external insurer partners. The team have shown remarkable resilience in a testing time and I am optimistic looking forward.”
  • Clive Nathan, CEO of Underwriting: “Conditions have been difficult this quarter, with performance heavily impacted by the Group financial restructuring, while intensified competition and the challenging rating environment combined with our disciplined approach to underwriting have affected our new business levels. Despite this, our underlying retention levels were steady, reflecting our strong broker relationships. We continue to receive clear support from the market, highlighted by the extension of our long term strategic partnership with Allianz, with the five year deal giving us £770 million of capacity. Organic expenses have reduced following the simplification of our Bespoke business, while the Arista integration remains on track. We do not see a let up on rating pressure but will continue our strategy of providing bespoke underwriting and distribution deals to all our partners.”
  • James Tugendhat, CEO of Direct: “I am encouraged by the underlying trends of both the growth of new business, and retention stable in the quarter, ahead of last year’s average. Strategically, we are well placed as clients (both individuals and SMEs) increasingly use online as a means of searching for great cover with competitive premiums. We continue to make good progress in implementing our strategy, having completed the restructuring and simplification of business from 12 sites to five core hubs and further strengthened our management capability through senior hires in digital and marketing.”
  • Steve Wood, CEO of Paymentshield: “Our underlying performance is encouraging despite the ongoing reduction in MPPI income. Our household panel quote conversion has stabilised, with new business volumes and margin improving steadily over the quarter. We expect our work in price optimisation to deliver further improvements in margin and conversion as the year unfolds. Our distribution capability is a real strength and we intend to keep innovating to stay ahead.”
  • Andy Fairchild, CEO of Network: “During the period we have launched and effectively communicated our ‘Back to our Roots’ strategy, as well as successfully concluding refreshed deals with all Strategic Partners. The network model remains very attractive in this market and we are the largest network in the UK. I intend to maximise this advantage in the year ahead.”

Appendix 1

Final 2014 results

* See Notes to Financial Statements

The 2014 estimated operating earnings announced on 02 February 2015 were £110 million (2013: £145 million). Adjusting for the disposal of Haywards Aviation and Towergate Financial, the restated estimated 2014 operating earnings are £106 million (2013: £141 million).

2014 operating earnings were revised down to £103 million following finalisation of the 2014 results. In addition, the Board has revised the basis of estimation of revenue recognition relating to long term deal income. Non-contingent income is now recognised over the life of the trading deal to which it relates rather than on inception. Adjusting for this, 2014 operating earnings are £93 million (2013: £141 million) with no impact on the cash flow associated with the deals.

Divisional performance*

* See Notes to Financial Statements

Notes to Editors

Launched in 1997 Towergate is the UK’s largest independently owned insurance intermediary, generating more than £3 billion of pro forma gross written premiums across its companies and employing c. 4,400 people across 100 UK offices.

Towergate is an important distribution channel for a significant range of insurance products and a key strategic partner for the UK’s largest insurers.

Towergate’s scale, customer insight and distribution relationships make it a unique business and a leader in the markets in which it operates. Its combination of distribution and underwriting gives it unparalleled consumer data and market insight.

Towergate reports in five core divisions:

  • Insurance Brokers – Towergate Insurance Brokers distributes specialised personal lines and products, and more general products aimed at SMEs through around 80 broking offices located across the United Kingdom
  • Underwriting - Towergate’s underwriting division is the UK’s largest MGA, providing specialist insurance products for brokers, without taking the ultimate capital risk. The MGA has c. £720 million GWP under management
  • Direct – Towergate Direct sells specialist Personal Lines and SME products primarily through telephony and digital distribution channels
  • Paymentshield - Paymentshield is the leading provider of insurance products to mortgage brokers
  • Network - Broker Network is the largest network for insurance brokers in the UK. The brand remains the leading proposition in the market in terms of size and breadth of service with c. 590 members

*Notes to Financial Statements

  1. Restatement of accounts 
    2013, 2014 and 2015 results have been restated to reflect a number of accounting adjustments and disposals, to enable a like-for-like comparison.
  2. Business unit transfers
    Divisional results for prior periods have been restated following a number of small business transfers between divisions, to enable a like-for-like comparison.

Media Queries Internal Contact

Kelly-Ann Knight - Corporate Communications Director

Towergate Insurance Limited

Email: kelly-ann.knight@towergate.co.uk

Investor Relations Contacts

Lois Hutchings - Group FP&A and Investor Relations Analyst

Towergate Insurance Limited

Email: Investor.Relations@towergate.co.uk