With key partnerships with global insurance providers, opportunities on the horizon in the high-growth UK and EU insurance markets and high-quality personnel at the helm, Ensurance (ASX: ENA) is positioning itself for significant growth in the multi-billion-dollar construction and engineering insurance sector.
Following a reverse takeover in 2015, the insurance broking and underwriting group initially focused on the Australian insurance industry.
The company set about establishing Ensurance Underwriting Australia – an underwriting agency specialising in construction, engineering and household insurance sectors – and Savill Hicks – an Australian Insurance Brokerage.
Recognising the changing insurance landscape, the company also began developing a insuretech platform to allow multiple quotes and purchases online for the Australian market.
But while its Australian businesses have reported modest growth, the company was quick to recognise the main game on the other side of the globe in the UK’s multi-million-dollar construction and engineering underwriting sectors.
Since being incorporated in August 2016, Ensurance UK Limited has and continues to achieve major milestones.
It has expanded its operations to over 55 strategic brokers and attracted high quality personnel at the helm. Tim James, the former director at one of the world’s largest insurers HSB (owned by Munich Re) joined as chief executive officer of Ensurance UK in 2016 – building a team of leading, specialist underwriters and insurance professionals with significant credibility and relationships.
A major milestone was achieved 1 March 2018 when the company received Financial Conduct Authority (FCA) approval, which means Ensurance UK can operate as a fully authorised and regulated Managed General Agent (MGA).
An MGA is an intermediary whose primary function and focus is the provision of underwriting services and distribution on behalf of insurers.
The MGA model is attractive to insurers that wish to develop portfolios in niche lines of business where they may not have the in-house skills, distribution or infrastructure to handle these specialty lines effectively.
According to Ensurance chairman Tony Leibowitz, this was monumental for Ensurance UK as it is now a truly independent and fully authorised and regulated MGA as well as being a Lloyd’s coverholder with the ability to work exclusively with major capacity providers to distribute niche products in chosen territories.
Last year, the company entered a delegated authority agreement with Swiss Re Corporate Solutions, the world’s second-largest reinsurer, while also receiving Lloyd’s of London coverholder status, allowing it to transact business with Lloyd’s syndicates.
The partnership with Swiss Re gave the company the exclusive ability to offer a range of construction and engineering insurance products targeting construction and engineering contracts up to £100 million.
“Under the deal, only insurance brokers working with Ensurance UK will have the ability to utilise Swiss Re capacity for contracts up to £100 million. This is a game-changer as it provides the market leading security backing Ensurance UK needs to provide bespoke general insurance products.
Also, being independent and not owned by insurance brokers means we are non-conflicted allowing increased conversion by removing the barrier for brokers reluctant to trade with broker-owned MGAs.”
Mr Leibowitz said the partnership with Swiss Re Corporate Solutions provided the company with significant opportunity globally with the company only one of a handful of MGAs to have a partnership of this nature.
“We were only the fourth MGA partner in UK and 14th globally which has entered a partnership with Swiss Re Corporate Solutions,” he said.
Ensurance UK also partnered with XL Caitlin – one of Lloyd’s largest and prestigious syndicates – to provide construction insurance products to high net worth UK domestic clients.
Lloyd’s of London is the world’s specialist insurance and reinsurance market. It has an unrivalled concentration of specialist underwriting expertise and every day, more than 50 leading insurance companies, over 200 registered Lloyd’s brokers and a global network of over 4,000 local coverholders operate in and bring business to the Lloyd’s market.
Ensurance UK and Ensurance Underwriting Australia are both Lloyd’s coverholder companies, meaning both have authority to issue insurance documents on behalf of Lloyd’s syndicates.
“This allows the company flexibility to use different Ensurance centres to expand our footprint wider, using our Lloyd’s bespoke products, into global regions,” Mr Leibowitz said.
Ensurance UK has already generated first cash flow at the start of FY2018 with over £1 million of gross written premiums written to date. With its position as an MGA, Ensurance UK can also grow through additional product lines.
Due to significant milestones achieved and given its size and relative new entry with numerous opportunities on the horizon in UK, EU and Australia, Mr Leibowitz believes that Ensurance is significantly undervalued.
According to a report by BDO in June 2016 in respect of MGA’s in UK’s insurance broking sector, significant valuation multiples were being achieved across UK MGAs with average EBITDA multiples across the sector of around 10.3 times EBITDA (Earnings Before Interest Tax and Depreciation).
This significant valuation bodes well for Ensurance and its financial position with potential for the company to achieve a high valuation multiple of around 10 times EBITDA resulting in a significant revaluation of the stock.
In addition, major brokers globally in the US and throughout Europe who have significant books of business are seeking companies like Ensurance – which has an FCA licence and highly experienced teams – to manage their portfolios of business. If the company was to sign on these brokers, this could have a significant material effect on Ensurance UK’s underwriting business.
With its UK business beginning to gain traction, an FCA licence, Lloyd’s coverholder status, key partnerships with major insurance providers and significant scope for a higher valuation multiple, Ensurance is one company to keep an eye on.
Ensurance currently has a share price of A$0.052, valuing the company at around A$6.5 million.