Resolution's Cowdery eyes revival of glory days
Colourful entrepreneur Clive Cowdery hopes the new, simpler model at his insurance business will herald a return to its glory days, says Jamie Dunkley
Tuesday 11 December 2012
Britain's insurance industry seemed like low-hanging fruit for Clive Cowdery in 2007. The colourful entrepreneur had just offloaded his debt-laden business to bitter rival Hugh Osmond for £5bn and some of the best-known names in the sector such as Legal & General were within his sights.
Analysts say the sale of Resolution in November of that year was timed to perfection. Not only had he sold a highly leveraged business just months before the onset of the financial crisis but he had also made an estimated £150m for himself and even more for the City institutions that had backed his quest to consolidate closed life funds (life insurance businesses that no longer take new business).
One year later and he was back with Resolution mark II, having kept the name as part of the deal, raising £600m from investors such as Aviva and M&G by floating a cash shell on the London Stock Exchange.
This time around the company was targeting life insurers, a market he believed was overcrowded and needed consolidating. However, a ban from the Financial Services Authority prevented him from doing deals for a handful of months while it investigated "certain actions" of his first company between October 2007 and May 2008. Once the ban was lifted in 2009, Mr Cowdery agreed a £1.86bn deal for struggling Friends Provident. Over the next two years, the company parted with £2.75bn for parts of Axa's UK insurance and £102m for Bupa Health Assurance yet the project has never lived up to its objective of creating an insurance superpower worth £10bn.
One investor, who backed the second coming of Resolution, described the project as being "underwhelming". Another said Mr Cowdery and his team had grossly overestimated their ability to consolidate the market while others said they would think twice before backing another of his projects. Resolution called a halt to its acquisition spree last February, claiming at the time that it would be able to beat financial targets without making further deals.
Yesterday's announcement that Resolution had struck a deal to separate from sister company Resolution Operations is one response to its critics. The latter, which ran key management functions for the former such as its acquisition planning for an annual fee of about £20m, is run by Mr Cowdery. That arrangement has been criticised by investors as well as the FSA, which said it was incompatible with a premium listing on the LSE as the structure meant key decision makers were unaccountable to shareholders.
Resolution will pay £7.5m to sever links with the offshore advisory firm. The deal also means Resolution Operations' 24 staff will join Resolution, while Mr Cowdery will join its board as a non-executive.
While Resolution's shares crept down 1p to 244.4p yesterday, the deal was welcomed by analysts.
"Resolution's share price has been held back, in our view, due to uncertainty over how the structure would be simplified. The fear was that there would be a large upfront payment to Resolution Operations Limited," analysts at RBC said. "We view the announcement as positive as the payment is smaller and sooner than expected."
Marcus Barnard, analyst at Oriel Securities, added: "This would appear to be a positive move, which puts in place a more normal corporate structure. We would see this as a prerequisite for further simplification."
It is not the only measure Resolution has taken to simplify its structure. Other moves include setting up a separate unit to manage its "back book" of policies no longer sold to new customers. This has been seen as a sign it may seek separate buyers for the business when it eventually puts itself up for sale. It has also appointed highly respected figures such as former Lloyds Banking Group executives Andy Briggs and Tim Tookey to run its Friends Life business, made up of the acquisitions of Friends Provident, Axa and Bupa Health.
Despite this, Resolution has still been clouded in uncertainty. A takeover bid for Phoenix (a business partly made up of Resolution mark I) was rejected last November while a £250m capital return to investors was announced and then cancelled due to difficult market conditions.
Over the next few months, Resolution will hope to shake off the bravado of its early days and focus on emerging as a leaner, more joined-up organisation. As for Mr Cowdery, the quest goes on and his attentions have turned to consolidating closed life insurers in the United States and Europe and asset managers in Europe. Those close to the group say he is likely to raise cash in a separate, private vehicle, away from the glare of the public markets.
The next few months are likely to be key for executives who will be desperate to prove Resolution is not a failure. Meanwhile, Mr Cowdery will be keen to regain the magic touch that was once so effective.
Life in brief: a self-made man
Clive Cowdery, 49, grew up in the West Country, one of five children raised by a single mother.
He left school with few qualifications and studied at the university of life. After a brief stint as an insurance salesman in Cornwall, he helped to set up an insurance business for the Rothschild family before joining the US conglomerate General Electric.
He made his name and fortune by setting up Resolution mark I in 2004 to consolidate "zombie" assurance funds — with-profits funds that no longer accept new business. The idea was to pool the assets together and strip out costs – and it reaped rewards for Mr Cowdery when he sold the company to rival Hugh Osmond for £5bn at the end of 2007.
In 2005 he set up the Resolution Foundation to help support "low earners" — individuals who receive less than 20 per cent of their incomes from benefits and who earn "less than median incomes".
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