The Investment ColumnBrokers miss the party

Insurance brokers have completely missed the stock market party of the past few years. One hundred pounds invested five years ago in the sub-sector, which ranges from the mighty Sedgwick to the lowly PWS, would now be worth something like pounds 64.

The reasons for this dismal performance are not hard to find. Normally a highly cyclical industry, insurance rates have been weakening almost continuously since the early 1990s. But whereas in a normal cycle weaker players would eventually be driven out, there has been less evidence of capacity cuts this time and the outlook is for soft rates to continue for the foreseeable future.

It was therefore with considerable relief that the market heard the news last month that Lloyd Thompson and JIB, two of the largest second-line brokers, had agreed to merge to create Jardine Lloyd Thompson. Expectations that that would be part of a consolidation trend appeared to be confirmed yesterday when two of the smaller players, Lowndes Lambert and Fenchurch, were forced to admit they were in merger talks after the latter's shares started to move earlier this week. Fenchurch, which traded at 49p at the beginning of the week, added a further 8.5p to 66.5p, while Lowndes put on 7p to 110p on the news.

Any merger is likely to be defensive, given that growth is more likely to come from cost-cutting and market share gains than any expansion of the top line. Tony Silverman, insurance analyst at NatWest Securities, expects market growth to be in the low single-digit per cent over the next few years. He estimates there could be scope to shave at least 5 per cent from the combined costs of the two brokers, put at around pounds 115m.

Beyond that, though, Fenchurch also looks in need of Lowndes' management skills. Revenue and operating profits have grown sluggishly since 1991 and last year was torrid, with a profits warning and the defection of a team of South American specialists in February followed by a halved final dividend and the loss of a chunk of business in the autumn.

The logic behind the JLT merger looks more soundly based. Lloyd Thompson's highly successful London market-based business should fit nicely with Jardine's extensive foreign network and its strong links with the Far East, one of the few insurance markets still showing reasonable growth.

JLT, when it finally emerges, should be a reasonable bet for the long term, but punters hoping to catch the next wave of consolidation could take a look at Nelson Hurst, a group with the sort of international coverage that might attract a bid from a more London-orientated broker. Mr Silverman also points to the potential for slimming down overheads at CE Heath, where costs have been traditionally higher than average. The shares, unchanged at 96p, stand on a forward rating of under 8. But the overall sector is likely to continue to be dull, particularly in view of the impact of the higher pound on overseas earnings.

News
people
News
people
Arts and Entertainment
Keys to success: Andrew and Julian Lloyd Webber
arts + entsMrs Bach had too many kids to write the great man's music, says Julian Lloyd Webber
Voices
Left: An illustration of the original Jim Crowe, played by TD Rice Right: A Couple dressed as Ray and Janay Rice
voices

By performing as African Americans or Indians, white people get to play act a kind of 'imaginary liberation', writes Michael Mark Cohen

PROMOTED VIDEO
News
i100
Arts and Entertainment
Hand out press photograph/film still from the movie Mad Max Fury Road (Downloaded from the Warner Bro's media site/Jasin Boland/© 2014 Warner Bros. Entertainment Inc.)
films'You have to try everything and it’s all a process of elimination, but ultimately you find your path'
Arts and Entertainment
Imelda Staunton as Dolores Umbridge in the Harry Potter films
books

New essay by JK Rowling went live on Pottermore site this morning

News
Russia Today’s new UK channel began broadcasting yesterday. Discussions so far have included why Britons see Russia as ‘the bad guy’
news

New UK station Russia Today gives a very bizarre view of Britain

News
people

Top Gear presenter is no stranger to foot-in-mouth controversy

Arts and Entertainment
Keira Knightley and Benedict Cumberbatch at the premiere of The Imitation Game at the BFI London Film Festival
filmsKeira Knightley tried to miss The Imitation Game premiere to watch Bake Off
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

The benefits of Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

Trainee Recruitment Consultants

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Finance Assistant - Part time - 9 month FTC

£20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...

Marketing Manager

£40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...

Day In a Page

The drugs revolution starts now as MPs agree its high time for change

The drugs revolution starts now as MPs agree its high time for change

Commons debate highlights growing cross-party consensus on softening UK drugs legislation, unchanged for 43 years
The camera is turned on tabloid editors in Richard Peppiatt's 'One Rogue Reporter'

Gotcha! The camera is turned on tabloid editors

Hugh Grant says Richard Peppiatt's 'One Rogue Reporter' documentary will highlight issues raised by Leveson
Fall of the Berlin Wall: It was thanks to Mikhail Gorbachev that this symbol of division fell

Fall of the Berlin Wall

It was thanks to Gorbachev that this symbol of division fell
Halloween 2014: What makes Ouija boards, demon dolls, and evil clowns so frightening?

What makes ouija boards and demon dolls scary?

Ouija boards, demon dolls, evil children and clowns are all classic tropes of horror, and this year’s Halloween releases feature them all. What makes them so frightening, decade after decade?
A safari in modern Britain: Rose Rouse reveals how her four-year tour of Harlesden taught her as much about the UK as it did about NW10

Rose Rouse's safari in modern Britain

Rouse decided to walk and talk with as many different people as possible in her neighbourhood of Harlesden and her experiences have been published in a new book
Welcome to my world of no smell and odd tastes: How a bike accident left one woman living with unwanted food mash-ups

'My world of no smell and odd tastes'

A head injury from a bicycle accident had the surprising effect of robbing Nell Frizzell of two of her senses

Matt Parker is proud of his square roots

The "stand-up mathematician" is using comedy nights to preach maths to big audiences
Paul Scholes column: Beating Manchester City is vital part of life at Manchester United. This is first major test for Luke Shaw, Angel Di Maria and Radamel Falcao – it’s not a game to lose

Paul Scholes column

Beating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
Frank Warren: Call me an old git, but I just can't see that there's a place for women’s boxing

Frank Warren column

Call me an old git, but I just can't see that there's a place for women’s boxing
Adrian Heath interview: Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room

Adrian Heath's American dream...

Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room
Simon Hart: Manchester City will rise again but they need to change their attitude

Manchester City will rise again but they need to change their attitude

Manuel Pellegrini’s side are too good to fail and derby allows them to start again, says Simon Hart
Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

A Syrian general speaks

A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

Fall of the Berlin Wall

History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
How to turn your mobile phone into easy money

Turn your mobile phone into easy money

There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes