Trying to pin down Conor Brennan, chief executive of Arachas Corporate Brokers, the largest nationwide insurance broker in Ireland, for a face-to-face interview in recent times has been tricky. The Dubliner has found himself somewhere on the Continent scouting for deals two days a week since November, double-jobbing as the head of the new European division of the company's parent of 31 months, Ardonagh, the UK brokerage group.
“It’s a constant hassle in that the night before I travel involves a PCR test,” he says as he finally gets to sit down with me this week. “You have to be constantly aware that some countries have stricter [Covid restrictions] than others. It’s just incredible how much things vary two years into this. I was in Amsterdam a few weeks ago and it was completely locked down. Anyone I was speaking to was mortally fearful.”
Ardonagh, named after a low hill near its chief executive David Ross’s native Mullingar, bought Arachas, itself one of the most acquisitive brokers in the Republic for almost two decades, in 2020 for an eye-watering €250 million.
Part of Brennan's pitch when Arachas's then owners, UK private equity firm Sovereign Capital Partners, put the business on the block in 2019 was that it could become a launch pad for a buyer to expand into continental Europe post-Brexit.
Ardonagh has run with that idea, putting Brennan in charge of finding European targets – with a €1 billion war chest.
The growth strategy outside of Britain and Ireland was also key to Ardonagh completing a $1 billion (€890 million) fundraise before Christmas, which saw the Abu Dhabi Investment Authority invest alongside existing shareholders, US private equity houses Madison Dearborn and HPS Investment Partners.
The transaction valued Ardonagh – which Ross formed seven years ago by merging the then-faltering London broker Towergate with a group of five others – at $7.5 billion.
"If things go according to plan, 70 per cent of the next phase of growth will come from international expansion; in Europe and in our [new] Ardonagh Global Partners unit, which will account for everything outside Europe," says Brennan. "It will be literally like building an Ardonagh all over again."
It’s been quite the journey for a man who, when first asked by an insurance executive in 2007 if he’d ever thought about getting into the industry, uttered the line: “I can safely say I’ll never consider working in insurance.”
The Clontarf native (54), who still lives in the north Dublin coastal suburb, completed a communications degree in the mid-1980s in the then National Institute for Higher Education (now Dublin City University). "This was in the pre-internet era of two-TV-stations Ireland. The guys in the engineering faculty used to laugh at us, saying we'd never get a job."
To find gainful employment, Brennan moved to the UK in 1989 to work in the commercial department of Haymarket, the publishing house co-founded by Michael Heseltine, the former Tory grandee who played a key role in Margaret Thatcher's fall from power.
He returned to Ireland in 1992 to take on a commercial role with the Sunday Business Post and went on to join Chambers Ireland, the State’s largest business network, in 2004 as deputy chief executive.
Opportunity dangled
While Brennan initially poo-pooed the notion of getting into insurance, when an opportunity was dangled before him in 2007 by an executive at Eagle Star in Ireland – which was in the process of rebranding under its Swiss parent Zurich Insurance's name – he found himself in the role as director of the company's broker distribution operation early the following year.
His six years in the position coincided with one of the most tumultuous periods for general insurance in the Republic: the Quinn Insurance collapse into administration and RSA Insurance Ireland receiving a €400 million-plus bailout from its UK parent after a massive hole was discovered in its balance sheet.
“[Zurich group executives] just couldn’t get their heads around the instability of a market that they had seen as being a quite small and mature one in a well-developed economy – and a responsible one, at that, as was clear from how we responded to the financial crisis,” he recalls. “The question I used to get asked was: is our capital safe? But they remained very supportive of the management team.”
While the insurance market is cyclical, the Irish market has been a “roller-coaster” ride – for insurers and customers alike – in the past decade and a half.
Not that being away during the working week didn't have its benefits. He managed to get to see a play in the West End most weeks and head out on occasion to see an evening football match
Brennan went on to spend a six-month stint in the first half of 2014 as chief administrative officer of Zurich's Dublin-based Europe, Middle East and Africa (Emea) business under then chief executive Patrick Manley, mainly working on trying to sort out challenged units at the time, such as its Russian retail business (which it ended up selling).
He then served for two years as chief executive of the Zurich general insurance business in Ireland, “remediating” parts of the business, as he puts it, at a time when the industry as a whole was lossmaking and hiking motor premiums.
“We got the business to a good state in 2016 and then, out of the blue, came an offer to head up Zurich’s UK general insurance business. I got the call on a Wednesday and I was in London the following Monday. I was told that the skillset I has shown in Ireland was then appropriate for the UK business.”
‘Fixer’
What skillset was that? “Fixer,” he says.
Brennan says his wife, Claire, and their three sons made it clear they weren’t upping sticks, which led to a period of him taking red-eye Monday morning flights to London City Airport and return trips on Fridays.
“The penny dropped [that this was unsustainable] when I was into my second year commuting and I’d gotten to know people who had been doing this for 15 years or so. And, from talking to them, I learned that the biggest regrets many had were missing out on family life and occasions. At that stage, I knew there was a limit to how long I could do this.”
Not that being away during the working week didn't have its benefits. He managed to get to see a play in the West End most weeks and head out on occasion to see an evening football match (Crystal Palace's stadium Selhurst Park was his favourite ground in London).
But by early 2018, he’d had enough.
While Brennan says he returned to the Republic in April 2018 without a job, he was already having "conversations". One was with Donal Cronin, an old friend and chief executive of Arachas.
Cronin had led Arachas’s formation through the merger in 2004 of Tyrrell Coakley (the Cork broker he had bought with two friends seven years earlier from his father-in-law) with Dublin rivals Hodgins Percival and Slattery Jermyn.
At the time the two started chatting in early 2018, Cronin was on the acquisitions trail, bankrolled by Sovereign, which had taken a majority stake in the business a year earlier. Cronin, who remained a 23 per cent shareholder, was planning to step back and he and Sovereign were looking for a new chief executive who understood how to scale a business quickly. Brennan had the job by that June.
Following a series of purchases under Sovereign, including Kidd Insurances, Capital Cover Group, Clover Centre Insurance and Murray & Spelman (whose chairman, former minister for finance Charlie McCreevy, would ultimately take on the same role at Arachas), the UK private equity firm put the business on the block in 2019.
Prepared to commit
Brennan and his team were clear that the new owner needed to be prepared to commit “long-term capital” to allow the business to invest and grow. It came close to doing a deal with a US company, which he declines to identify. But things didn’t feel right: “I felt there was a very strong chance of us being managed from the US.”
Ardonagh was probably third in the pecking order at the time. "But they sniffed an opportunity and David Ross and Aurelio Cusaro HPS executive€250 million – representing a chunky valuation of some 14.5-times earnings before interest, tax, depreciation and amortisation (ebitda).
The wider Irish market has seen a flurry of broker deals in the past five years as it followed waves of consolidation in the UK and North America. The ultimate backers of most of the purchasing vehicles are private equity firms. The attraction is obvious: insurance broking is a fee-based business that delivers steady revenues through the economic cycle, and strong cash flows that allows buyers to service the debt needed to finance further deals.
At the time of the Ardonagh purchase in mid-2020, Arachas had set its sights of doubling within five years the €270 million of annual gross premiums it was writing for everything from plumbers to sporting organisations.
It's already well ahead of plan and currently writing about €450 million of business, albeit fuelled by the purchase last October of Waterford-based Hooper Dolan.
I think the recent reforms around court awards, perjury legislation and a lot of other good things the Government is doing to try and bring down insurance costs will take time to filter through
The underlying business has been growing at an organic rate of about 10 per cent a year in recent times, according to Brennan.
Arachas reckons that most of the big possible deals in the Irish industry have now been done, though there may be some opportunities among smaller brokers around the State.
Brennan's main acquisitions focus is now on more fragmented markets in Europe, where he led Ardonagh's move six weeks ago to buy Portugal-based broker, MDS Group, which manages more than €500 million of premiums for clients across Portugal, Brazil, Spain, and some other markets.
Brennan has also been doing his homework on the German, Belgian, Dutch, Polish, Spanish and Italian markets. Where does he see the next purchase? "Spain and Germany are interesting" is as far as he will go.
‘Inflection point’
Meanwhile, he believes the Irish general insurance market is at an “inflection point” after years of turmoil in the motor, and public and private liability markets.
The Personal Injury Assessment Board (PIAB) reported in October that the value of awards assessed by it dropped by an average of 40 per cent in the first five-month period after new judicial payout guidelines were introduced in April. However, executives at insurers including FBD, RSA Ireland and AIG Ireland told the Oireachtas finance committee in December that they had only lowered motor rates by 5-10 per cent last year, as the rejection rate of PIAB awards had spiked.
“I think the recent reforms around court awards, perjury legislation and a lot of other good things the Government is doing to try and bring down insurance costs will take time to filter through,” he says. “There has been an expectation that once legislation is in, prices need to drop immediately.”
Actuaries can only assess the cost of risk by looking at sustained patterns, he says.
“If something was costing €20,000 from an awards prospective and is expected to fall to €4,000 as a result of new legislation or guidelines, actuaries need to see six months of hundreds of claims at the lower level going through before they believe it. They will say: ‘Unless I can see that pattern, I cannot reflect that in my pricing, because if I get it wrong from a pricing perspective, then I will lose capital for my business.
“Of course, when you explain this to people, they say, ‘Jeeze, another excuse from insurance companies’,” he says. “I’m not speaking on behalf of insurance companies, but I think it has to stop being so adversarial. I think insurers need to come to the table. But they need to feel that if they come to the table, they are going to have a reasonable discussion with public representatives, whether they are in opposition or in government.”
One indigenous insurer
Brennan says the “noise” in political and public discourse makes it difficult for brokers to bring in insurance coverage from overseas. The State only has one indigenous insurer, FBD.
“I’m out there trying to get capacity. I know how difficult that noise makes our job,” he says. “Let’s not kid ourselves. Insurers are here to make a return on capital. They invest €100 if they believe they can get back €112. That’s the model.
“We can’t be surprised when we see headlines about a lack of capacity in parts of the market when the message capacity [insurers] is getting is that you’re not really welcome here and you’re not allowed to get a return on capital.”
