Steadfast, Australasia’s largest general insurance network, yesterday announced both its financial results for the year, which included a statutory net profit of $143 million, and a $411.5 million acquisition of insurance broker Coverforce.
At the news conference explaining the results and the merger, Robert Kelly (pictured), Steadfast’s managing director and CEO, warned about the rapidly rising costs facing insurance companies.
“I think the market’s forgetting that the costs of the insurers are rising dramatically as well,” he said. “So, their costs of what they allocate from head office to run the business, they’re going incredibly high and I feel sorry for them - for about a hundredth of a second, right. But their cost of labour is going berko [berserk].”
Kelly said insurers are also technologically behind.
“Their technology is antiquated, and they’ve got to keep spending a lot of money on their technology,” he said.
He added that attritional claims are another problem for insurers, and that reinsurance costs are also rising.
“Their costs to put a buck out in GWP is ever increasing all the time,” said the Steadfast CEO.
“Ultimately you’ve got APRA looking at them and carefully saying, ‘What are you doing with your capital, make sure you’re pricing it correctly or we’ll come in and look at you more stringently.”
Kelly said that two years ago the issues facing insurance companies could have been seen as an achievable ‘’technical race.” Not so now.
“They’re playing catch-up all the time on that technical race and it hasn’t caught up at this particular time,” he said. “I think it’s got another two years to go right at this stage and I said the same b***** thing at this time last year, but it’s not improving.”
Kelly also commented on the rising cost of acquisitions.
“There’s a lot of pressure now for acquisitions, there’s not just ourselves and Austbrokers in the market, you’ve got PSC, you’ve got the Adviser Group being funded by Macquarie to go out and acquire businesses, you’ve got the Gallaghers, now you’ve probably probably got Aon coming into that market because of the WTW failure and, of course, you’ve got, led by Paul Lynam, the Ardonagh Group coming out of London.”
He expects more acquisitions to follow.
Read more: Steadfast : Everything you need to know
“Yep, it will keep increasing,” he said. “I don’t know whether it’ll stop. Eventually it will stop because we’ll say, ‘OK we’ve got 40% of the Australian intermediated market and we’ll let others fight over the balance of it.’ But at the moment we can survive and thrive.”
Steadfast CFO Stephen Humphrys said further acquisitions are planned and his company is in a number of discussions “right now” with more than 30 businesses as possible candidates.
Kelly said he’s looking forward to Coverforce CEO Jim Angelis transferring to Steadfast, “some of the skills that have made them entrepreneurially successful”. He hoped that Angelis would remain after the Steadfast merger in an executive role.
Kelly also expects no adverse effects from Australia’s currently resurgent COVID-19 pandemic.
“There will be some people who don’t survive this one, but I don’t think they will unduly affect us,” he said.
