The recently announced joint venture between LV= and Allianz makes a lot of sense and will be a worry to other players in the UK insurance space.
The partnership brings together two units that are highly complementary and which, until now, had been drifting in different directions as each struggled where the other found growth. They’re two matching puzzle pieces.
Combined, the total gross written premium (GWP) of the two businesses will result in the second largest insurer in the UK, behind only Aviva. The merged entity would account for an estimated 8% of the non-life general insurance space (based on GlobalData analysis of Solvency and Financial Condition Reports for 2016). The deal will create an LV= branded personal lines joint venture, while, LV=’s commercial book will transfer to Allianz.
This isn’t a powerhouse arriving in any one market area and dominating, but rather a threat of complementary strengths.
Based on 2015 PRA returns data, an Allianz-LV= partnership would rank in fourth place by personal lines GWP, combining the ninth and seventh largest players in the market respectively. Allianz and LV= claim the venture will create the third largest personal lines player; however, it’s slightly behind AXA for GWP based on 2015 figures before the impact of Allianz’s exit from direct business, and still a long way short of Aviva and Direct Line Group.
Yet a strong personal lines LV= brand let off the leash with an improved capitalization/solvency rate lent to it by Allianz could make waves. Synergies can be found in multiple areas; up until now, LV=’s personal lines broker business has struggled in places, having exited the brokered home insurance market in 2017 while maintaining a strong direct business book. In contrast, Allianz was unsuccessful in its attempts to create a direct business and exited the space in the last year to focus on strengthening its brokered business.
Even within the pet insurance space for example – where LV= remains a minnow struggling to compete by size of book – it now finds itself in bed with Petplan, the largest underwriter in the market. All this should also allow LV= to realize its key goal in recent years – to diversify away from a motor-heavy book that still accounts for 75% of its business.
Meanwhile, in commercial lines, LV=’s reasonably small SME-focused book could nonetheless propel Allianz past Zurich and RSA to be the second largest player behind Aviva. While a very small amount of Allianz’s commercial book is distributed directly, it has relied almost entirely on intermediated business. With LV= joining the fold, there remains a possibility that its direct commercial endeavors may stick and see a large competitor hitting the direct-to-business micro-SME space.
By Stewart Mcewan, Head of Content, UK General Insurance