Backing champions in the specialist insurance space

FA NEWS: Could you tell us a bit about Lireas?

Valerie: Lireas is the strategic investment company of Hannover Re Africa, which holds a majority stake in the group. Our other shareholder, Mahogany Capital, provides us with BEE credentials and private equity expertise. Lireas together with Hannover Re are considered pioneers in the underwriting agency business and have supported this model for almost 25 years.

FA NEWS: Lireas has a unique business model. Could you explain how the model evolved and found traction internationally?

Valerie: Lireas provides its partners with start-up capital, access to selected insurance partners and reinsurance capacity via Hannover Re. The uma model in South Africa has been so successful locally that the UMA model was replicated in Germany is now part of the Hannover Re strategy worldwide.

FA NEWS: To what level do you get involved in the business of the UMAs you invest in?

Valerie: It really depends on the needs of our partners. We are always an active shareholder, supporting our partners as and when needed, but we take care not to interfere with the running of their businesses. Our support and assistance is required during the business start-up phase, while the needs of a mature business may be quite different.

FA NEWS: Lireas recently bought 48% of Firedart. What was the rationale for this acquisition?

Valerie: Mike Tandy and Ian van Loggerenberg are well known to the Hannover Group, as underwriting managers for Compass paper for more than 10 years. There appears to be a good fit with the way Firedart and Lireas conduct business and we are confident Firedart will grow from strength to strength. We are very excited about the acquisition.

FA NEWS: Firedart and Construction Guarantee merged recently. Can we expect a new name?

Valerie: We are still working on this and will be making an announcement shortly. The market can expect the name to reflect what both companies are well known for.

FA NEWS: Why the merge?

Valerie: Construction Guarantee has been looking for an engineering partner to augment its current offering. It made sense to consider tie-ups within the Lireas and Compass stable, and discussions commenced in the second half of last year. The merger provides cross-selling opportunities, enables the combined group to drive down costs and ensure building contractors are given a "one stop shop” policy, covering all their needs. We are convinced that the merged entity will be a stronger force in the market than as separate companies.

FA NEWS: How will the merge influence business for both?

Valerie: The merger offers both short and medium term benefits. Both Construction Guarantee and Firedart brokers have frequently requested a full engineering and construction guarantee service offering… The merger allows a greater number of brokers to be reached and ensures that clients receive a streamlined service. We hope to gain business out of the merger.

FA NEWS: Who is heading the merged company?

Valerie: Mike Tandy will be managing director, with current Firedart director, Ian van Loggerenberg and Construction Guarantee managing director, David Agrella, both becoming directors of the merged entity.

FA NEWS: Lireas is invested in 17 UMAs. Do you invest in UMAs that operates in similar industries, or do you prefer to get involved in UMAs that cover different industries?

Valerie: Lireas believes in backing one ‘jockey’ in each specialist market. This means that we don’t have our UMAs competing for the same business and allows us to get behind and support our partners fully. Over the past 24 years we have seen the benefit of investing in specialists who have a similar business ethos as our Group. This ensures good alignment of interests for all stakeholders.

FA NEWS: The new Binder Regulations will have a huge impact on UMAs. Do you agree?

Valerie: Yes the changes to binder agreements will most definitely have an influence on the UMAs’ remuneration. In a recent survey conducted among SAUMA members it emerged that up to 80% of UMAs will go out of business if their risk carriers cannot find a suitable solution to the loss of debit order fees. We are confident that an acceptable solution will be found, but remain concerned about brokers being able to receive an additional fee for policy administration. The risk is they will place their business where they get the highest fee! This may mean that UMAs, already under pressure due to lost income, will no longer be considered by many of these brokers.

FA NEWS: Will Lireas get involved to try and assist UMAs in this process?

Valerie: We have a number of experienced individuals in our Group and are currently looking at various options, together with our UMA partners. We are confident that an acceptable solution will be found before the end of 2012.

FA NEWS: What does the future hold for UMAs if regulation (in terms of binder agreements) goes ahead as is?

Valerie: We believe that UMAs provide a necessary and important service to the insurance industry. Due to their smaller size and specialized nature UMAs are able to tailor better solutions for their brokers, in a shorter amount of time. This makes them a very valuable part of the industry. UMAs also provide employment to many people: The Lireas Group – through its UMAs – accounts for the employment of almost 500 people. With government’s emphasis on job creation we cannot imagine that it is desirable to have such businesses close. In addition, UMAs are run by the very entrepreneurs our economy is so desperately in need of.

FA NEWS: How important are brokers to the UMA model?

Valerie: Brokers play an important role as the UMAs’ distribution channel and remain the UMAs’ valued client. Just like UMAs, many brokers are feeling the pressure economically. It is up to brokers and UMAs to ensure that the important UMA model wins through to the ultimate benefit of the policy holder.