McConnell, Thwaites reunite for insurance start-up; eyes $315m IPO
William McConnell and Evan Thwaites have teamed up again, this time to establish IronRock Insurance, a start-up for which the partners aim to raise $315 million of equity capital through an initial public offering that opens next Tuesday.
The former bosses of Lascelles deMercado and Globe Insurance Company, respectively, started the general insurer with US$1.15 million ($138 million) late last year - Globe was a subsidiary of Lascelles before it was sold to Guardian Holdings. Lascelles itself was acquired by Campari Group and renamed for J. Wray & Nephew Limited, which was the flagship operation of the spirits conglomerate.
Now, McConnell and Thwaites are offering 49 per cent of the shares in IronRock with hopes of listing on the Jamaica Stock Exchange before the Government stops granting tax concessions to new equities on the junior market come April 1. If IronRock beats the cut-off, the company will qualify for a waiver on corporate taxes. It will become the second general insurer to list on the junior exchange alongside General Accident Insurance, a member of the Musson Group's stables.
A little more than 93 million of the 115 million shares on offer are reserved for directors, staff, key partners, and Mayberry Investments (the lead broker) and its clients, and the rest are open to the general public, all at $3 a share.
The goal of the IPO is to raise funds to accelerate IronRock's capacity to underwrite general insurance.
The founders of the company are targeting 3.5 per cent of the local general insurance market in IronRock's first five years of operation using information technology to beat, or at least match, the competition on pricing.
"At the core of the key strategies is the company's IT strategy, which focuses on the automation and simplification of typical insurance processes both on the client - and intermediary - facing sides and also, internally within the company," said IronRock's prospectus.
"Creative and useful software solutions for customisation of policies and also data-capture storage and analysis for accurate risk pricing are anticipated benefits of the company's investment in IT systems".
Projections for gross premiums of $1.6 billion by 2020 would put the overall size of the industry at $46 billion or around 35 per cent larger than it is today. This is similar to growth in premiums written over the past five years.
Aggressive for underwriting profit
McConnell and Thwaites are, however, more aggressive in their forecast for underwriting profit.
They expect to generate a small underwriting profit in year three, 2018, and are targeting an underwriting ratio - total claims and expenses to net premiums earned - of 81 per cent by year five, in 2020.
The underwriting ratio for the general insurance industry fell from 102 per cent in 2013 to 97 per cent in 2014, according to Financial Services Commission data.
IronRock also plans to invest over two-thirds of its assets in equities, bonds and other instruments, with up to 25 per cent of its investment portfolio in US-dollar exposures "with steady and predictable earnings that can also balance the volatility of the earnings from the insurance portfolio and underwriting operations", according to the prospectus.
The IPO closes on March 11. If the company lists by March 31, it will be entitled to five years free of corporate income tax, which means all of the $237 million forecast for profit in 2020 would go to the bottom line.
Moreover, if the general insurer maintains its dividend policy of paying out "not less than 25 per cent of earnings", the payout to shareholders of $59 million in year five would translate into 28 cents per share, or a nine per cent return on the listing price of the stock.