ERS offered about 4 points of underwriting margin on £323mn ($422mn) of net earned premiums and was acquirable at roughly 1.1x book value of something like £150mn.
And crucially, it would have required only modest additional underwriting capital if it had been acquired by a Lloyd’s player with a sizeable multi-line book.
Given that capital diversification credit, it is difficult to grasp why no one at Lloyd’s was willing to meet Aquiline’s reserve price.
There may have been some personnel issues, but given its specialism ERS would still have needed its own leadership.
Motor has an undistinguished recent history at Lloyd’s to say the least, but the book shrinkage seems to have addressed the issues, with the 2016 and 2017 results made to look worse by the Ogden rate change.
Which raises the question: do Lloyd’s managing agents lack strategic boldness when it comes to M&A?
There has certainly been little Lloyd’s-on-Lloyd’s M&A in recent years.
Canopius chief Michael Watson is not shy of such transactions, and the pending AmTrust at Lloyd’s acquisition-cum-merger is the biggest move in recent memory.
Beazley tilted unsuccessfully at Hardy. Novae and Chaucer flirted. Before that, Catlin acquired Wellington in what was a meaningful deal.
There has also been relatively little outbound M&A. MS Amlin’s acquisition of Fortis was a disaster, and there is little else of note in this category.
All told, it isn’t much of a hall of fame. There is in fact a distinct acquisition gap here.
Instead, Lloyd’s businesses have been sellers. They have happily sent for the man from Evercore, cashing out investors and surrendering control of their fates.
Independent firms from Catlin and Amlin, down through Novae, Chaucer, Omega and Hardy have all sold out to corporates, along with their private peers Cathedral and Antares.
Canopius aside, the independent businesses have been quiet when it comes to acquisitions, although Hamilton may now change that.
Barbican looked for a deal as an acquirer for a time and couldn’t find one, and Alasdair Locke agitated for a deal to boost Argenta’s presence but could never find one within reach.
Scale is clearly a problem for Lloyd’s businesses looking to find viable targets. However, for much of the 2010s, the public players had currency in their paper and syndicates enjoyed a positive spread versus peers in Bermuda and the US.
But there was no concerted move to use M&A as an offensive strategy.
One could perhaps argue that now is not the moment to change this with performance challenges still very real, Brexit adding uncertainty and the future shape of the market yet to be determined.
Equally, though, these things may make it the very moment when opportunity is greatest – and there is a host of businesses at Lloyd’s that are stuck.
Sub-scale, with expense problems they cannot grow out of and loss ratio problems which will only partially be addressed by accelerating rate rises, an in-market move on a business like ERS could change the game for them.