Legal Business

Insurance – Insuring the Future

This year was all about the urge to merge and this time next year the Insurance group will look very different, with two firms missing after a period of consolidation among the Insurance group.

Davies Arnold Cooper will be transformed after its November merger with rival Beachcroft goes live to create DAC Beachcroft. Meanwhile Clyde & Co and Barlow Lyde & Gilbert are set to combine to create the largest firm in this peer group. When the two merge later this year, they’ll become a £307m behemoth, nearly treble the size of nearest competitor Holman Fenwick Willan.

The flurry of tie-ups is partly due to major shifts in the insurance market over the past few years, with a number of large insurers squeezed after a spate of man-made and natural disasters.

That said, it’s been another good year to be in the insurance market. With the exception of DAC, Ince & Co and Thompsons, every firm in this group increased revenue during 2010/11. On average the Insurance group saw turnover rise by 7%, compared to a more subdued 6% growth across the LB100 as a whole. This group also boasts some of the best performances over the longer term – with net income growing by an average of 9% every year. Compare this to the average across the LB100 of 2%, and it looks even more impressive.

Clyde & Co, which is the largest firm in the group, had another year of strong growth. Revenue rose by 10% to £211.8m and fee-earner numbers rose by a whopping 32% to 753 lawyers worldwide. Much of this is down to international expansion, with the firm’s Dar es Salaam and New Jersey offices coming on stream this year, while the firm’s acquisition of London construction firm Shadbolt LLP in 2010 also bumped those numbers up. Clydes’ ambitious expansion will also see the firm add 15 more partners to its global roster after it officially merges with Canadian insurance boutique Nicholl Paskell-Mede this month.

Meanwhile, the ghost of Halliwells continues to haunt the insurance market, with both Kennedys and BLG enjoying revenue increases after feasting on significant portions of the defunct firm during last summer’s pre-pack sale. Kennedys hired a 27 fee-earner team that, at the time, was expected to bring in £5m worth of business. But, the move paid greater dividends than that when it increased revenue by £8.5m or 10% during 2010/11.

BLG took the largest chunk of Halliwells after it brought across 160 insurance-focused fee-earners in Manchester. At the time, the team was expected to add £15m in fees over the year. After nine months the firm saw £14m added to its top line, representing a 17% increase in turnover from 2009/10. Chief executive David Jabbari attributes this to the late addition of the Manchester team in the year (the team moved to BLG in July 2010) and a 2% increase in like for like business across the firm.

‘It’s been an unreservedly good year,’ said Jabbari when he spoke to LB earlier in the year. ‘Turnover is up and a large part of that is due to the Manchester business. We’ve dealt with costs ruthlessly but PEP and remuneration aren’t yet where we want them to be.’

The firm has been looking at cutting its cost base and, whether by choice or forced departures, has decreased its equity partner headcount by nine to 67 partners. BLG was hit by a spate of partner departures during 2010/11, notably the defection of the firm’s eight-partner aviation team, which joined rival Holman Fenwick Willan in March.

Holman Fenwick had a solid year, notching up revenue by 13% to £112.6m. This came at the expense of profitability; net income remained static at £32m causing the shipping firm’s profit margin to drop from 32% to 28% this year. The change in the end of the firm’s financial year to the end of March (as a result of converting to an LLP status) has meant that revenue has been artificially inflated. On a like for like 12 month basis, however, the firm would have been up by 6%.

Richard Crump, Holman Fenwick’s senior partner, attributes this fee income rise to an uptick in revenue from its international offices. ‘Our offices outside of London are contributing an increasing proportion of our global revenue, this year at 45%, and we see that trend continuing,’ says Crump.

Despite the changeable insurance sector being a boon to the legal industry (which has helped to notch up some impressive profits as a result) expectations among the Insurance group are that margins will be squeezed over the coming years thus putting consolidation high on the agenda. LB