Barwon Insurance Case StudyEssay Preview: Barwon Insurance Case StudyReport this essayBarwon Insurance LtdResults Analysis and Market ComparisonOctober 2008EXECUTIVE SUMMARYBarwon achieved substantial premium growth and an underwriting profit of $5,247m. Investment income of $7.240m was on par with the industry. However, a review of the Barwon 2008 results indicates that the portfolio requires immediate attention in order for Barwon to continue to operate and in order that the U/W profit achieved, is at least, on par with the industry.
This statement may appear overly dramatic however with shareholder funds of $12,097,600 and a minimum capital requirement of $12,105,500, Barwon needs to address how to meet the APRA capital requirement immediately. Aside from the capital issue the underwriting profit of Barwon needs to be improved as the 5% return on earned premium is well short of the industry average.
The following is a summary of areas that should be reviewed in order to address the concerns mentioned.Recommendations for improvement in portfolioReview the minimum premiumReduce commission levelsIncrease advertising costsReview IBNR and IBNER calculationsReview the purchase of proportional reinsuranceSell down the property portfolio and invest in Tier 1 capital investments.These recommendations have been discussed more fully within the report.INRODUCTIONPrior to 30 June 2008 Barwon operated in a non competitive market comprising 4 Insurers with 25% market share each. This non competitive market was opened up to competition in 2008. Over the past 12 months Barwon has been implementing a variety of strategies to increase market share and profitability to the group this report aims to highlight the effectiveness of the strategies, where possible compare the strategies to our competitors and recommend any corrective action necessary to improve results.
The recommendations of the Report are for our own company, Barwon, to improve how it interacts with Tier 1 commercial entities, who are expected to have the largest investment portfolio of 10.2 billion shares from 1,850,000 individuals, and also for our customers to be more proactive around making these investments.
We are taking action to increase the market share of Barwon’s shares
Barwon has recently experienced a number of changes from the late 2000s, which included major restructuring, reorganisation of both the management and business structures and a reduction in capital requirements as a direct result of its restructuring of the business.
We continue to view the potential market for capital investment as a key driver for our growth. Through our strategic focus, we now have greater control over our businesses, our capital structure, and the allocation of resources on a daily basis.
We expect changes in the future within the Barwon network, a new focus on our customers and improved business processes. We also need to strengthen our long-term performance by prioritising product innovation, which in turn requires better understanding of our customers and better management.
We are investing heavily in capital
A quarter of the total value of Barwon’s shares held and issued in this report was reinvested into our portfolio of 50 million shares which is significantly larger than before the 2007-08 financial crisis. Further, a third of our total value of shares held was acquired for the 2013-14 financial year following the close of restructuring in 2007-08, increasing our value of the portfolio over the period to be made public and for a total of 575,000 shares which is the largest increase in our total holdings of shares held since 2008.
Our performance has been largely unchanged since our early financial crisis, but we currently have a significantly larger share base. We have taken many steps to strengthen our capital markets and take actions to better align our management and capital structures with the best of the emerging markets.
We have initiated a series of key actions, including a series of investment rounds and a multi-year initiative to increase capital and operational efficiency. Our investment portfolio grew from 28 thousand common shares to over 7 billion shares. A series of planned investments have been reported to date. In the latest quarter, our total capital base and capital structures have increased to 11.8 billion common shares and 10.4 billion common shares, from 13.5 billion and 10.5 billion common shares respectively, and our cash reserves have been increased a total of $2 and $3 billion, respectively, since 2008.
Barwon’s Board of Directors and management continue to have positive results from the acquisitions of BGC and ABQ in particular. We now intend to continue to enhance our capital structure through the acquisition of the $10bn BGC and ABQ acquisition, expanding our financial exposure through our key strategy to invest in our Tier 1 (and other) institutional segment. Our capital structure will also benefit from recent investment on both the asset side and the management side.
We expect to expand access to Barwon services in the long term
Under barwon’s continued success, our core segment of products including smartphones was seen in a higher percentage of the total market. We see a large part of this segment to be achieved through barwon’s services, which provide Barwon with direct competition for mobile phone, broadband and fixed line connectivity with multiple options ranging from the popular iPhone to the iPad, to the iPad Air. In addition, for more than 15 years Barwon has had to increase its staff base for work to further increase the reach of its devices.
In addition, Barwon is increasingly seeing increased demand for mobile solutions which is particularly helpful to consumers seeking alternative modes of communication.
We expect to increase mobile subscriptions and more robust and attractive pricing for customers.
Barwon will take additional actions to enhance its services, including enhancing our operational and operational
The recommendations of the Report are for our own company, Barwon, to improve how it interacts with Tier 1 commercial entities, who are expected to have the largest investment portfolio of 10.2 billion shares from 1,850,000 individuals, and also for our customers to be more proactive around making these investments.
We are taking action to increase the market share of Barwon’s shares
Barwon has recently experienced a number of changes from the late 2000s, which included major restructuring, reorganisation of both the management and business structures and a reduction in capital requirements as a direct result of its restructuring of the business.
We continue to view the potential market for capital investment as a key driver for our growth. Through our strategic focus, we now have greater control over our businesses, our capital structure, and the allocation of resources on a daily basis.
We expect changes in the future within the Barwon network, a new focus on our customers and improved business processes. We also need to strengthen our long-term performance by prioritising product innovation, which in turn requires better understanding of our customers and better management.
We are investing heavily in capital
A quarter of the total value of Barwon’s shares held and issued in this report was reinvested into our portfolio of 50 million shares which is significantly larger than before the 2007-08 financial crisis. Further, a third of our total value of shares held was acquired for the 2013-14 financial year following the close of restructuring in 2007-08, increasing our value of the portfolio over the period to be made public and for a total of 575,000 shares which is the largest increase in our total holdings of shares held since 2008.
Our performance has been largely unchanged since our early financial crisis, but we currently have a significantly larger share base. We have taken many steps to strengthen our capital markets and take actions to better align our management and capital structures with the best of the emerging markets.
We have initiated a series of key actions, including a series of investment rounds and a multi-year initiative to increase capital and operational efficiency. Our investment portfolio grew from 28 thousand common shares to over 7 billion shares. A series of planned investments have been reported to date. In the latest quarter, our total capital base and capital structures have increased to 11.8 billion common shares and 10.4 billion common shares, from 13.5 billion and 10.5 billion common shares respectively, and our cash reserves have been increased a total of $2 and $3 billion, respectively, since 2008.
Barwon’s Board of Directors and management continue to have positive results from the acquisitions of BGC and ABQ in particular. We now intend to continue to enhance our capital structure through the acquisition of the $10bn BGC and ABQ acquisition, expanding our financial exposure through our key strategy to invest in our Tier 1 (and other) institutional segment. Our capital structure will also benefit from recent investment on both the asset side and the management side.
We expect to expand access to Barwon services in the long term
Under barwon’s continued success, our core segment of products including smartphones was seen in a higher percentage of the total market. We see a large part of this segment to be achieved through barwon’s services, which provide Barwon with direct competition for mobile phone, broadband and fixed line connectivity with multiple options ranging from the popular iPhone to the iPad, to the iPad Air. In addition, for more than 15 years Barwon has had to increase its staff base for work to further increase the reach of its devices.
In addition, Barwon is increasingly seeing increased demand for mobile solutions which is particularly helpful to consumers seeking alternative modes of communication.
We expect to increase mobile subscriptions and more robust and attractive pricing for customers.
Barwon will take additional actions to enhance its services, including enhancing our operational and operational
The Motor Vehicle MarketBarwon has three major competitors in the market, these companies are, Burwood Mutual, Geelong Group and Yarra Insurance all have adopted a different strategy to underwriting motor vehicle insurance. The table below shows a comparison the respective gross written premium (GWP) and policy count between 2007 and 2008.
$,000sPremium 2007Premium 2008% changePolicy Count 2008Policy Count 2007% changeBarwon97,500126,75075,00097,500Burwood97,500118,00075,00073,750Geelong97,500129,37575,000112,500Yarra97,500137,25075,00076,250All Insurers390,000511,375300,000360,000On first blush the numbers indicate that Barwon has done well in comparison to the market, both premium and policy count has increased by 30%. The proportion of policy holders has increased in excess of the market growth with only Geelong Group out striping Barwons growth.
By reviewing the 2007 strategy we can get a better understanding of how the 2008 growth was achieved and also better understand why future recommendations regarding 2009 growth need to be implemented. The strategies will be looked at under the 4 basic components, premium, commissions credits terms and advertising expense. A summary of how the market responded in these areas is below followed by an interpretation of the strategy on actual results.
Premium rates;- The 2007 average premium was $1,500 per policy Barwon reduced this by 13.3% to $1,300. Geelong group was more competitive and reduced premiums by 23.3% to $1,150. Burwood and Yarra increased premiums from 2007 averages. It is believed that this is the major reason for the positive growth in 2008 policy counts. This strategy also produced Barwon with the third largest premium pool relative to the market.
Commission rates;- The average market commission paid to brokers in 2007 was 10% as part of the competitive strategy this rate was increased by 150% to 25%. This was a much higher increase than any of our competitors. As for our competitors it is understood that Burwood left commission stable at the 2007 rate of 10%, Geelong reduce the commission paid to brokers by 50% to 5% and Yarra also maintain the 2007 rate of 10%.
Credit terms:- To compensate for the reduced premiums and higher commissions the credit terms available to Barwon brokers was reduced from 90 days to 45 days. Again, the market applied different terms in the spirit of competition. Burwood reduced credit terms slightly, Geelong maintained terms at 90 days and Yarra provided better terms and extended them to 110 days
Advertising;- Information recovered from the market indicates that Barwon had the smallest advertising budget of the market competitors. Barwon spent $850,000 on advertising. This equated to 18% of the market advertising spend of $4.875M. Burwood, Geelong and Yarra spent $1.1M, $1.3m and $1.6M respectively.
Market ShareEven though the business is transacted through brokers and agents it seems the end policyholder has a large say where there business was placed. Lower premiums coupled with consumer market awareness from advertising appear to outweigh the coercion brokers might apply in order that the brokers receive a higher commission on a transaction. This trend can be seen in the comparison of market results, especially when looking at the results of Yarra and Burwood in isolation, both companies raised premiums from the previous year and advertised heavily.
Barwon faired well in terms of gaining market share by policy count and premium but the Geelong Group strategy produced the highest market share and was the most effect strategy by policy count. Their strategy produced for Geelong a 33% increase in the share of GWP and 55% increase in the number of policy