Guardian Financial Services
Guardian Financial Services
Business Segment of AEGON NV
Total Assets: £22 billion ($36.5 billion) (1998 est.)
NAIC: 524113 Direct Life Insurance Carriers; 524114 Direct Health and Medical Insurance Carriers; 524126 Direct Property and Casualty Insurance Carriers
Once one of the largest composite insurers in the United Kingdom, Guardian Financial Services, known previously as Guardian Royal Exchange plc, provided life and non-life insurance services as well as financial and investment services to customers in the United Kingdom and abroad. The company struggled in the 1990s, in part due to intense competition brought on by industry consolidation. Unable to remain independent, Guardian was purchased by Sun Life and Provincial Holdings, a subsidiary of the French insurance group AXA, in 1999. AXA then sold Guardian's life and pensions business to the Dutch insurance concern AEGON NV. In 2004, Guardian's remaining holdings were administered by AEGON UK Services.
Guardian Royal Exchange was created in 1968 from the merger of two venerable insurance institutions, Royal Exchange Assurance and the Guardian Assurance Company. Royal Exchange was founded in 1720 and was one of the first two insurance companies to receive legal status by Royal Charter. Originally established for marine business, the company expanded within a year to include fire and life insurance as well, thereby becoming Britain's first composite insurer.
Royal Exchange expanded rapidly, both in domestic and foreign business and was a well-established firm by the time of the Guardian's creation in 1821. Guardian, founded as a fire and life insurer, also grew quickly throughout Britain and in foreign markets. The company achieved composite status in 1893, when it was granted new powers of underwriting and investment by Act of Parliament. In 1902, the name was changed from Guardian Fire & Life to Guardian Assurance to reflect the company's new interests in theft and burglary insurance, employers' liability, and general accident. The Royal Exchange, too, had expanded its cover, moving into personal accident (1898), employers' liability and fidelity guarantee (1899), burglary insurance (1900), and accident insurance. In 1917, the company added auto insurance to its portfolio by merging with the motor insurer Car and General.
Both the Royal Exchange and the Guardian built up profitable overseas businesses, first through foreign agents and later through branch offices. In the years 1890 to 1912, for example, the Royal Exchange opened branches in the United States, Canada, South Africa, New Zealand, India, Egypt, and South America, as well as establishing a substantial presence in continental Europe.
Guardian Assurance and the Royal Exchange, then, both prospered during the 19th century, no small achievement at a time when the insurance industry—mostly unregulated and highly speculative—was notoriously volatile. The two companies emerged in the 20th century with respectable reputations for sound, conservative business practices.
Over the years, both companies fueled their expansion as much by strategic mergers and amalgamations as by organic growth. Such insurance alliances were generally viewed favorably in the industry, as a broader financial base tended to be a stronger one and therefore of most benefit to policy holders. After World War II, insurance mergers became even more common and popular, and it was thus considered sensible strategy that the Royal Exchange and Guardian Assurance should merge, a move undertaken in 1968. Finalizing the merger was a long and complicated process. The integration of two work forces, the harmonization of different working practices and procedures, and the monumental task of converting all documents and records to the same system all required years to complete.
Success and Struggles in the Early 1990s
The result was the Guardian Royal Exchange, Britain's fifth largest composite insurer. The company's business embraced three primary areas: non-life insurance, life insurance, and corporate investment. Taken as a whole, Guardian's non-life insurance business, dominated by personal, motor, and household business, was the company's most lucrative. Indeed, Guardian's U.K. business in this category was significant, accounting for some 43 percent of the company's premium income. In the 1990s, Guardian sought to strengthen its non-life portfolio through acquisitions and additions. In 1993, the company purchased the health care and personal lines insurance business of Orion Insurance, establishing the U.K. subsidiaries Orion Healthcare Ltd. and Orion Personal Insurances Ltd. The acquisition, particularly its health care aspect, filled a void in Guardian's insurance range. Both new enterprises were relatively small but had successful records. Guardian did not intend them to compete with the major insurers in their field but hoped rather to establish and slowly build up a niche market for the two. The new business quickly accounted for a significant proportion of Guardian's non-life U.K. insurance business.
Guardian also moved into the direct telesales market with the establishment of Guardian Direct in 1993. Direct sales of car and household insurance policies were increasingly popular in the United Kingdom, and Guardian hoped to reap its share of the profits from this new and rapidly expanding market.
Guardian's overseas operations in non-life insurance was less successful. In Germany, where the group operated Albingia, conditions were difficult for a number of years, due largely to the recession and to significant increases in claims rising from household burglaries, car theft, and arson. Guardian attempted to offset such vicissitudes with several measures designed to improve its position—restructuring its portfolio, insisting on rigorous underwriting policies, and exercising strict financial control of costs—but had met with limited success in most overseas operations in the early 1990s.
The picture was somewhat brighter in the U.S. market, however, where Guardian was set on expansion. In 1993, the company acquired another non-standard motor insurer, American Ambassador Casualty Company, to complement the operations of a similar existing American subsidy, Globe American. Both companies offered car insurance to the "non-standard" driver—older drivers, drivers with poor records, and drivers of specialty vehicles. While Guardian historically approached the U.S. market with caution, American Ambassador had a healthy record of profit-making over the years, and the company was quietly confident that its acquisition would continue to perform well.
Guardian had non-life insurance operations in many other countries as well, including Canada, Ireland (where it was the country's largest motor insurer), South Africa, France, Holland, Portugal, and several Asian countries, where the company planned further expansion.
Guardian's position in the life insurance market was generally viewed as less secure than its niche in non-life markets. This was due in part to less favorable conditions in the market industry-wide. The selling of life insurance products was heavily linked to the mortgage market, which had been severely depressed in the recession of the early 1990s.
Guardian's corporate investment was largely in equities and properties in the United Kingdom and Germany. Over the years, this was generally a profitable area for Guardian, but it was, of course, a field subject to much fluctuation. Guardian included realized and unrealized investment gains in its profit figures for the first time in 1993, two years before such reporting was due to become compulsory for the insurers. The volatility of the corporate investment market was such that the new reporting could be a welcome boost to Guardian's figures, as it was in 1993, or a disquieting loss, as in the first six months of 1994.
In the early 1990s, Guardian was beset by a string of misfortunes, some shared by the insurance industry as a whole and others uniquely the company's own. The year 1990 was a particularly disastrous one for all the big insurers in the United Kingdom. Years of progressively ruthless competition among the insurance companies, fighting desperately to retain their market shares, had resulted in pricing and underwriting decisions that proved unrealistic and unsustainable. This state of affairs, coinciding as it did with the recession and a higher than usual incidence of claims (many resulting from the natural disasters that hit the country at this time) had a devastating effect on the industry. Guardian itself plunged to a record loss, the company's first operating loss since the group's formation.
Guardian acted quickly to redeem the loss, instituting what the company termed "remedial" measures, including a rigorous review and overhaul of its underwriting policies, careful conservation of capital, strict control of expenses, and a sharpened focus of what kind of business the company meant to attract and to retain. A corporate philosophy of attracting as wide a range of business as possible, and doing whatever necessary to keep it, had led Guardian and the other big insurers to an unwise—and ultimately calamitous—competition. Guardian's new policy led to decisions to jettison some aspects of its business in order to concentrate on higher quality, higher profit business. Premiums were raised even at the risk of losing customers.
- Royal Exchange is founded.
- Guardian Fire & Life is established.
- Guardian Fire & Life changes its name to Guardian Assurance.
- Royal Exchange Assurance and Guardian Assurance merge to form Guardian Royal Exchange.
- The company posts its first operating loss since the group's formation.
- Guardian acquires the health care and personal lines insurance business of Orion Insurance.
- PPP Healthcare Group Plc is purchased.
- AXA subsidiary Sun Life and Provincial Holdings acquires Guardian; the company's life and pensions business is sold to AEGON NV and its U.S. operations are sold to Liberty Mutual.
Guardian's strategies were successful, as the company climbed from a loss of some £210 million in 1991 to a 1992 profit of £3 million. The company was one of only two of the big composite insurers to return to profitability and in so doing performed significantly better than financial analysts had predicted: Guardian "deserves credit for playing itself back into the game," the Financial Times allowed. Guardian's 1993 pretax profit figures were still more impressive, reaching one of the highest levels in Guardian's history, even discounting the new inclusion of investment gains.
Other troubles plagued the company, however, as Guardian found itself at the center of several controversies. Guardian's propriety was first called into question in 1987, when the company's chief tax accountant, Charles Robertson, fired for alleged misconduct, protested to an industrial tribunal. Robertson claimed that the true cause of his dismissal was his investigation of irregular transactions between Guardian and some of its overseas subsidiaries and his insistence that he must inform the Inland Revenue of these transactions. The tribunal found in Robertson's favor and recommended (it did not have the power to order) his reinstatement. The company refused and later gave Robertson a settlement of £91,000 in compensation.
Guardian was also widely excoriated for its dubious connection with businessman Vinodchandra Manubhai Patel, a star salesman of the company in the 1980s whose ambitious forays into property investment were financed by loans (some £80 million worth) from Guardian. Patel's bankruptcy in 1991 led to allegations that Guardian had acted, if not actually improperly, then certainly unwisely.
Further scandal was aroused by allegations that "tied agents" (those not directly employed by Guardian but engaged in selling Guardian insurance products) had "mis-sold" insurance policies in 1990 and 1991, prompting an investigation by the Life Assurance and Unit Trust Regulatory Organisation and garnering a great deal of bad publicity for the company. Guardian also found itself the target of legal actions in 1993 brought by several ex-agents who alleged that the company had failed to pay them the commissions to which they were entitled on policies they sold in the late 1980s. Guardian maintained that the trouble was due largely to a new computer system installed at that time.
It was perhaps in response to such setbacks—both to its finances and its image—that Guardian modified its name. Known as Guardian Royal Exchange since the 1968 merger of Guardian Assurance and Royal Exchange Assurance, the company sought a new image to boost public awareness and confidence. A team of corporate identity consultants, working in great secrecy for some seven months, finally unveiled the new image in 1993. While officially remaining Guardian Royal Exchange, the company would be known henceforth simply as Guardian, represented by the new logo of an owl that symbolized the company's attributes of stability, dignity, and awareness.
Succumbing to Industry Consolidation
in the Late 1990s
Some analysts suggested, however, that it would take more than a new name and logo to fully resuscitate Guardian's fortunes. Though one of the United Kingdom's largest corporate insurers, Guardian was frequently viewed as one of the weakest, particularly in the area of life insurance. In response, the company brought in a new management team for its life insurance business in 1992. Guardian's expansion policies were also criticized, particularly its purchase in the late 1980s of an Italian motor insurer; Guardian sold the company a year after buying it, at a loss of some £68 million. Nevertheless, many of Guardian's efforts to counteract the industry-wide disasters of 1990 were met with approval, especially its unexpected turnaround from dramatic loss to decent profit in the early 1990s. Acquisitions such as the Orion companies were cautiously welcomed as sound strategy.
Guardian made several key purchases in the late 1990s in an attempt to strengthen its operations. In 1996, the company added RAC Insurance Services to its holdings. Two years later, it acquired PPP Healthcare Group Plc in a $711.4 million deal. The purchase of PPP—the U.K.'s second-largest privately held health insurer—was expected to result in significant increases in Guardian's earnings as well as provide annual cost savings.
Despite Guardian's efforts, it soon became apparent that it was unable to compete in the rapidly consolidating insurance industry. It became the U.K.'s smallest composite insurer as its competitors grew quickly through a series of large mergers. General Accident teamed up with Commercial Union, Royal Insurance joined with Sun Alliance, and Zurich purchased BAT Industries' financial services business to form Allied Zurich. Critics claimed that Guardian had been slow in its actions, had failed to capitalize on opportunities, written very little new business, and had not been effective in cutting costs. Indeed, Guardian's market share had fallen dramatically and management was forced to make a difficult decision about its future. "We will consider all options--including a complete bid, or a break-up," declared CEO John Robins in a December 1998 Financial Times article. "We have got to be able to stand up in front of our shareholders and say: 'This is the best way forward.'"
In May 1999, Guardian was acquired by Sun Life and Provincial Holdings plc, a subsidiary of the French insurance group AXA, in a $5.76 billion deal. Sun Life and Provincial—its name was changed to AXA UK plc in 2000—integrated Guardian's U.K. and Irish non-life business into its U.K. operations. Albingia, Guardian's German subsidiary, was purchased by AXA Colonia. The rest of Guardian however, was sold off to companies unrelated to AXA. Liberty Mutual Group purchased Guardian's U.S. business for $1.47 billion. The Guardian businesses became wholly owned subsidiaries operating under the names Peerless Insurance Cos. and Indiana Insurance Cos.
AEGON UK plc, a subsidiary of AEGON NV, acquired Guardian's life insurance and pensions business from AXA for $1.2 billion in October 1999. The business fit with AEGON's Scottish Equitable and Scottish Equitable Asset Management subsidiaries and gave it a stronger foothold in the U.K.'s pensions and savings market. These businesses ended up forming AEGON's Guardian Financial Services division. While the Guardian brand name lived on through the AEGON purchase, Guardian Royal Exchange had fallen victim to industry consolidation and ceased to exist as a company.
Royal & Sun Alliance Insurance Group plc; Aviva plc; Zurich Financial Services.
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—update: Christina M. Stansell