Guardian Royal Exchange Plc

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Guardian Royal Exchange Plc

Royal Exchange
London EC3V 3LS
United Kingdom
(071) 283 7101
Fax: (071) 621 2599

Public Company
Employees: 14,600
Sales: £3.36 billion
Stock Exchanges: London
SICs: 6711 Holding Companies; 6311 Life Insurance; 6321
Accident and Health Insurance; 6324 Hospital and Medical
Service Plans; 6331 Fire, Marine, and Casualty Insurance;
6799 Investors, Not Elsewhere Classified

Guardian Royal Exchange plc is one of the largest composite insurers in the United Kingdom, with a portfolio including life insurance, private motor and household insurance, health care, property, and marine business. Internationally, the company competes in the insurance markets of Germany, the United States, Canada, Ireland, and Asia, and has representation in over 50 countries in all. Guardian also operates an active program of corporate investment as a significant part of its activities.

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 Britains first composite insurer.

Royal Exchange expanded rapidly, both in domestic and foreign business and was a well-established firm by the time of the Guardians 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 companys 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 nineteenth century, no small achievement at a time when the insurance industrymostly unregulated and highly speculativewas notoriously volatile. The two companies emerged in the twentieth 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.

The result was the Guardian Royal Exchange, Britains fifth largest composite insurer. The companys business embraced three primary areas: non-life insurance, life insurance, and corporate investment. Taken as a whole, Guardians non-life insurance business, dominated by personal, motor, and household business, was the companys most lucrative. Indeed, Guardians U.K. business in this category was significant, accounting for some 43 percent of the companys 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 Guardians 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 Guardians 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.

Guardians 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 positionrestructuring its portfolio, insisting on rigorous underwriting policies, and exercising strict financial control of costsbut 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 driverolder 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 countrys largest motor insurer), South Africa, France, Holland, Portugal, and several Asian countries, where the company planned further expansion.

Guardians 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.

Guardians 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 Guardians figures, as it was in 1993, or a disquieting loss, as in the first six months of 1994.

In the early 1990s, Guardian was been beset by a string of misfortunes, some shared by the insurance industry as a whole and others uniquely the companys 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 companys first operating loss since the groups 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 unwiseand ultimately caamitouscompetition; Guardians 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.

Guardians 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 profit 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. Guardians 1993 pre-tax profit figures were still more impressive, reaching one of the highest levels in Guardians 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. Guardians propriety was first called into question in 1987, when the companys 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 Robertsons favor and recommended (it hadnt 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 (of some £80 million) from Guardian. Patels bankruptcy in 1991 let to allegations that Guardian had acted, if not actually improperly, then certainly unwisely.

Further scandal was aroused by allegations that tied agents (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 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 setbacksboth to its finances and its imagethat 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, symbolizing the companys attributes of stability, dignity, and awareness.

Some analysts have suggested, however, that it will take more than a new name and logo to fully resuscitate Guardians fortunes. Though one of the United Kingdoms 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. Guardians 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 Guardians 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. Given time, Guardian seemed likely to bolster its reputation and services.

Principal Subsidiaries

Albingia Lebensversicherungs-Aktien-gesellschaft (Germany; 86%); Albingia Versicherungs-Aktien-gesellschaft (Germany; 86%); American Ambassador Casualty Co. (U.S.A.); Atlas Assurance Co., Ltd.; Caledonian Insurance Co.; Globe American Casualty Co. (U.S.A.); GRE Insurance Ltd. (Ireland); GRE Orion Healthcare Ltd.; Guardian Assurance pic; Guardian Direct Ltd.; Guardian Royal Exchange Assurance pic; Orion Personal Insurances Ltd.; The Royal Exchange Assurance; Union Insurance Society of Canton Ltd. (Hong Kong).

Further Reading

Bagnall, Sarah, GRE Investment Fall Wipes out Trading Profit, The Times (London), August 26, 1994, p. 23.

Composites Face Up to Direct Challenge, Lloyds List, February 28, 1994.

Cook, Lindsay, Guardian Goes Astray, The Times (London), August 27, 1994, p. 23.

GRE Buys US Motor Insurer for Dollars 100m, Financial Times, November 16, 1993.

GRE Could Pay Pounds 30m in Fraud Aftermath, Daily Mail, August 20, 1993.

GRE Counts the Cost of Funding One Mans Empire, Independent, March 5, 1993.

GRE in Dramatic Swing Back to Profit, Lloyds List, March 4, 1993.

GRE Settles with Sacked Whistleblower, Accountancy, December 1988, p. 8.

GRE to Launch Direct Insurance Operation, Financial Times, August 25, 1993.

GRE Will Come Back to Earth with a Bump, Evening Standard, December 30, 1992.

Guarded Confidence, The Times (London), August 26, 1994, p. 25.

Guardian Royal Jumps to Pounds 751m, Financial Times, February 23, 1994.

Insurer Faces Pay-Out Claims, Financial Times, November 5, 1993.

The Lex Column: Guardian Royal, Financial Times, August 27, 1993.

Retrenchment at GRE Pays Off, Financial Times, March 4, 1993.

Sacked Accountant Denied Reinstatement, Accountancy, February 1988, p. 8.

Thomson, I.D., Guardian Royal Exchange Worldwide: A Brief History of the Guardian Royal Exchange Companies Contribution to the Development of International Insurance, London: Guardian Royal Exchange, n.d., 86 p.

UK Turnaround Drives Sharp Recovery at GRE, The Times (London), August 27, 1993.

Whistleblower to Sue over Pension, Accountancy, June 1989, p. 8.

Robin DuBlanc