If the post-Lehman years have in general been good to the City’s insurance and shipping specialists, 2013/14 has been a year of starkly diverging fortunes amid the familiar backdrop of margin pressure on the volume end of the market.
As such, this loose grouping of law firms has seen some of the strongest performances in the LB100 in 2014, while others have weathered falling revenues and job cuts.
This is most strikingly demonstrated in the two most prominent brands in the City insurance market, Clyde & Co and Ince & Co. While the former has largely sustained its robust growth of recent years, with an 8% increase in global revenues to £365.1m and with profits increasing 10% to £92.8m, Ince has seen a 7% fall in income to £86.7m.
In the case of Clydes, the performance cements its status as by far the largest insurance-focused law firm in the world. The 290-partner firm has maintained its expansive form of late, last year becoming the first foreign practice to launch in the Chinese city of Chongqing and this July recruiting Clifford Chance’s co-head of Greater China arbitration Patrick Zheng to lead its new Beijing branch. The firm also this year announced a launch in South Africa after hiring a five-lawyer team from Webber Wentzel and unveiling a fifth branch to its successful US practice with a two-partner maritime team hired to launch in Orange County, California.
Clydes senior partner James Burns says that the strength of sterling had an adverse effect on fee income, but the firm is still comfortably ahead of budget. ‘Our UK insurance practice is up 15% in revenues. In particular, professional lines is up 23%, and property and liability are up 31%.’
For Ince, 2013/14 proved far more challenging, with the firm’s fall in revenues pushing the insurance thoroughbred down six places to 45th in the LB100. The firm also made ten shipping and insurance fee-earners and six secretarial staff redundant in London, citing ‘prevailing economic conditions in our core sectors’. It is a dramatic shift in gear for a firm that had grown its top-line by 45% between 2008 and 2013.
Ince managing partner and insurance head for Europe, Jan Heuvels, told Legal Business that the harder trading was in part due to large insurance clients squeezing panel terms, particularly in the firm’s financial lines team.
‘This area of the market is very price-driven, and we are generally known for our marine and reinsurance work, so we are working very hard in financial lines to compete on price and service,’ Heuvels says. ‘This is challenging as insurance companies’ in-house functions are phenomenal. It is no longer just about the general corporate counsel role. In-house teams now have highly trained insurance specialists taken from leading firms.’
Ince’s struggles illustrate the sustained pressure seen in the cost-conscious domestic insurance market, particularly at the volume end. Another insurance-heavy player that weathered a tougher year in relative terms was RPC, which saw revenues up 2% to £84.1m, while profit per equity partner (PEP) came in at £338,000 for the period, a 9% drop on last year’s figure of £372,000. The result comes after a five-year period of dramatic growth for RPC, which has been investing heavily in its international network and commercial practice.
The picture of uneven performance was also reflected among traditional leaders in shipping insurance and nationally-focused firms. While Ince had a challenging year, Holman Fenwick Willan posted a slower period of growth after a strong five-year run to see revenues up 2% with PEP up 5% to £554,000. Meanwhile, the broader practice offering of Stephenson Harwood saw it post an 8% increase in revenue.
Of the nationally-spread players, Kennedys – one of the most upwardly mobile firms of the last decade – sustained another robust year, with a 10% increase in revenue, while PEP was up by 3%. Weightmans, meanwhile, posted its second year of solid revenue growth, with income up 6% to £87m and PEP up 5%.
However, Weightmans managing partner John Schorah says the insurance market remains challenging. ‘We are not immune to what other firms are experiencing. We don’t have a huge fraud book so don’t have exposure to that. The firms currently struggling are struggling around fraud.’
Aside from pressure from cost-conscious insurance clients, the combination of the recent ban on referral fees for personal injury claims and the ongoing impact of the Jackson reforms to civil litigation continue to loom over the volume defendant market.
In response, a number of firms made job cuts, including Hill Dickinson, Keoghs and DWF. Hill Dickinson announced a total of 83 job losses, including 14 partners and 69 employees – 44 of which left on a voluntary basis. The firm’s revenues came in at £111.6m, slightly down from £112.8m the previous year, while PEP was marginally higher at £271,000 compared to £264,000. ‘It was a challenging first half with the redundancy exercise in the early part of the year,’ says Peter Jackson, managing partner at Hill Dickinson. ‘We had too many people here and were struggling to run profitably in those parts of the business. But as a result we have been able to maintain revenues and halve our debt from roughly £17.5m to over £8.5m.’
DWF’s restructuring led to 38 job cuts last year, affecting fee-earners and support staff across the firm’s Manchester, Coventry, Teesside and London bases, though the cuts were in part a response to a rapid run of growth on the back of five mergers in under 18 months.
The firm saw its revenue grow a mere 1% to £191m in its first full financial year after expansion, though it has shown every sign of maintaining the ambitious attempt to forge a genuinely national legal brand out of its roots as a North West employment and insurance player. DWF made 39 lateral partner hires in the last year, including Pinsent Masons head of financial institutions and human capital Stephen Miles, who is set to join as commercial services chief executive officer, and Addleshaw Goddard’s national head of employment, Andrew Chamberlain.
DWF managing partner and chief executive Andrew Leaitherland comments: ‘This year has been one of major consolidation as we’ve worked hard to fully integrate five separate businesses into DWF, and it’s a real sign of the strength of the business that we’ve been able to increase our net profit and revenue during this time. We’ve invested £12m in technology to drive major operational efficiencies and support the integration of all of our people.’
In a race to compete, many suggest that 2014 promises further consolidation in the insurance sector as players seek to gain international exposure or the scale to operate profitably at home.
Other firms to expand internationally include UK insurance practice DAC Beachcroft, which complemented its push in the Americas by opening a representative office in New York, through a strategic alliance with specialist New York insurance law firm, Abrams, Gorelick, Friedman & Jacobson, to better serve its New York and London insurance clients.
Many in the industry are, of course, trying to assess if alternative business models in the personal injury (PI) space will have an impact, after a year which saw the Australian-listed firm Slater & Gordon in particularly acquisitive mode, while a number of non-law firm businesses invested in the sector.
Slater & Gordon made inroads into the UK PI market after it acquired Manchester-based clinical negligence and PI practice John Pickering & Partners in October last year, followed by the firm’s eye-catching acquisition of the consumer services and PI business of Manchester’s Pannone, a deal worth £33m, in November after months of speculation.
The takeovers significantly boosted the firm’s position in the UK PI sector, particularly in the Manchester region, having previously acquired PI firm Fentons Solicitors in August, which added some 280 staff, and Russell Jones & Walker for £53.8m in 2012, as well as Goodmans Law and the PI practice of Taylor Vinters.
Further consolidation has been typified with an increasing number of UK personal and business insurers entering the race to provide direct legal services to their customers by converting to alternative business structures (ABSs). Some of the more recent entrants include finance company Fairpoint Group, which announced its intention to acquire Leeds-based Simpson Millar in April 2014 – a former acquisition target of Slater & Gordon’s last year – for an initial consideration of £9m payable in cash and shares with a further earn-out consideration of up to £6m payable in cash and shares over the next two years.
In early March, UK insurer Allianz paired up with PI firm Serious Law to create ALP Law – a body that provides legal advice and support to Allianz’ direct private motor policyholders if they suffer PI following an accident where they were not at fault. Other entrants included Direct Line Group, which launched its legal services venture with Parabis Law; Irwin Mitchell, which joined PI firm MPH Solicitors in November 2013; as well as Admiral, Ageas and RAC, which were all granted ABS licences to provide legal services in April last year.
Nevertheless, many remain undecided on whether the ABS revolution will significantly impact on the defendant insurance business, in part because volume insurance players have for years been heavily focused on efficiency. Weightmans’ Schorah comments: ‘The ABSs have not had an impact yet. We are already dealing with an overcrowded market and the ABSs just make us more focused. At present, it doesn’t matter if we compete against conventional firms or ABSs as some of the offering is not new.’
jaishree.kalia@legalease.co.uk