9^th February 2021

B.P. Marsh & Partners Plc

("B.P. Marsh", the "Company" or the "Group")

Trading Update

Chairman's Update

Introduction

B.P. Marsh, the niche venture capital provider to early-stage financial services businesses, is pleased to provide the market with an update on trading for the year ended 31 January 2021.

The portfolio of 18 investments has continued to show its resilience despite the ongoing uncertainty caused by the global pandemic.

Covid-19

As the effects of Covid-19 continue, the Group remains impressed by the dedication and competence demonstrated by its own staff and also the staff within its investment portfolio, in overcoming all obstacles to operate throughout the crisis. All staff continue to work from home but are looking forward to returning to the office later in 2021.

The Group has worked with the Management Teams across the portfolio to ensure stability throughout this time. Emphasis has been placed on having adequate liquidity within each business and on regular reforecasting, with various scenarios applied.

Net Asset Value

One of the Group's key financial objectives is the delivery of long-term growth to its shareholders via the regular increase in Net Asset Value. The Group's interim results to 31 July 2020 showed an increase in Net Asset Value to £142.6m (31 July 2019: £130.0m; 31 January 2020: £136.9m), producing a 4.8% return to shareholders (including the payment of a dividend) in the six month period. The Group remains positive regarding its ongoing performance.

Cash Balance and Loan Facility

At 31 January 2021 the Group had £0.7m in cash, having drawn down £1.0m from its £3.0m loan facility with Brian Marsh Enterprises Ltd ("BME"), a company of which the Chairman, Mr. Brian Marsh, is a director and sole shareholder. Currently, due to the receipt of income post year-end, the Group has £1.3m in cash and access to a further £2.0m from the loan facility with BME.

Underlying profit

Income for the year to 31 January 2021 was c.15% lower than the preceding year, predominantly due to receiving lower dividend income from the investment portfolio due to Covid-19, as the portfolio companies maximised liquidity. However, due to cost mitigation, the Group is expecting its underlying profit (excluding portfolio revaluation) to be at, or above, the prior year's £0.8m.

Share Buy-Backs

As has been stated previously, the Group has a strategy for undertaking small market buy-backs of its shares at times when the discount to Net Asset Value ("NAV"), based upon the most recently announced NAV, is greater than 15%.

For the avoidance of doubt, notwithstanding that the discount to NAV at which the Group's shares are currently trading is greater than 15%, the Group repeats that it is currently restricted in its ability to buy back shares since, given that Brian Marsh, together with persons acting in concert with Brian Marsh for the purposes of the City Code on Takeovers and Mergers (the "City Code"), has an interest in approximately 41.85% of the Group's voting rights, any such purchase of shares would result in an obligation for Brian Marsh to make a general offer for the Group in accordance with Rule 9 of the City Code.

Publication of Full Year Results

The Group expects to report its full year results to 31 January 2021 on 8 June 2021.

Chief Investment Officer's Portfolio Update

As noted above, our portfolio has proved resilient to the challenges of Covid-19 and the effect it has had on our sector, being financial services generally, and insurance specifically.

Investing in a diverse portfolio across the insurance sector, both in business lines and geographically, has been a key component of this resilience. 

Our underwriting agency ("MGA") investments, which account for 11 of our 18 current investments, provide insurance across nearly 30 specialist sectors, with not one product area accounting for more than 20% of the £620m of Gross Written Premium produced by these agencies over the course of the 2020 year. This was an increase of circa £95m on the prior year. This demonstrates the portfolio's ability to grow in a very challenging climate.

Generally speaking, our insurance investments continue to see significant pricing increases within the sectors in which they operate.

The impact of Covid-19 has not only intensified premium pricing increases but also led to many insurers reducing their risk appetite for new business and seeking to mitigate their existing exposures, presenting opportunities for our portfolio companies to fill the gaps this may create.

The Group expects this to continue into 2021 and beyond.

One area of insurance that has attracted recent attention and legal dispute has been business interruption insurance. Our portfolio overall has a very limited exposure to this area, and therefore we have thus far been unaffected by the litigation and the outcomes thereof.

In addition to the above, the Group as a rule does not have any exposure to balance sheet risk via its investment portfolio, and is therefore unaffected directly by insurance losses. That being said, our MGA investments do in effect borrow the balance sheet of their insurance partners to provide insurance coverage, as such they are extremely conscious of the importance of  protecting and growing their partners' balance sheets.

The Insurance Market, with ongoing consolidation and corporate activity, has continued to provide deal flow to the Group, both in terms of new investments and potential realisations. Because of the climate, we have taken a cautious approach but believe that we and the portfolio are well positioned looking to 2021. Our appetite for investment, from financing start-ups, to a maximum of £5m as an initial investment amount, has served us well. 

New Investments

In the financial year to 31 January 2021, we completed one new investment in SAGE Program Underwriters, Inc, as set out below.

SAGE Program Underwriters, Inc ("Sage")

Based in Bend, Oregon, Sage is an MGA which was established in 2019 by CEO Chuck Holdren, and which provides specialist insurance products to niche industries, initially in the inland delivery and field sport sectors.

Commenting on performance since our investment, Sage's CEO, Chuck Holdren stated: -

"Sage has been fortunate to have good results in 2020 despite the pandemic. The niche industries we specialise in continue to have tremendous growth with no sign of easing. Our partnership with B.P. Marsh has allowed us to start building our teams and focus on our goals.  We are excited for 2021 and the new programs, coverages and team members that will help Sage have a positive impact on the industries and partners we serve."

Portfolio Developments

Specific developments within the portfolio during the Period are noted below:

UK Investments:

Nexus Underwriting Management Limited ("Nexus")

Nexus has continued to perform well in the year and in December 2020, it expanded its operations with the acquisition of the Hiscox MGA Marine business ("Hiscox Marine") from Hiscox Ltd. Hiscox Marine provides yacht and marine trades insurance and brings to Nexus a market-leading team with considerable expertise in this specialist class of business.

Since B.P. Marsh first invested in Nexus in August 2014, its business has grown from a Gross Written Premium of £50m to a projected figure of £310m in 2020. Consequently the equity valuation of Nexus has increased from c.£30m to approximately £233m, as at 31 July 2020, which represents a seven fold increase in just over 6 years. We expect Nexus to continue to target this level of growth going forward.

Commenting on market conditions and Nexus' Performance, its Founder & Group Chief Executive Officer, Colin Thompson stated: -

"Nexus is firmly in the midst of the hardening market, the likes of which have not been felt for the last two decades. We expect the market will continue to harden over the next couple of years at a minimum, which when coupled with the returning economic activity for product areas severely impacted in 2020, should spur strong organic growth for Nexus in 2021.

With B.P. Marsh's investment, Nexus has built up a strong and diversified capacity base, which is essential for an MGA in these conditions. Furthermore, Nexus plans to continue adding to its existing 18 acquisitions during 2021, whilst exploring a variety of new strategic avenues in order to fully maximise the current market opportunity."

The Fiducia MGA Company Limited ("Fiducia")

Fiducia, from its beginning in November 2016, will have written Gross Written Premium approaching £18m in its financial year to 31 December 2020, a 32% year on year increase.

Fiducia has built a reputation as a specialist MGA and has, in a short period of time, become a leader in its respective field, for an ever-expanding distribution channel of brokers across the UK.

To continue its expansion, over the year, Fiducia brought on a number of new staff which has enhanced its underwriting capabilities and it continues to seek out new opportunities for growth. Moving into 2021, Fiducia is well positioned to build on its 2020 success, taking advantage of decisions made by competitors to reduce their participation in several classes of business, or withdraw totally, from the classes written by Fiducia. 

Commenting on market conditions and performance, Fiducia's CEO, Gerry Sheehy stated: -

"With Fiducia's book of business weighted heavily towards physical damage cover, we have been less affected than others by Covid-19. 2020 was a year of growth for Fiducia, as we have built on the foundations of the past four years. Fiducia is looking to continue that growth into 2021 and has had a positive start to the year."

Walsingham Motor Insurance Limited ("Walsingham")

In December 2013, B.P. Marsh invested in Walsingham, a London based MGA specialising in insurance for public and private taxi fleets and couriers in the UK.

Whilst Walsingham's business is impacted by Covid-19 and the lockdown restrictions, it succeeded in hitting its pre-Covid-19 budget numbers for the year ended 30 September 2020.

Walsingham's portfolio is evenly divided between courier and taxi business, with the taxi account similarly split between private hire and public hire. Over 2020 the downturn in the taxi market had been largely counteracted by the upturn in courier business, showing the importance of a diverse portfolio.

Walsingham have employed a pragmatic approach to their clients, permitting use of taxi fleets for other purposes (such as food deliveries) and providing return premiums in certain cases where a vehicle is not being utilised. This has allowed Walsingham to retain existing clients and also attract new ones. 

Walsingham's CEO, Garry Watson, commented : -

"Throughout this difficult time, Walsingham has continued to be flexible with its client base, with the aim of supporting the taxi market by keeping as many vehicles on the road as possible, but by also ensuring that we renew policies even where the vehicle count is massively reduced.

Post the current crisis we believe that there will be a significant and rapid recovery of our taxi account with vehicles attaching to existing policies that we have renewed. This, alongside the strength in Walsingham's courier business, means we enter 2021 with an optimistic outlook in the long term." 

Lilley Plummer Risks Limited ("Lilley Plummer")

Lilley Plummer has performed well since the Group's investment in October 2019, with the business exceeding its plan in its first 15-month financial period to 31 December 2020.

Since Lilley Plummer was established, the business has grown its underlying marine portfolio, and has also expanded into new product lines in new geographic locations. This has resulted in the establishment of a new office in Nicosia, Cyprus, alongside the development of several new product areas such as Terrorism, Energy and Cargo.

In the light of the above, Lilley Plummer is expecting substantial growth into 2021.  

LEBC Holdings Limited ("LEBC")

As has previously been announced, LEBC has been through a period of change following the voluntary decision to close its Retirement Adviser division in September 2019.

Notwithstanding the above, the performance of LEBC's core Independent Financial Advisory business has held up well in a Covid-19 trading environment. Both LEBC's private and corporate divisions continue to provide additional support to clients, with the uptake in LEBC's centralised investment proposition growing steadily. 

The Group, therefore, anticipates that for LEBC's current financial year to 30 September 2021, its business will return to previous profitability levels, having focused its ongoing strategy on developing and strengthening its core areas. 

North American Investments:

USA - XPT Group LLC ("XPT")

Commenting on XPT's performance, Founding Partner, Thomas Ruggieri stated: -

"XPT are now in their fourth full year of trading, having acquired 8 businesses across the US, both MGAs and wholesalers, in a number of different product areas.

XPT is well positioned to continue its growth trajectory and is currently in discussions with a number of potential new acquisitions, two of which would be transformational to the business.

Taking into account all of these positive factors, 2021 looks set to be a positive year for XPT".

Since B.P. Marsh's original investment in XPT, the enterprise value we ascribe to it has grown from a start-up to a figure in excess of US$86m. XPT are targeting to produce Gross Written Premium approaching US$400m for the 2021 financial year. This level of growth is expected to continue into 2021 and beyond.

XPT recently completed the acquisition of International Property & Casualty Brokers of Nevada, Inc. ("IPC"), an MGA specialising in excess and surplus lines insurance. Following this acquisition XPT have recently launched Platinum Specialty Underwriters, an MGA specialising in a number of niche product areas, including specific programmes in trucking liability and a Bars and Taverns programme, amongst others.

Canada - Stewart Specialty Risk Underwriting Ltd ("SSRU")

SSRU continues to outperform the Group's expectations since its formation in 2017. From a standing start, SSRU has exceeded Gross Written Premium of CA$34m in its financial year to 31 December 2020, exceeding its original 2020 budget.

With the Group's support, SSRU has developed into one of the largest Specialty MGAs in Canada, which is testament to the management team that established the business.

Commenting on market conditions and this performance, SSRU's Founder and CEO, Stephen Stewart, stated: -

"SSRU since foundation has diversified its book away from the Oil and Gas sector but we continue to see rate increases in the sector. In the Construction sector, heavy government stimulus around infrastructure build will drive growth in that portion of the industry already targeted by both the Property and Casualty departments at SSRU."

Australian investments:

Agri Services Company PTY Ltd ("Agri Services");

ATC Insurance Solutions PTY Ltd ("ATC");

MB Prestige Holdings PTY Ltd ("MB"); and

Sterling Insurance PTY Ltd ("Sterling")

The Group's four Australian investments continue to perform well, being either in line with or above expectations.

Cumulatively, the Group's Australian investments produce approximately AU$180m of Gross Written Premium across multiple specialist lines of business. This has grown significantly over the period of the Group's investments, and we expect to see this continue into 2021.

When B.P. Marsh invested in ATC, the business reported Gross Written Premium of AU$61m for the year ended 30 June 2018. Since that time, GWP has grown by a compound annual rate of 34%. Over the last 6 months, ATC has expanded its product offerings in the Construction and Cyber sectors, with a number of strategic hires.

MB continues to show strong growth with both Gross Written Premium and underlying profitability being up 10% year on year.

Sterling, in which the Group has held an investment since 2013, is performing in line with the Group's expectations. It is on track to achieve its current budget to June 2021, which forecasts Gross Written Premium growth of over 10%. 

The Group's recent investment in start-up MGA, Agri Services, has developed broadly in line with expectations and the Group see 2021 as presenting good opportunities for this business to further establish itself as a pre-eminent agricultural MGA in Australia.  

New Business

No changes have been made to the Group's investment policy, being to seek out investments in early to medium staged businesses, operating in niche sectors, run by experienced and capable Management Teams. The Group believes that such a strategy secures scalable and high growth investments, with substantial shareholder returns expected over time.    

The Group has seen 49 potential new business opportunities in the year, with one completing. Whilst this number is lower than previous years, given Covid-19, our primary focus has been on supporting our existing investment portfolio.

Moving into 2021, the Group has a strong pipeline of new business opportunities to consider and is optimistic in being able to add compelling new investments to the portfolio.

For further information:

Notes to Editors:

B.P. Marsh's current portfolio contains eighteen companies. More detailed descriptions of the portfolio can be found at www.bpmarsh.co.uk.

Since formation over 25 years ago, the Company has assembled a management team with considerable experience both in the financial services sector and in managing private equity investments. Many of the directors have worked with each other in previous roles, and all have worked with each other for approaching ten years.

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