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Wednesday, October 30, 2013 - 11:04
25 years of UMAs

Lireas, the pioneer of the underwriting management agency (UMA) model in the South African insurance landscape, turns 25 in September this year. The company is proud of its sustainability and the role it has played in offering quality insurance services and products in specific niche markets, as well as the jobs that its investments have helped to create over the past two and a half decades. 
“We were very fortunate, all those years ago, to be one of the first to market in terms of starting UMAs,” says Managing Director Valerie Hayter. “This has meant that Lireas has some of the most mature and successful UMAs in the market. Lireas’s success is wholly dependent on our partners’ success. Our reason for being is quite simple: to secure profitable premium for Hannover Re via shareholding.”
Hayter explains that Lireas was incorporated as a company in 1972 as a holding company for Hollandia Life Re. “Lireas started to operate as a strategic investment company for Hollandia with investments in MUA Insurance Acceptances and SHA Insurance Service. These two companies were among the first of their kind in the South African insurance industry and became known as underwriting management agencies, or UMAs.
“In those early days, however, Lireas didn’t only invest in UMAs and by 2001 we had a fairly large and diversified portfolio of 44 investments. These included insurance investments as well as completely unrelated investments like a mineral water company and a CCTV company. Today’s Lireas is far more focussed, with investments only in UMAs and one specialist insurance company. Currently we have 15 investments.”
Hayter says that while Lireas is a relatively small company, she believes it has made a disproportionate contribution to the South African economy through job creation, starting businesses and encouraging entrepreneurship. She clarifies, “Currently there are nearly 500 people employed in the wider Lireas Group – not to mention companies that are still in existence and which we started but where we are no longer a shareholder. A country like South Africa is crying out for more entrepreneurs and we have been involved in starting well over 40 companies during our 25-year history.
“Being a pioneer of the UMA model in South Africa and having the vision to implement this model is probably the single most important achievement in the history of Lireas, so enormous credit must go to the previous CEO of Hollandia, Steve Murphy, who believed in this model and was willing to take the risk. We have also been astounded to see how many new UMAs have been started over the years. At last count, there were over 200 UMAs in the local insurance industry, where their specialised skills and entrepreneurship have hopefully contributed in a large way to getting relevant products out to the consumers at fair prices. It is the selection of outstanding business entrepreneurs that has made Lireas the success that we are today.”
Hayter clarifies further that having Hannover Re and Mahogany as shareholders has contributed in a large way to Lireas’s success. “Hannover Re provides the brand and credibility we need in the market, not to mention the reinsurance capacity and long-term partnership support required for the UMA business. Mahogany, on the other hand, brings private equity discipline and sound business knowledge to this partnership – something that is so vital when buying or selling companies.”
Hayter adds that Lireas can also access various carefully selected insurance company licenses for its UMAs. “This includes working closely with our sister company, Compass Insurance (Pty) Ltd, which provides an outstanding platform to many of our UMAs. And of course we have access to Hannover Re reinsurance capacity, knowledge and support. This makes our business model unique in our market.”
 
About Lireas Holdings
Lireas Holdings is the well-established South African strategic investment company of Hannover Re Group Africa and Mahogany Private Equity. We focus on investing in partnerships with existing or potential entrepreneurial, niche insurance underwriting agencies that will generate profitable underwriting results. With a targeted return on investment of over thirty percent, Lireas Holdings offers support structures and personnel to actively assist and guide agencies in achieving these goals. Working together for success means that Lireas takes an active interest in all its investments.

Background to Lireas - by Valerie Hayter: Managing Director Lireas Holdings


1. How did Lireas start and why?
Lireas was incorporated as a company in 1972 as a holding company for shares in Hollandia Life Re. The name ‘Lireas’ is a combination of two words - Li (life) and Reas (Reassurance). So in actual fact Lireas’s beginning had very little to do with what it does currently.
It was 25 years ago when Lireas started to operate as a strategic investment company for Hollandia with investments in MUA and SHA. These two companies were among the first of their kind in the South African insurance industry and became known as underwriting management agencies or UMAs.
In those early days, Lireas didn’t only invest in UMAs though and by 2001 we had a fairly large and diversified portfolio of 44 investments. These included insurance investments as well as completely unrelated investments like Life Water, a mineral water company and CMT Trading, a CCTV company. We were even invested in a broadcasting company. You could say that in those days, we were a real high risk venture capitalist!
Today’s Lireas is a much more focussed company, with investments only in UMAs and one specialist insurance company. Currently we have 15 investments in total. Our reason for being is quite simple: to secure profitable premium for Hannover Re via shareholding.


2. What type of company is Lireas? What do we do?
I always like to describe Lireas as being a family of companies – we value long-term relationships with our business partners, which have been built on trust.
Lireas is an investment holding company for underwriting agencies. Like many private equity companies we take a very active interest in our investments – supporting and working with our partners as they may require. Lireas employees sit on the boards of our investments as directors, where we assist with the governance of the company as well as helping to provide our partners with strategic input. Often, however, it is the ‘little’ things that make the biggest difference to our partners and I always tell my team that in Lireas, our jobs are whatever our partners need for their businesses.
Like any investment company we are always on the lookout for new opportunities. We therefore spend a large portion of our time on meeting prospective new partners and assessing whether or not they would fit into the Lireas ‘family’.
3. What does Lireas look for in a UMA?


When you boil it down, business is all about relationships. So one of the first things we look for in a UMA is whether its culture is a good fit for Lireas and the Hannover Re Group. I have a little saying these days: ‘We want to do business with people who want to do business with us.’ I know this sounds a little naïve to some people but I am very convinced that in the courting phase of a new opportunity, it is vital to assess whether this prospective business partner would do business largely in the way we do business, and that we as a Group could add value too. In any partnership there must be a give and take, otherwise there won’t be balance in the relationship and this could spell disaster in later years as the business matures.
The next important area is whether the UMA has specialist skills and a unique selling proposition to the market. The whole idea of a UMA is that it can underwrite and select risks at a loss ratio that is better than a general insurance company.
Finally and most importantly, we determine whether this UMA would be able to generate profitable premium for Hannover Re and of course whether Hannover Re is willing to provide capacity and support to the UMA.
4. What makes Lireas successful?


First and foremost, Lireas invests in people – not fancy business plans. It is the selection of outstanding business entrepreneurs that has made Lireas the success that we are today.
We were very fortunate, those 25 years ago, to be one of the first to market in terms of starting UMAs. This has meant that we have some of the most mature and successful UMAs in the market. Lireas’s success is wholly dependent on our partners’ success and I am therefore very grateful each year to our partners who have made Lireas the success it is.
Speaking of partners, I believe that having Hannover Re and Mahogany as our shareholders has contributed in a very large way to where Lireas is today. Hannover Re provides the brand and credibility we need in the market, not to mention the reinsurance capacity and long-term partnership support required for the UMA business. Mahogany, on the other hand, brings private equity discipline to this partnership – something that is so vital when buying or selling companies.
Finally, our business model is unique in the South African insurance industry. We believe that our business model helps achieve the alignment of interest for all stakeholders. An important aspect of the model is the managing director, who is also a shareholder together with Lireas.
Lireas can access various carefully selected insurance company licences for their UMAs. This includes working closely with our sister company, Compass Insurance (Pty) Ltd, which provides an outstanding platform to many of our UMAs. Last but not least, we have access to Hannover Re reinsurance capacity, knowledge and support. No other company in the insurance market has this business model.
 
5. What are Lireas’s challenges?
I think the biggest challenge we have is remaining relevant to our business partners. We are very aware that in the initial stages of a start-up we provide a lot of assistance in the form of capital and business experience. As the business grows and matures, we need to continue to add value to our partners and this isn’t always easy.
Investing in people and ensuring suitable succession planning is also a challenge. Succession is a particular challenge in small businesses, because very often they cannot afford to have a so called ‘number 2’ in the business. This means that the owner manager is ‘the business’ and hence stakeholders in that business are very vulnerable should something happen to the owner manager. Finding a capable replacement is never easy!
And what would a conversation on challenges be without a brief mention of binder regulations? These regulations, which were promulgated some two years ago, have a potentially huge impact on the sustainability of our UMAs. Our business model, which has worked successfully for the last 25 years, is threatened by these regulations. But I am confident that our businesses are stable and established enough to weather this storm.


6. What are Lireas’s top achievements over the years?

• Being a pioneer of the UMA model in South Africa and having the vision to implement this model is probably the single most important achievement in the history of Lireas. Without this spirit and foresight, Lireas wouldn’t exist and perhaps many of our older UMAs would not have started. So enormous credit must go to the previous CEO of Hollandia, Steve Murphy, who believed in this model and was willing to take the risk.
• In 2001, with 44 investments, Lireas had a very large loan to its shareholder, Hannover, of R100 million. Lireas was not making money and we were invested in many businesses we simply didn’t know much about. We were faced with a simple reality: disinvest from loss-making businesses and refocus, or go out of business. It all seems so obvious today but during that dark time, the decision wasn’t so obvious. Anyway, we took the decision to focus on the core business of UMAs and in 2006 we had repaid the Hannover Re loan in full.
• The other memorable achievement was getting our B-BBEE shareholder, Mahogany, on board. We had engaged extensively with a number of potential suitors but none of them felt right. Having already known Taurai Muranda for a number of years, it was only natural to have discussions with her and her recently formed company, Mahogany, at the beginning of 2005. In December 2005 Hannover Re concluded a 49% sale of shares to Mahogany Private Equity. This partnership has worked so well over the years to our mutual benefit and we greatly value the relationship that we have with Taurai and Tono Pinillos at Mahogany.
• I wouldn’t like to single out any specific deal that we have done over the years as being more special than another one, but I believe that we have started to become particularly successful in mergers and acquisitions. I believe that the skills learned in the mergers we have put together thus far will stand us and our partners in good stead for the future, as there is a lot of consolidation in the market at the moment.

 

Copyright © Insurance Times and Investments® Vol:26.8 1st August, 2013
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