Stalwart Assurance

Transaction Background

In June 1994 Graphite Capital invested in the management buy-out of Stalwart Assurance. Stalwart specialised in writing home income plans (HIP) for the elderly. These provided customers with an annuity stream for life for which Stalwart acquired a reversionary interest in the customer's property, converting on the vacation of the property. Home income plans are attractive to elderly people who are income poor but capital rich due to the value tied up in their properties.

Deal Attractions

After a rapid expansion in the late 1980s Stalwart was in financial difficulties when we invested. The business needed extensive capital to grow whilst a difficult property market and high interest rates put strain on the industry in the early 1990s. We felt that cyclically this was the ideal time to invest. For demographic and economic reasons demand for the product was set to increase longer term. To meet the capital intensive nature of the business, Stalwart negotiated expansion capital from reinsurers rather than relying on shareholders. This put the company in a strong position to grow rapidly.

Achievements

the business grew premiums from £5 million to more than £100 million in three years
Stalwart was at the forefront of popularising the HIP industry
the business had approximately 70 per cent of the HIP market at the time of exit
the company introduced a number of innovative insurance products with higher premiums for consumers with lower life expectancies (e.g. smokers, the obese)

Exit

in September 1997 the business was sold to a trade purchaser for £43 million
we realised £13 million which was 2.9 times our initial investment
the internal rate of return was 38.3 per cent