Investee Company Update – Nexus Underwriting

Date: 14 December 2020

B.P. Marsh & Partners Plc

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

Investee Company Update - Nexus Underwriting Management Limited

B.P. Marsh & Partners Plc (AIM: BPM), the specialist investor in early stage financial services businesses, is pleased to present an update on one of its investments, Nexus Underwriting Management Limited ("Nexus"), the independent specialty Managing General Agency.

Background on Nexus Investment

B.P. Marsh first invested in Nexus in August 2014, investing £1.6m for a 5% shareholding. Since that time, B.P. Marsh has invested a further £9.5m in Nexus and has increased its holding to 18%, representing a total cash consideration of £11.1m.

Since the Company first invested in Nexus, their business has grown from a Gross Written Premium of £50m to a budgeted figure of £344m in 2020. Over the same period, Nexus' EBITDA has increased from £2.6m to a forecast of £14.5m in 2020, which represents a compound annual growth rate of 33.17%.

At its most recent valuation on 31^st July, B.P. Marsh valued its 18.1% shareholding in Nexus at £40.3m, which represents an increase of £29.2m over the total amount invested, which would represent an internal rate of return of 36% (including income).

Nexus is now a business with over 250 employees, representing over 30 underwriting partners, operating in 15 specialty business classes and offering over 150 proprietary products.

From being originally focused on writing UK based business, Nexus has grown its international footprint enabled by the Group's investment, now having representation in 9 countries around the world, namely France, Germany, Netherlands, USA, Italy, China, Hong Kong, Malaysia and Ireland.  

Nexus has historically doubled in size every 36 months, and the Group sees no reason why this growth trajectory would not continue. The Management team at Nexus have set a goal of Gross Written Premium approaching US$1billion by their 2024 Financial year, and the Group has confidence that this target will be met.

As at 31^st July 2020, the Group's equity valuation of Nexus represented 28.3% of the Group's total Net Asset Value. Given the current strength of Nexus, and its growth aspirations, we have every confidence that the valuation of Nexus will continue to grow over the coming years.

Recent Trading Performance

Whilst few businesses can escape the economic challenges posed by Covid-19, through its diverse and specialist product offering Nexus has proved resilient, and is in a position of strength to take advantage of the opportunities that may arise going forward.

This resilience is demonstrated by its performance, with Nexus presently in line to achieve its original pre-Covid budget.

Since Nexus reviewed the potential impact of the pandemic back in March 2020, the majority of its business has performed better than originally expected. The main contributors to this positive performance are Nexus' UK and US Financial Lines business, as well as the Trade Credit division.

Dan Topping, Chief Investment Officer of the Company and non-executive director on the Board of Nexus, commented on Nexus' performance:

"Whilst Nexus has not been immune to the impact of Covid-19, the Group has been pleased by the response of our partners at Nexus to adapt and work towards solidifying their long-term strength.

"Nexus has faced challenges on the aviation side of business, however its other units have performed above expectations, assisted by significant premium pricing increases. This presents a very positive picture looking to 2021 and beyond.

"The Group's ability to source and support investments such as Nexus, with its continuing excellent growth, not only demonstrates how we differentiate ourselves from other private equity firms, but also underpins the strength of our Net Asset Value, both at the current time and looking towards continuing future growth."

Trade Credit Reinsurance Scheme

As part of the Government's Covid-19 financial aid packages to protect business, a Trade Credit Reinsurance Scheme has been established, with the aim of ensuring that trade credit insurance coverage and credit limits are maintained during the pandemic.

Nexus is only one of 9 applicants which were accepted into the scheme, with the government investing £10 billion, it being expected to last for 9 months, back-dated to 1^st April 2020.

For the 9 participants, the Government will indemnify the insurers for trade credit claims meeting certain criteria, on the proviso that the insurers do not increase their rates throughout the pandemic.

For Nexus to be accepted to such a scheme, accredited by the Government, vindicates Nexus' business model and its strong governance framework.

New International Credit and Political Risk Division

On 12^th October 2020, Nexus announced a strategic partnership with Crum & Forster, a US-based top national property and casualty insurance company and wholly-owned subsidiary of Fairfax Financial.  

This partnership has resulted in Nexus establishing a platform in London which will allow Nexus to expand its credit and political risk insurance unit to target UK and European-based insureds.

The business will be fully reinsured by Crum & Forster, with Hamilton Insurance, based in Dublin, (a wholly owned subsidiary of Hamilton Insurance Group) providing fronting capacity for UK and EU based business.

2020 Annual Sunday Times HSBC International Track 200

The Group was pleased to note that Nexus had been ranked at No 78 on the 2020 annual Sunday Times HSBC International Track 200.

The Sunday Times HSBC International Track 200 ranks Britain's mid-market private companies with the fastest-growing international sales.

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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