Founded in 2004 by Chris McCann, a scion of the Fyffes business dynasty, XS Direct specialises in selling motor insurance in the Irish and British markets. The company operates as an agent and broker, and has built up its market share through a combination of organic growth and acquisition.

However, like many insurers, the Dublin-headquartered business has endured a painful number of years. Having seen its customer base fall after hiking prices, it was faced with a major decision: Inject more capital or take the decision to stop taking new policies and write down its existing policies in an orderly manner.

It has now opted for the latter. The company has confirmed to The Currency that it has ceased renewals for both direct customers and brokers in Ireland.

In a statement, a spokesperson for XS Direct said that the announcement follows an extensive period of restructuring and efforts to secure alternative capacity for its business. “The last two years have been an exceptionally challenging operating environment due to the Covid-19 pandemic and the impact of Brexit, given that 90 per cent of XS Direct’s business is based in the UK,” the spokesperson stated.

“XS Direct is now entering a process of consensual orderly run-off that will take place over a period of 12 months. As a result, staff at XS Direct’s Dublin headquarters have been informed that they will be made redundant over this time and the company is now engaging with impacted staff on necessary arrangements.”

The company added: “While XS Direct will remain a trading entity it will not seek to renew existing or attract new business. Existing policies secured through XS Direct are not impacted by this announcement. All XS Direct customers and brokers have been contacted accordingly.”

Insurance is a teak-tough business, requiring an appetite for risk and a capacity to absorb losses. Having survived for close to two decades, just what has happened in recent years, and who are the players behind XS Direct?

The company is chaired by Ian Duffy, the former managing partner of Farrell Grant Sparks and now the head of fintech company Accelerated Payments. McCann is the chief executive and has built up its market share through organic growth and acquisitions.

However, the 2020 accounts for XS Direct Insurance Brokers, signed in mid-2021, paint a grim picture. The numbers are poor and the commentary that accompanies them are downbeat.

The accounts point out the issue of funding. The directors said the business was dependent upon “additional funding”, which was not contractually committed at the date of signing the accounts to “satisfy the operational needs of the company over the coming months”.

 “In the event that such a loan facility is not successfully negotiated this may cast doubt upon the company’s ability to continue as a going concern,” the accounts state.

“The 2020 year has been a difficult year for XS Direct,” the accounts state, adding that the company’s net income produced a significant loss as a result “of a combination of factors principally driven by the deterioration in the ultimate loss ratio and claims performance of older years”.

In 2020, it wrote total premiums of €117.7 million, down from €119.6 million for the previous 12 months. The company blamed the fall on reduced demand for its policies as a result of increasing premiums. In addition, it said that demand for motor insurance in Ireland and the UK was reduced as a result of Covid-19.

Commission income in 2019, essentially the company’s revenue line, was €15.7 million. However, this collapsed to €7.6 million in 2020. Much of this was attributed to a profit commission clawback of €4.2 million in 2020. “The adverse provision in profit commission has been driven by the ultimate loss ratio development of older years which are now adequately provided for,” the company said.

The fall in revenue pushed the company from a €2.4 million profit in 2019 to a €3.7 million pre-tax loss in 2020, leaving it with shareholders’ funds of just €270,000.

The directors said that from October 2019, its pricing and data analysts’ teams were working to “implement appropriate ratings, pricing and underwriting changes to return the loss ratio to a range of profitability.”

It added: “These changes have resulted in changes to the composition of our portfolio and an overall increase in the premiums charged for our policies.” Total assets, meanwhile, decreased from €38.2 million in 2019 to €26.4 million in 2020.

In early 2021, the group launched a voluntary redundancy programme which resulted in headcount falling by 20 per cent to less than 100. It has also reduced other costs to align the business with its new revenues base, the company said. 

As a result of the pricing changes, the company said it expected a more stable volume of sales, albeit lower than in previous years, adding that the changes had pushed the business back to profitability. 

So how is behind the business? Following a reorganisation, the group’s new main consolidating company XS Direct Group Investments DAC reported mid-2021 that its founder and managing director Chris McCann, along with five other directors, held shares representing around two thirds of the business across ordinary and preference shares. McCann owned 41.6 per cent of ordinary shares and 46 per cent of preference shares. David Bolger, also a long-standing executive director, came next with 9.7 per cent of ordinary shares and 8.6 per cent of preference shares.

Their board colleagues Stephen Gunning and Maurice Mason had single-digit shareholdings and Pat Swords, who has since resigned as a director, owned 0.25 per cent of ordinary shares. Around one third of shares were held outside the latest disclosure made by these six directors.

Source: Company filings. Click to enlarge image.

Previous investors with a seat on the board included ProcurementExpress.com, the Co Meath purchase management software business founded by James Kennedy and Richard Greenane, and chairman Duffy. Their exact position in the new ownership structure is undisclosed because shares are held through a nominee company controlled by McCann. XS Direct Group Investments reported that some shareholders had exited during the reorganisation.

The holding entity, in turn, owns the group’s two trading companies: XS Direct Insurance Brokers Ltd, which distributes motor insurance in the UK and Ireland, and New PF Ltd, a provider of insurance premium finance products. It also owns a minority stake in an associate UK firm, Eridge Underwriting Agency Ltd and, in February 2021, acquired another British motor insurance broker with a complementary customer base, Kitsune Associates Ltd.

The group relies on Beach Point Capital (BPC) for finance.

The lender took over XS Direct’s debt when it acquired the Irish loan book of its British rival BMS Finance in 2018. Charges registered by the insurance group show that it has refinanced twice with BPC in the past year and a half, most recently through a fresh loan agreement on June 30, 2021.

In late 2020, the XS Direct group reported securing a €5 million loan from BPC “to finance the group reorganisation and the investment in associate, Eridge”, which doubled the amount of the guarantee provided to the lender. Liability for the debt contracted by XS Direct Group Investments cascades down, with XS Direct Holdings next in line in case of a default, while its main trading subsidiary, XS Direct Insurance Brokers, “as additional guarantor, will be liable for any remaining repayments if XS Direct Holdings Ltd is unable to meet its obligations”.

This may affect an investment by Enterprise Ireland, which injected €300,000 into the frontline company last May in the form of 4 per cent convertible preference shares.