Daily briefing: Tuesday - ARP pain keeps Elite out

The solicitors’ professional indemnity insurance market is never far from controversy. Today we reported that Elite Insurance Company has performed an about-turn on its planned entry into the sector.

The insurer laid its reasons for this U-turn flat out on the table. They date back to April, when the Solicitors Regulation Authority (SRA) announced its wide-ranging reforms of solicitors’ PI. The biggest focus was placed on the controversial assigned risks pool (ARP), where solicitors end up if they can’t buy cover on the open market. Insurers wanted the ARP scrapped. However, the SRA decided that it will not be replaced until 2013. Insurers, which have forked out £100m between 2005 and 2009 on the ARP, described the reforms as “disappointing” because the costs are escalating. There was a second blow in April as a £38.6m cash call was ordered by Capita, which administrates the ARP, to cover outstanding claims from prior years.

Elite said its decision not to enter the solicitors' PI market was based solely on the lack of “essential changes” to the ARP and the rules governing policy wording. It also pointed a finger at that cash call, complaining that it had led to an “even greater” hardening of reinsurance rates in the market.

On second thoughts …

So what effect will this have on new entrants? A number of insurers, including Catlin and Hiscox, pulled out of the market last year and have refused to return to what has been described as a “bloody mess”.

Managing general agency Ink Insurance is an exception, and is looking to expand in the sector after making its debut last year. It is currently searching for new capacity providers to feed its growth. There is also talk that other new entrants are on the cards. Speaking at the Sole Practitioners Conference in Harrogate last month, Prime Professions managing director Richard Brown said he was close to agreeing terms with two new insurers that were on the brink of entering the solicitors' PI market. Could they be having second thoughts as well?

Fitter than at first glance

Today we also revealed the 2010 accounts of Kwik-Fit Insurance Services, the broker that was bought by Ageas UK for £215m last year. Despite Kwik-Fit being pushed into the red by a one-off £13.4m charge from the Ageas acquisition, the results show it would have performed better than in 2009, with profit on ordinary activities before exceptional items up 9.3% to £11.9m in 2010, compared with £10.9m in the previous year. Turnover also jumped 4%.

The overall loss won’t dampen the spirits at Ageas too much. With the company writing profitable business, the challenge now is to establish a way of continuing down that path by creating cross-selling opportunities across the rest of the Ageas UK portfolio.

Danny Walkinshaw is digital news editor