Weekly briefing: 15-21 July - Big bangs

Danny Walkinshaw: Mega broker, mega fine

Haven’t we been here before? The FSA this morning imposed a brutal fine on Willis of almost £7m for breaches of its handbook, relating to bribery and corruption controls. The news out of Canary Wharf today echoed similar scenes two-and-a-half years ago. Back then, Aon was hit with a New Year’s bang, fined £5.25m by the regulator for similar failings.

When comparing both cases put forward by the regulator, there are some similarities. Both relate to situations that began in January 2005, where payments were made to overseas third parties. And both relate to "suspicious" payments made to overseas third parties to win business. The payments made by Willis ended in December 2009, two years longer than those paid at Aon, and Willis’s "suspicious" payments totaled £27m, compared to $7m (£4.3m) made by Aon. That could go some way to suggesting the size of the record fine that the FSA hit Willis with. With Willis the second ‘mega broker’ to be exposed, what now for the rest?

Ben Dyson: Giles a gift for CBG?

Giles’s offer for CBG, if it materialises, looks like a win-win. Giles will get a fair bit of broker for its money, and CBG will be free of a stock market listing that has done it few favours in recent years. Giles’s 32 pence-a-share offer values CBG at just over £5m. However, for this outlay, Giles will get £5.4m of tangible assets, based on CBG’s balance sheet of 31 December 2010.

By some measures, Giles will be acquiring a loss-making company. CBG made a loss after tax in 2010 of £661,000, compared with a profit the previous year of £187,000. However, Giles puts more stock in Ebitda. On this basis, CBG made a £1.4m profit. While this is almost half of 2009’s adjusted Ebitda of £2.6m, it came in a difficult year for all brokers, and the 2009 result indicates that CBG is capable of better in stronger markets.

From the CBG perspective, the stock market has not been kind to the broker of late, and a respite provided by a purchase could prove attractive. Its stock trades infrequently and its value is low. Even with the recent surge to 28.96p, it is still trading below the 37.88p it debuted at back in 2003, and a very far cry from the almost £2-a-share levels it was hitting towards the end of 2007. That said, offers below tangible asset levels can be unpopular with shareholders, and both Giles's and CBG’s board may have to do some smooth talking.

Sam Barker: Solicitors' PPI troubles

The past week has once again put solicitors' professional indemnity insurance in the spotlight as we revealed a number of stories relating to the sector. The first was that a broker in Bury had been arrested for selling fraudulent solicitors' professional indemnity policies. Clive Hesketh, 47, was arrested on suspicion of false representation and has been bailed pending further inquiries. Hesketh headed up Lakeland Technologies, trading as Pinnacle Insurance Services, based in Market Street, Bury. The company is not related to Pinnacle Insurance plc.

The second story was that the Solicitors Regulation Authority has toughened up insurer regulation following complaints that some were bending the rules to avoid paying their fair share of Assigned Risks Pool (ARP) costs. However, some sources showed concern that underwriters might find loopholes in the wording of the Qualifying Insurer's Agreement 2011. Last year, some professional indemnity insurers believed that their rivals were paying less than they should for ARP solicitors' unpaid claims.

Saxon East: Law Society sees sense

So insurers were finally cleared of racial discrimination by The Law Society. And about time too. The Law Society initially suggested last year that there were discriminatory practices going on when it had urgent discussions with the ABI about “the ways in which BME [black minority ethnic] solicitors appear to have been disadvantaged during the 2009 renewal round with a view to erasing that disadvantage this year”. The Law Society complained that there were a disproportionately high number of BME firms in the ARP. But the Law Society now concludes that the size of the firms rather than the ethnicity was the problem.

Did anyone seriously believe underwriters would be so crass as to slap lawyers with premium hikes based on race? To be caught doing so could have resulted in serious consequences for the insurer. Thankfully, no insurers were named in these erroneous allegations. But the lesson from this little tale is that organisations should think very carefully before making accusations surrounding ethnicity. Mud sticks.

Liz Bury: UK leads in Solvency II prep

Solvency II project managers are facing a huge challenge in introducing real change to their organisations. Being seen to do the right things in terms of data, risk management and decision-making won’t wash with the regulators. Insurers need actually to change the way they evaluate and manage the risk within their business. Once they’ve achieved the Pillar I aims of calculating the capital requirement (a huge challenge in itself), insurers will start to tackle Pillar II.

The project team that has so far been mostly confined to tech/finance, will need to infiltrate boardrooms and find ways to persuade senior management to embed Solvency II principle into the business. It’s no small challenge. In this month’s edition of The Knowledge, Insurance Times shows how UK GI is leading Europe in getting to grips with Solvency II, and considers the challenges still ahead.

David Blackman: Fighting for fair fees

This weeks Insurance Times is a regulation special issue to mark the first anniversary of our Fair Fees campaign, which seeks fairer treatment regarding brokers' fees and levies. Over the past year, nearly 500 Insurance Times readers have signed the Fair Fees petition. Just to emphasise that the problem of excessive fees is not going to go away soon, we reported this week how failed payment protection insurance provider Wilmslow Financial Services left behind claims liabilities of £50m when it went into administration two months ago. These liabilities look set to hit the general insurance intermediary bracket of the Financial Services Compensation Scheme (FSCS), reinforcing the need for a review of the way it is structured.

In an in-depth special on the Fair Fees campaign, we examine how the fees issue has unfolded over the past year, why there has been no progress on the long-delayed FSA review of the FSCS and the implications of the new and more intrusive approach to regulation being developed by the Financial Conduct Authority.

The regulation issue also features an interview with top Euro-supervisor Gabriel Bernardino. As chairman of the recently established European Insurance and Occupational Pensions Authority (Eiopa), Bernardino has a crucial role in the development of Solvency II. He talks about why what looks like a delay to the directive isn’t a delay, and the implications of the Eurozone debt crisis for the continent’s insurance sector.