Our position on unrated insurers. by Nick Garner, CEO Financial & Legal Insurance Company Ltd

Posted by Nick Garner on November 16, 2016

Unrated insurers come under scrutiny from time to time usually following the failure of unrated non-doms such as Gable and Enterprise which left brokers scrabbling to protect clients from loss of cover. This is usually followed by brokers coming under fire for chasing commissions over client protection, but in return they complain that established insurers are not interested in non-standard or higher risk lines, and they have no choice but to place business with unrated providers, often domiciled outside the UK.

While brokers should be aware of the old adage that, if something looks too good to be true, it usually is, there is no reason to tar all unrated insurers, especially those in the UK, with the Gable or Enterprise brush.

FLI is a very successful unrated UK domiciled insurer specialising in legal expenses, and our defending of the unrated specialist insurance sector will hardly come as a surprise. We sincerely believe that UK unrated insurers have an important role to play in widening broker choice. There is no reason why their business with unrated UK domiciled insurers should not continue to thrive and prosper.

It is expensive and time consuming for brokers and intermediaries to undertake detailed checking into the risk profile of unrated insurers themselves. Fortunately, here in the UK we have triple lock regulatory protection. Firstly, PRA and FCA approval acts as a vote of confidence in the insurer, whether or not they are unrated.

Secondly, Solvency II measures financial soundness and applies to all UK insurers, with the appropriate regulator having measures in place to identify issues and to take remedial action. Meeting the regulator’s detailed solvency requirements is testament to a strong financial position, so there is little value (but plenty of cost) in seeking a non-regulated analysis via a rating agency. The cost would flow through to higher customer charges.

Under the new European wide Solvency II requirements insurers will also be publishing certain financial information on their websites and this includes a summary of the new Own Risk and Solvency Assessment Report (ORSA), which is an analysis of a firm’s current and forward looking solvency assessment over the medium to longer term.

The final element of the ‘triple lock’ is compensation. UK-based insurers contribute to and are also protected by the FSCS (Financial Services Compensation Scheme).

Our message is to highlight that there is a distinction between UK unrated insurers and those from other jurisdictions, where the cases of Enterprise (Gibraltar) and Gable (Liechtenstein) mean the depth of regulatory scrutiny is open to question.

It should also be borne in mind that rated insures have failed, even in the UK. AM Best gave an A-rating to Independent Insurance in April 2001, two months before it ceased trading. By contrast, LV=, a mutual and one of the UK’s biggest insurers in life and non-life, is unrated.

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