The fixed premium protection and indemnity insurance market has been one of the most active sectors in terms of corporate activity over the past two years.
Brokers suggest the market is ripe for consolidation after two decades of growth and, following a recent injection of cheap capital, over capacity in the market.
Premium income has also stagnated at around $400m per year.
Thomas Miller Speciality has been the most active in acquiring fixed premium companies, although they have been maintained as standalone outfits and not been directly integrated into the UK Club as fixed premium services to its members.
Common management with clubs may help, but we believe the integrated facilities are likely to have more bargaining power
Tysers
Most recently, Thomas Miller bought fixed premium provider Hanseatic Underwriters to add to its previous acquisitions of Osprey and Navigators to give it the biggest stable of companies in the market.
Flotation chatter
The move is part of a wider strategy to build up a full insurance service grouping including claims management, technical services and even law firms. The general view in the market is that it has its eye on a future flotation.
However, in a recent commentary, insurance broker Tysers questioned the commercial rationale behind keeping the fixed premium units separate from the main mutual.
“Common management with clubs may help, but we believe the integrated facilities are likely to have more bargaining power,” it says.
Tysers added that it is a waste for the fixed premium units not to be able to use the claims-handling capability of the mutual.
Indeed Tindall Riley, managers of the Britannia Club, opted to sell its fixed premium unit — Carina — to the Mecca Group last autumn. The firm took the decision because the unit did not sit comfortably with the business streams of the main P&I mutual and had been kept entirely separate. However, the Britannia Club is now the only International Group member without some sort of fixed premium facility.
The American Club has successfully married its P&I services with its fixed premium offering — Eagle Ocean Marine (EOM) — and the strategy has paid off for the mutual even in a difficult fixed premium market.
'Sustainable profitability'
“EOM has employed a highly conservative risk selection and pricing model," American Club chief executive Joe Hughes says. "It has grown its market share cautiously, impelled by the paramount need to provide sustainable profitability both to the American Club and to EOM’s coventurers at Lloyd’s.
“EOM has had the advantage of deploying gold standard International Group club service capabilities, a real differentiation in a very competitive market. Happily, this careful underwriting approach has been highly successful; EOM having delivered substantial profits to the American Club’s mutual members over recent years.”
