PRI rides the rates boom

Professional Risks Insurance, one of the latest London market insurers to set up stall, began underwriting professional indemnity cover for company directors and professionals on 1 September.

That was little more than a month after its equally young parent company, PRI Group, raised £125 million through a bold Aim placing at 107p a share, carried out successfully at a time when many of the most famous names in the insurance business were on the ropes.

Despite the stock market gloom, the shares have since risen to 117.5p. Co-founder and chief executive Andreas Loucaides says the new underwriting group has got off to an 'excellent start'. Insurance brokers have been 'extremely supportive' in bringing new business to PRI, a state of affairs he claims will continue.

That should not surprise. The PRI team is well known around the market. Loucaides was assistant to Reg Brown, the veteran professional indemnity underwriter on Lloyd's Syndicate 702. The chief underwriting director, Peter Matson, an experienced professional liability underwriter, has been involved with several leading market groups, including XL London Markets.

PRI's management expects the company to lose £1.45 million for the year to December (reflecting only four months' trading). After that, it sees pre-tax profits next year in the region of £8.16 million, rising to £17.17 million after that and £28.73 million for 2005.

Loucaides says PRI contemplates paying a maiden dividend in 2004 – though he says it may seek shareholders' approval to waive it and put the funds into providing more capital to support increased underwriting capacity. Much of the rest of the insurance business is grappling with catastrophic claims, expanding long-term liabilities and dwindling investment returns. PRI claims to be in a much happier position than most.

First, as a new company, it does not have to contend with claims and other problems from past policies. Second, because of the horrors now afflicting the market – with billions wiped off the stock market values of industry pillars such as Royal & Sun Alliance and Munich Re – premium rates are soaring.

PRI will write professional indemnity, company directors' and officers' liability, warranty and indemnity, and general liability insurance. Loucaides says premiums have risen on average by 40–60 per cent over the past 12 months and he argues that rates should stay firm for at least three years.

This forecast is supported by PRI's third encouraging feature. It is writing in 'niche' markets, where the competition is, for now, less tough.

There is a 'huge shortage of capacity' at present, insists Loucaides. There are still some, such as Hiscox, which write this business, but many insurers, keen to prune, have junked professional indemnity as 'non-core'.

The giant French group Axa recently took £50 million out of the market and Lloyd's group Kiln has withdrawn £5 million, not to mention US insurers terrified of the implications of Enron-type scandals, and the collapse of providers such as Independent Insurance in Britain and FAI in Australia.

PRI, which will retain £500,000–750,000 of any risk before passing the rest to reinsurers, says the market for the type of cover it offers is ripe for growth. The Maxwell scandal of the 1990s alerted pension fund trustees to the risks they run and, more recently, charities have been waking up to the desirability of some protection.

'Anyone who provides advice is exposed and needs cover,' argues Loucaides. PRI is targeting the thousands of small-to-medium-sized companies without any form of cover in this litigious age. Prudently, PRI will not write US business, where claims and court settlements remain an insurer's nightmare. Apart from selective European arrangements, it will stick to the UK.

There is always a risk in insurance that, if one sector starts to thrive, too much capital will be attracted into it and rates and the quality of business will fall. Loucaides says the reinsurers will resist this tendency and professional indemnity should be a small enough sector to escape the attentions of the giants – for three years at least.