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Primary Group: damage limitation begins after R&SA exit

13th April 2007
By James Dieppe

Primary Group has been talking up its Norwich Union deal in a bid to restore broker confidence.

Two Primary Group subsidiaries have written to 300 of their brokers, reassuring them that the company remains a sound underwriter, despite the recent collapse of its binding authority deal with Royal & SunAlliance. While this move may help address criticism of its underwriting, Primary still faces pressure to both restore brokers' confidence and impress new insurance partner Norwich Union.

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The Royal & SunAlliance (R&SA) deal was cancelled two years early, with low business volume and Primary's poor underwriting discipline rumored to be responsible. Two of Primary's main subsidiaries have since emailed 300 brokers to reassure them that the collapse of the distribution deal is not a cause for concern.

Having seen the email, Post Magazine reports that Primary welcomed Norwich Union, which replaces R&SA as a capacity provider, and stressed that both Norwich Union and AXA are "satisfied that Primary is a sound underwriting agency."

The binding authority deal was arranged in 2006 and originally intended to run for a three-year term, with AXA as leading provider, supplying 62% of the capacity, and R&SA supplying 34%. Norwich Union has now replaced R&SA on the panel. The Aviva subsidiary will underwrite 33% of business under the agreement, which has been extended for another five years.

While Primary has welcomed Norwich Union's decision to join the panel, the sudden departure of R&SA has raised questions. Although Primary claims the decision to end the relationship was "mutual and amicable," this is challenged by what the trade press has reported from sources close to the insurer.

These sources have implied that low business volumes and poor underwriting scrutiny were primarily to blame, which is something that Primary's rebuttal does not appear to address. Instead, Primary has sought to reassure partners that it has the confidence of AXA and Norwich Union, and cites the emergence of "differing opinions" as the cause of the cancellation. These, Primary argues, threatened to affect its ability to meet brokers' expectations.

Primary's email appears to be aimed at addressing apparent criticism of its underwriting discipline. However, the collapse of the deal, and the subsequent accusations, have looked bad for both Primary and R&SA.

In contrast, Norwich Union has benefited from an opportunity to distribute through the intermediary. Norwich Union has already stressed that it will be tough on underwriting returns and will monitor rates closely, and, under the circumstances, Primary will be under pressure to deliver good results to the insurer.
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