With Fortis set to take over from UKI Partnerships as the general insurance partner on Tesco Personal Finance's motor and home business, Jonathan Swift looks at what this may mean for the respective firms.
With the confirmation that Fortis is to takeover from UKI Partnerships as the general insurance partner for Tesco Personal Finance's motor and home business, attention has turned to the consequences for the outgoing and incoming partners.
For Fortis, the deal could catapult the business into the top 10 UK insurance groups. According to Post's rankings last year, compiled by AM Best, the insurer had gross written premium of £758m in 2007, while the Tesco motor and home books are said to be worth a minimum of £500m.
Added together, this would have - ironically - ranked the insurer almost on a par with UKI Partnerships in 2007, as it had GWP of £1.24bn. However, one insurer's gain is another's loss, and the transfer of the TPF account will significantly impact the Royal Bank of Scotland Insurance subsidiary (see table 1).
The loss marks the latest in a recent pipeline of contracts that have not been renegotiated or lost by UKI Partnerships (see table 2), which has seen the business shrink from a peak of £1.43bn GWP in 2004.
Despite this, an RBSI spokesman has insisted that the group remains committed to the partnership sector.
"The strategic direction of RBSI has been made clear for some time - we are focused first and foremost on growing our wholly owned insurance brands. While partnerships remain important to us, we will only seek to retain existing partners and expand in that area, if the returns for both parties are appropriate," he added.
"We have had a long-standing and fruitful relationship with the TPF business as a joint venture, but it has not come as a surprise that the newly independent business is seeking a new partner to provide it with some of its insurance products on revised terms."
According to a statement released by Tesco and Fortis last week, the partners expect to jointly create 1500 jobs as a result of the contract win, although neither party would add anything other than that the roles would be based in the UK.
There was no mention of whether any of the roles could be transferred from UKI Partnerships to either Fortis or TPF under The Transfer of Undertakings (Protection of Employment) Regulations. As such, RBSI - which made 100 people redundant from the Leeds-based UKI Partnership business in 2006 - is presently circumspect about the impact the contract loss would have on its staff.
"We have yet to be served notice by Tesco for the transfer of the business, so it firmly remains ‘business as usual' for all our people until such time notice is served," the RBSI spokesman commented.
"We will work closely with Tesco over the coming months to ensure a smooth handover and to keep disruption to our people to a minimum. Customers can rest assured that they will not be affected by this announcement."
However, a source close to the bank indicated that rather than being simply dumped for a more attractive partner, RBSI had been approached to retender for the business, but declined.
The source added: "As part of the joint venture with the bank, RBSI had a profit-share agreement with TPF, but the terms of the new deal that was offered were of a manufacturer-supplier agreement and in that context the bank decided not to get involved.
"As such, the fact that the business has moved to another insurer is not a great surprise, and RBSI has planned for the future with that very much in mind."
The source also commented that because of the JV terms before, it was not in RBSI's interest to chase TPF clients in whom it already had a financial interest, but that the change in ownership opened up opportunities for the bank's owned insurance brands. UKI Partnerships still numbers Virgin Money, Mind, Egg, Prudential and Lloyds TSB among its affinity clients.
Having selected Fortis to replace UKI Partnerships, TPF claimed the new deal will allow it to take "greater control of pricing and the development of new products", and that its new insurance partner "will bring considerable expertise on underwriting and claims management".
Tesco director and chief executive of retailing services Andrew Higginson added: "This is an important strategic move in the development of TPF under Tesco's sole ownership. General insurance is a key area for TPF and this partnership with Fortis will enable us to take it to the next level. I am delighted to be working with them at this exciting time for our business."
Benny Higgins, chief executive of TPF, continued: "Tesco already has a successful insurance business with a track record for keen pricing and great service. This new partnership with Fortis will provide us with the flexibility to build on this success and grow the business further by providing customers' with innovative new products and great value."
But there is scant detail about how the TPF business will be handled as the final binding terms have yet to be agreed, although the contract is expected to be signed within two months.
In the joint statement from Tesco and Fortis, all that was said regarding timescales and how the parties would work together was that they "could be underwriting new business and renewals from the second half of next year through a newly formed entity".
Whether this new vehicle sees TPF involved in risk sharing remains to be seen. A Tesco spokeswoman concluded: "We are in exclusive conversation with Fortis and cannot comment any further at present."
TABLE 2: UKI in the news
July 2008 Loses contract to provide insurance for General Motors UK's Vauxhall, Saab, Chevrolet, Cadillac and Hummer brands to Provident.
May 2007 Loses Help the Aged to LV.
July 2006 Loses Pearl general insurance renewal rights to Lloyds TSB.
June 2006 Makes 100 people redundant.
Loses RSPCA pet insurance to Axa.
Extends Nationwide household deal until 2012.
December 2005 Loses Alliance and Leicester motor.
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