Another unrated indemnity insurer is “likely to be put into liquidation”, the Solicitors Regulation Authority (SRA) has warned.
The news comes as the SRA announced that it will not introduce a ban on unrated insurers.
Having consulted on whether to require a minimum B rating, in a brief statement issued this morning, the SRA said: “The SRA has decided not to implement the proposed change at this time, but will keep this under review.” The full reasons should be made public later today.
European Risk Insurance Company (ERIC) was a qualifying insurer during the 2011/12 indemnity year and wrote insurance under a “fronting arrangement” with Latvian insurer Balva, the regulator said.
Balva had insured around 1,500 firms before the Latvian regulator prevented it from writing any new policies or renewing any existing policies in the UK in March 2013. The insurer is now in the process of being wound up.
The SRA said the “difficulties experienced by Balva have had a knock-on effect on ERIC”, based in Iceland.
“The Icelandic Financial Supervisory Authority gave notice that it had withdrawn ERIC’s operating licence with effect from 12 February 2014 [for no longer meeting minimum solvency requirements] and it had appointed a three-person resolution board to review the business with a view to managing the portfolio towards a sale.
“In the absence of a sale the company is likely to be put into liquidation. Indications are that this is likely to be a relatively short process. At this point in time ERIC is still accepting claim notifications but is not in a position to pay defence costs or settle claims.”
The Financial Services Compensation Scheme (FSCS) declared ERIC to be in default on Monday last week, meaning that the scheme can accept eligible claims from firms and individuals.
The SRA added: “The SRA has been keeping in contact with ERIC and Balva, as well as the Financial Conduct Authority, and understands that the solvency positions of these insurers should be further clarified in the coming weeks.
“The liquidator appointed to wind up Balva is in the process of gathering all the claims by creditors, after which a report will be made to the Latvian Financial and Capital Market Commission and decisions will be taken as to the solvency or otherwise of the company.”
The FSCS said the vast majority of ERIC’s UK customers were expected to be covered by the scheme and it was working with the firm’s resolution board to assess the position of UK policyholders.
FSCS chief executive Mark Neale said: “FSCS will pay any protected claims as quickly and efficiently as possible. For the time being we understand existing policies remain in force.”
Irish insurer Quinn went into administration in 2010, while Lemma, based in Gibraltar, experienced an ‘insolvency event’ in 2012.
In January the SRA issued its consultation on whether to ban law firms from relying on unrated insurers, following pressure from the Law Society and others. It is also emerged last month that the Yorkshire Building Society group will demand that all firms on its conveyancing panel use rated insurers from 1 October this year.