The healthy state of the premium insurance finance market is encouraging activity and providing the opportunity for mergers, Howard Lent reports

When credit card company MBNA acquired Premium Credit many eyebrows were raised. What it showed was the healthy state of the premium insurance finance market.

"We acquired Premium Credit because insurance premium financing is a good strategic fit with MBNA's marketing strategy and the assets generated in this business have excellent credit quality," says Richard Struthers, chairman of MBNA Europe.

"Many of Premium Credit's customers are professionals and business owners, who are typical of the kinds of people MBNA has been marketing credit cards to for years.

"We are also pleased that the insurance premium financing business offers good returns, excellent growth potential and low credit losses," he adds.

The business model works. In 2003, the company generated £2.5bn of gross advances and had £815m in outstanding loans, an increase of 17% over 2002.

Premium Credit receives monthly payments from customers over a period generally shorter than the life of the policy, which is typically one year. Many loans renew when the following year's insurance premium is due.

Finsure, the NIG-owned premium finance provider, only last week was renamed RBS Finsure to benefit from its RBS parent branding.

Trevor Brittain, managing director of RBS Finsure, says: "By including RBS in our name we bring the strength of a well known customer brand to the premium finance market."

But he says that the service has to match the name. "It's essential to us that we retain the personal touch and agility that has always been central to our approach, and balance it with the many customer benefits provided by the RBS group."

And in January, Insurance Times revealed that an insurer is tipped to buy premium finance provider Premium Credit in a deal that is thought to be worth up to £300m.

Rumours suggested that an announcement was expected imminently. Names associated with the deal include AIG, AXA and Norwich Union.

One source said: "AIG has been in the market before so I'm not too surprised, although I would have thought Norwich Union or AXA may have been more likely. It's a lot of money to spend and the insurer will have to put in capital on top of that.

The fact remains that mergers will continue in this sector because the opportunities exist. IT