FSA says there will be no crackdown after fining The Underwriter chief for deferring premium
The FSA said it would not crack down on the Lloyd's and London market following the public censure of former The Underwriter chief executive Keith Rutter.
Rutter was fined £20,000 by the FSA because The Underwriter carried over premium into a subsequent financial year to avoid breaking its capacity limits.
The practice of deferring premium is common in Lloyd's and the London market, according to senior market sources. One Lloyd's insider said that it was common for premiums to be paid 12 months after the risk was underwritten.
A Lloyd's source said: "You can accept a risk every year and there are ways to do it. Satellites are going to be in orbit for several years and want insurance up front so these can be signed for several years or signed every year."
A spokesman for the FSA said: "We would hope firms were not doing this. But the reason for this regulatory action is not so much that they were splitting contracts, but that they were splitting contracts to evade requirements when the firm was authorised."
The FSA set a premium limit of £105m for The Underwriter in July 2001 covering the next 12 months. It exceeded the limit and tried to conceal this by transferring premium into the subsequent year.
The FSA said the onus was on management to bring this to its attention.
It said that Rutter and his firm had been "open and co-operative with the FSA during the FSA's investigations". Rutter said: "I was just trying to help a client."
Lloyd's was unable to comment as Insurance Times went to press.