Personal lines underwriting is turning in healthy profits for the few in that sector Caroline Jordan finds out why.

In volume terms, the amount of personal lines business conducted at Lloyd's pales into insignificance compared to the commercial sector.Just 10% of Lloyd's capacity is personal lines.Capacity in personal lines has been draining from the market, with Gibraltar becoming a refuge. But some of the biggest smiles around Lloyd's right now are on the faces of personal lines underwriters. They are writing risks with a total value of £1.56bn.The resurgence of personal lines is good news for brokers because one thing is certain - Lloyd's will never go direct.Cox has been a stalwart of pesonal lines retail brokers. It pulled out of commercial lines totally, putting this business into run-off two years ago. Cox chief executive Neil Utley says he believes the strategy to concentrate largely on personal lines is right."I believe our underwriting expertise is unparalleled and I don't agree with those who say brokers should be focusing on commercial lines. There are great opportunities and we believe the high street branch has a place."The top performer in the Cox stable is Equity Red Star, the largest motor syndicate at Lloyd's.With premium income at more than £600m, it underwrites a range of motor insurance including private cars, motorcycles, classic cars, and commercial vehicles. Equity Red Star also has household and personal accident accounts and underwrites its own breakdown and recovery service."We haven't made a loss with Equity for 35 years and have been consistently supported by the broker market. We're accessible and it's always possible for them to speak directly to an underwriter," says Utley.

Branching outAffinity specialist Boncaster is another profitable part of Cox. Its clients include Volkswagen, Audi, Age Concern, Royal British Legion, Freeserve, Triumph and Harley-Davidson. The company also provides cover direct to the public online."We're really pleased with Boncaster's performance, although its expense ratio is not as good as Equity Red Star's. We see growth in the affinity market, however, and with a client list like this, we have proved we can offer first rate service," he says.Cox has made a number of major purchases recently including the Bennetts chain and a number of other independent brokers. There are now around 40 branches trading under the insure-shop brand and Utley says there are further acquisitions planned. For brokers looking to retire or sell out, Boncaster provides an outsourcing facility, which provides an exit route, provides the seller with commission or allows them to continue working.The group also purchased HML Marketing in 1999, which is a guaranteeing broker and schemes provider. "This company runs autonomously and is dedicated to supporting brokers. One of its main priorities now is to help them become FSA compliant," Utley says.Chaucer is another big player in the motor market and the fifth largest Lloyd's managing agent.Capacity for 2004 for motor is £110m, up from £96m the previous year - this is out of a total for the group of £769m.Around half of the motor book is private car, with the remainder being fleet, taxis, buses and classic cars.Managing director Ewen Gilmour says Chaucer scores because it takes on risks that direct writers decline. "This might be someone with six points on their licence or who wants to add a 17-year-old to the policy or who might be over 65. We have our own niche. I have nothing against buying insurance at Tesco, they do it well, but it's not for everyone."

Quality of serviceChaucer is presently putting out its forecasts to investors and Gilmour says: "We've had three fabulous years and it's going to be another good one - underwriting conditions remain sound."Apart from motor, Chaucer also has a substantial commercial book, including marine, nuclear, property and reinsurance. "Motor provides reduced risk profile for the group," he comments.Mary Towndrow, head of motor for Chaucer, says she believes brokers have a solid future and is sceptical about insurers that operate both direct and broker arms. "There is always going to be a need for brokers. People always need choice and advice."But she says buying on price remains an issue. "You'll have someone who has bought an expensive car, but wants the cheapest insurance."Chaucer's strategy, though, is quality service. Towndrow says: "We're proud of our claims team and that it means a real voice at the end of the phone, a courtesy car and returning the cleaned vehicle to the policyholder.We've also invested heavily in the latest technology to ensure we're as efficient as possible. Brokers need to emphasise the quality of the insurer's service."

Guaranteed premiumsTowndrow adds that staff at Chaucer are available to talk to brokers on business development issues."We're always interested in new scheme ideas and now that we have our own in-house training academy at our personal lines headquarters in Whitstable, we'll be offering brokers training."Chaucer also works closely with the guaranteeing brokers HML, HSBC and Sterling Hamilton Wright. While it was predicted that these firms would disappear when Lloyd's started taking business direct, Towndrow says this has not happened."We work closely with these companies and, as we have 3,000 brokers with agencies, they help us manage them, by doing credit checks and guaranteeing premiums. They are highly professional and, while we have our own people on the road, they are also regularly talking to brokers and giving us feedback."Sterling Hamilton Wright was being talked about recently as being a takeover target after a fall in profits, but marketing manager Mandy Bush insists: "We are confident about the future basically because our own business continues to grow in spite of the constant challenges that we face. Personal lines still makes up over 60% of our income and 2,500 of our brokers deal in this sector."Apart from its guaranteeing role, she says the company plays an important matchmaking role between brokers and underwriters. "We have excellent relationships with all types of intermediary and can be asked to speak with underwriters on small specialist schemes or introduce large national players to key individuals within the market."The schemes are often put together by Sterling Hamilton Wright and most recently include over-50s householders and high performance cars.

Gibraltar operationsIn the bid to increase profitability, a number of Lloyd's syndicates have in recent years looked to run part of their operations from Gibraltar, as a means of cutting costs. The Rock has lower solvency requirements and its regulatory regime is viewed, by some, as less onerous.Gilmour says he considered this seriously for Chaucer. "We did examine options there and, while there are some benefits, felt that the cost savings would not have been substantial. Lloyd's is also very aware that it is losing capacity and the costs of writing personal lines is coming down in response to this."And Towndrow adds: "It's profit, not volume. We've all learned some lessons. With Lloyd's if you are in the bottom quartile you won't survive."Euclidian is one insurer with a foothold in Gibraltar, to the tune of £60m. Following a major refinancing and restructuring deal, the company will also write £250m through Lloyd's this year. Although it is writing less business compared to last year, when the total was £350m.Euclidian special risks underwriter Chris Ryder-Richardson says the strategy is to look for "distressed portfolios, which we can turn around." As with most other Lloyd's companies, he says, plain vanilla is generally avoided, since nothing can be added.Euclidian is a company that works closely with brokers with a number of successful schemes offered on a delegated authority basis. Ryder-Richardson comments: "We see it as a joint venture and we have regular meetings.We want to work with brokers who are worldly."There is no place for half-baked schemes, only ones that are going to be profitable. We need to see a business plan."

Niche areasThe company looks to cover niche areas where possible, it has a money-making vans product and underwrites kit and classic cars.Euclidian is also one of the UK's biggest caravan insurers. It is also strong in household, with quality standard, mid net and high net products available.He concludes: "Gibraltar will give us more flexibility, but we are also committed to Lloyd's. It's on an upward curve."