Insurer to sell its engineering inspection arm in a management buy-out

Royal & SunAlliance (R&SA) is set to sell its engineering inspection arm, according to market sources.

It is believed that the deal will take the form of a £6m management buy-out (MBO), which will result in a new brand name.

A spokeswoman for R&SA declined to comment, but sources said an announcement is expected in late April.

It is understood that an MBO is the most attractive option for R&SA because it would reduce the risk of losing connected engineering insurance business.

"If the inspection arm was sold to a competitor, R&SA would lose 50%-60% of its [engineering] insurance business," said the source. "This is because inspection and insurance policies are linked. An MBO would prevent this happening."

But engineering insurers fear that the move could lead to a softening of rates in the engineering market.

One source said: "If the new company wanted to aggressively build market share, that could push down inspection rates, which could then drag down engineering insurance premiums."

Rates for engineering insurance are currently flat, but inspection rates are continuing to harden.

R&SA is the leading provider of engineering inspection policies in the market. In 2003, the UK inspection market was worth £169m, with R&SA holding a 30% share. Alllianz Cornhill Engineering has approximately 25% of the market, followed by Zurich.

Engineering inspection services ensure that equipment, such as pressure systems, power presses, lifting and handling equipment, are fit for use and comply with health and safety regulations.