Insurer serves six-month notice in wake of poor returns; Norwich Union and Allianz thought to be reviewing their contracts.

See also: Towergate to scale back acquisitions as growth fails to hit targets
For free trial analysis see: Towergate under pressure

RSA has cancelled its binding agreement with Fusion, the commercial underwriting arm of Towergate.

The move is believed to be the result of poor returns driven by high loss ratios and commissions. Fusion’s other capacity providers, which include Norwich Union and Allianz, could follow suit. Both are understood to be reviewing their arrangements with Fusion.

RSA, the lead insurer on Fusion’s specialist risks panel, notified Towergate on Monday that it was serving its six-month notice on its contract after two-and-a-half years.

RSA and Towergate refused to comment. The broker has come under increasing pressure from its insurer partners in recent months, with a number of them stating they would rather lose business than pay sky-high commissions to consolidators.

Fusion was acquired by Towergate in November 2005 and appointed Norwich Union, RSA, Allianz and AXA to provide capacity for its £100m GWP book. It is understood this figure has declined significantly since the acquisition.

A source close to Allianz said the insurer had already rejected a new contract with Fusion. Their agreement is up for renewal at the end of this year.

“The Fusion business has not performed as we would have liked.

Chris Hanks, Commercial Director, Allianz

The source said Towergate could come back with revised terms. “The jury is still out,” he said. “I would expect [Towergate] to try to find a new basis for an arrangement.”

Allianz commercial director Chris Hanks would not comment on the status of Allianz’s agreement with Fusion, but admitted: “The Fusion business has not performed as we would have liked.”

Despite reports that Norwich Union, the lead insurer on Fusion’s standard risks scheme, is concerned about its performance, a spokesman for Norwich Union said it continued to enjoy a strong relationship with the broker.

The move by RSA follows its decision last year to cancel its blockbuster three-year deal with underwriting agency Primary, with sources citing poor underwriting as the reason for the move.

Sources said Fusion, which writes a mixture of SME and high-loss risks, had suffered from poor risk selection and management.

Fusion has seven offices in the UK. In April it unveiled plans to relocate its branch in St Albans because of growing business in the region.