Towergate Underwriting Group will break into the commercial market with an underwriting and broker network likely to be called the Folgate Partnership. The initiative will be running by spring 2002.
It will be created from Folgate Insurance and a series of large provincial brokers which it intends to buy.
Marketing director Paul Dyer revealed plans for Folgate for the first time since Towergate bought the insurer for about £20m in October.
At the time, Towergate chief executive Peter Cullum said he was ready to spend at least £40m on regional brokerages in 2002 and planned to have a gross written premium of £400m by the end of 2004.
This week, the company announced Folgate would be the core of the new network, underwriting commercial business coming through the brokerages.
"It's a feeder business, a classic vertical integration," Dyer said.
"By buying Folgate, we acquired a well-formatted structure at a stroke - at a time when it's very difficult to recruit technically qualified staff."
Dyer said an announcement on the brokerage purchases was imminent.
He added: "We haven't bought any brokers yet, but we hope to be in a position in the New Year to finalise a lot of deals.
"Some very large brokers will be in there."
Dyer said, like Towergate, the Folgate Partnership would have insurer partnerships with AXA, Norwich Union and ten other insurers, but would not become an insurer itself.
He added: "We won't be retaining Folgate's licence.
"We've been there, we've got the t-shirt and the scars and I don't think we'd ever want to return."
He said its management structure had not yet been decided, but would definitely be separate from that of Towergate.
British Insurance Brokers' Association (Biba) chief executive Mike Williams said brokers would be pleased to have more commercial capacity.
"It'd almost certainly be welcomed as long as they don't trade on a direct basis," he said.
However, HSBC insurance analyst David Hudson said a new market entrant would shorten the up-cycle.
"If you start putting supply back into the marketplace, it will shorten the duration of rising rates," he said.
"We saw this in 1990. We had a hard market then and everyone thought they'd make a vast amount of money.
"They did for the first two years, but they suffered for the following seven."