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PI mutual gets FSA go-ahead

The FSA has given its official blessing to a new professional indemnity mutual insurer for IFAs, the first new entrant to come to market since the PI crisis escalated last year.

It stems from underwriting agency PI Direct buying rival Magian and launching Magian Mutual which will only sell to IFAs.

In its first year, it plans to underwrite premium income of £15m, increasing to £25m by year three.

FSA head of investment firms David Kenmir says it is a good move for the marketplace that will create much needed capacity.

Magian had been in the IFA market for six years, but withdrew when its capacity expired in January.

The existing Magian book of 750 IFA firms will see their coverage continued.

IFAs will face a strict underwriting process before being offered cover in a bid to limit claims. They will pay premiums as well as a levy to Magian for underwriting companies. Any excess profits will be returned to members but they will have to make up any losses which may develop.

Magian mutual spokes-man Bruce Heasman says: “IFAs accepted into the mutual will face a very tight underwriting process.They will have to pay a levy towards the administration of the scheme. Ultimately, any profits will be returned to IFAs but we will also go back to them if there is a loss.”

Kenmir said: “This week, the FSA authorised a new PI provider for IFAs. This new provider is a good opportunity for the rest of us to have a little easier time throughout the summer.”

Aifa director general Paul Smee says: “The increase in capacity is welcome because it shows there is some interest in offering cover to IFAs. However, this is not the whole answer to the PI crisis, there is still a need for industry support and regulatory imagination for a long-term solution.”

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