Premium financiers call for calm over market instability

Premium finance providers have moved to reassure brokers that their market is stable and not exposed to the turmoil that has been plaguing the financial markets. The credit crunch has seen institutions such as Lehman Brothers, Bear Stearns, Merrill Lynch and Halifax Bank of Scotland (HBOS) either collapse or become the subject of a fire sale, which has led brokers to question the immediate stability of their finance providers.

Premium finance firms are reliant on the liquidity of the markets to lend to brokers, but industry sources have suggested that funding for premiums could suddenly dry up.

Lyndon Wood, chief executive officer at Moorhouse, said: "It's all up in the air and we are reviewing our facilities. It should be a concern for brokers but this is a difficult one. Premium finance is a major source of income for many brokers and if their provider stopped lending, then the knock-on effects could be significant.

"I don't think there is anything brokers can do to mitigate the risk - how do you gauge how stable these firms are? They are not transparent enough on where the financing is coming from," he added.

However, Tim Wilson, sales and marketing director at Close Premium Finance, said that although there had been some instability in the sector, its parent group, Close Brothers, was not as exposed as others. "We have made three acquisitions - Amber Credit, Aascent and Kaupthing Singer & Friedlander PF - and none were safe as they were involved in unsustainable lending. Their parent companies had run out of funding," he said. "Close Brothers has no exposure to US sub-prime, doesn't trade in derivatives, has no investments in merchant banks and its deposits are greater than its lending."

Richard Welsh, head of Premium First, added: "We don't have the restrictions of other providers as we don't have to go to other banks for funding. All financial institutions are under pressure but we are backed by international banking firm BNP Paribas, which makes us part of one of the most stable providers."

However, there was a word of warning from Nick Elliman, head of sales and marketing at RBS Finsure: "Although debt is rising, it is still manageable and we feel that brokers can be confident that premium finance providers are here to stay. That said, it's advisable for providers to be more discerning in who they lend money to and they will probably have to charge higher rates due to increased risk and the cost of funding."

Robert Marshall, director at Advanced Insurance Services, said: "Regardless of the identity of the parent company, premium finance providers have to get their money from the markets. Even if the provider was part of a large bank, it is not necessarily safe. I don't think anyone would trust a bank any more.

"I can see funding for one of the providers drying up - anything is possible in this market. When banks don't want to lend to each other, there is an inevitable trickle-down effect."