Insurer predicts pounds 6m costs

TRADE Indemnity, the insurance and credit-risk company, said it was unlikely the net cost to its profits of an Appeal Court decision last week on compensation for pensioners would exceed pounds 6m, writes Peter Rodgers. The pensioners lost money on home income plans.

The company said its exposure was linked to the bankruptcy of small financial services companies following the collapse of their home income plans, whereby pensioners sell their houses for a percentage of market value but retain the right to live in them for life.

Trade Indemnity's exposure stems from an insurance policy taken out by the Investor's Compensation Scheme. Last week the court removed the scheme's freedom to put a ceiling on compensation claims from pensioners. So far pounds 22m has been paid out but the door is now open to new claims.

Home income plans proved a disaster when property and financial markets crashed but interest rates on mortgages rose, causing a flood of compensation claims.

Trade Indemnity said it could not quantify the cost, but its estimate was after reinsurance on a policy it wrote in April 1990, expiring in March 1992.