Royal & Sun to buy another arm of failed insurer

Royal & SunAlliance was yesterday about to sign a deal to buy more of the defunct Independent Insurance, following its agreement on Friday to take on more than 250,000 of the company's existing policyholders.

Royal is now in advanced talks with Independent Insurance's liquidators, PricewaterhouseCoopers, with a view to buying the insurer's loss-adjusting arm, Property Casualty Services.

A Royal spokesman said: "I can confirm we are in discussions with PwC about a possible deal. We don't expect an outcome until next Tuesday at its earliest." He refused to discuss what price Royal would pay for the business.

Royal has already agreed to take on 200 of Independent Insurance's 2,000 staff as part of its agreement last week to provide cover to 250,000 council tenants and to take on certain commercial insurance customers.

If Royal buys all of the loss-adjusting business, it will add a further 300 staff and a business that last year generated turnover of £17m and profits of £400,000.

Loss adjustment applies to both the company's personal and commercial lines. Its role is to consider costs of claims made by customers and make its own assessment of what pay-outs should be.

Separately, general insurers are bracing themselves in expectation that they will be asked to cough up hundreds of millions of pounds of extra funds to cover Independent Insurance's liabilities, created by its need to meet obligations to pay policyholders' claims.

The industry will have to cover a large part of these claims – which could come to about £1bn – via the Policyholder Protection Board. The PPB levies a charge from general insurers to cover costs when one of the industry's participants becomes bankrupt.

The PPB can levy up to 1 per cent of insurers' premiums, which would equate to more than £260m for the whole industry. This would be a huge leap in what insurers are accustomed to paying. Last year there was no levy, and in 1999 the charge was a negligible overall £270,000.

One insurer said yesterday: "We are anticipating a charge of around 0.8 per cent from the PPB, which is pretty boring, but we should all have shouted louder about what was going on at Independent."