Category: Specialist underwriting · Reviewed by Tim Roche, Director · PI & Commercial · Last reviewed May 2026
A mid-sized solicitor practice with around 60 fee-earners recently asked a question that gets to the heart of a problem brokers face every renewal season. Two quotes sat side by side. Insurer A, with a slightly higher premium, carried an A- financial strength rating from a major agency. Insurer B, undercutting by roughly seven per cent, sat at A. On a headline metric, B looked the stronger counterparty. The broker recommended A. The managing partner wanted to understand why. The honest answer is that financial strength ratings are a useful starting point but a poor finishing point for assessing a professional indemnity (PI) insurer. Ratings lag class-specific decisions, they aggregate across lines of business that look nothing alike, and they tell you almost nothing about whether an insurer intends to be writing your line of cover in three years’ time when an open claim is still being negotiated. What follows is the framework brokers actually use to look behind the rating.
Headline financial strength ratings — typically issued by AM Best, S&P Global, Fitch or Moody’s — express a view on an insurer’s ability to meet its obligations over a defined horizon. They are forward-looking, but they aggregate. A composite insurer might write PI alongside motor, property, marine and reinsurance assumed. The rating is for the legal entity, not the line of business. An insurer can hold an A-range rating and still take a strategic decision to exit a sub-class of PI within a single underwriting year. The rating may not move at all. The class simply stops appearing on the renewal slip.
Ratings also lag. Agency methodologies look at audited financials, prospective capital models and management discussions. By the time a downgrade lands, the market has often re-priced the underlying risk months earlier. A broker who relied solely on the rating in February might be placing an insurance contract in April with an entity whose appetite for the very class being written has changed materially in the interim — without any public signal.
None of this means ratings are unhelpful. They are an essential floor. A B-range insurer is rarely an appropriate primary security for a long-tail PI placement. But a rating is one input, not the answer.
Since 2016, all UK and EEA insurers have been required to publish a Solvency and Financial Condition Report (SFCR) annually under the Solvency II regime. After Brexit, UK firms continue to publish SFCRs under the Prudential Regulation Authority’s onshored rules, and the PRA has consulted on further reform under the Solvency UK programme. A second confidential document, the Regular Supervisory Report (RSR), is filed with the regulator rather than published, but the SFCR is in the public domain and is one of the most useful tools available to brokers.
The SFCR contains several elements worth inspecting on any material PI placement:
Reading SFCRs is not glamorous work. They run to hundreds of pages. But for a placement involving a six-figure premium and a six- or seven-figure limit of indemnity, the SFCR is the public document that tells you most about the entity actually carrying the risk.
PI is a long-tail class. A claim notified in 2026 may not settle until 2032 or later. The accuracy of an insurer’s reserving is therefore central to its solvency. Insurers publish loss development triangles in their annual statutory filings, showing how claims notified in each underwriting year have developed across subsequent calendar years. These triangles are most useful when read across cycles.
A disciplined PI insurer’s triangles tend to show modest adverse development in the first one or two years after the year is closed, followed by stability or favourable development as initial reserves prove conservative. Aggressive reservers — those who set reserves low to flatter early-year combined ratios — show a pattern of adverse development running out three, four, five years later. By the time the pattern is visible, the underwriting management may have moved on, the line may be loss-making, and a strategic exit may follow.
This is not a number you compute on the back of an envelope. But a competent broker placing a material PI risk should be aware of whether the insurer being recommended has a history of releasing reserves or strengthening them, and should ask the underwriter directly where the answer is not clear from public data.
The combined operating ratio (COR) is the sum of an insurer’s loss ratio and expense ratio expressed as a percentage of earned premium. A COR below 100 per cent indicates an underwriting profit. Above 100 per cent indicates an underwriting loss, which an insurer may still run profitably overall if investment income on float compensates.
In PI specifically, sustained CORs significantly above 100 per cent are common during hardening phases and have historically driven insurer exits from the line. CORs in the comfortable 90s during prolonged soft markets have historically masked under-reserving that emerged years later. The most informative read is a five-year trailing COR for the PI line specifically, not the composite figure for the whole insurance entity. Where this data is available — through Lloyd’s market results, syndicate-level disclosures, or specialist publications — it is worth obtaining.
For UK PI placements, two principal markets exist: the Lloyd’s market and the company market. They carry different security mechanisms, and a broker who treats them as interchangeable misses something material.
Lloyd’s operates a chain of security comprising syndicate-level reserves, members’ funds at Lloyd’s, and the Lloyd’s Central Fund. The Central Fund is a mutual reserve that stands behind every syndicate; if a syndicate cannot meet its obligations, the Central Fund steps in. This structure has historically meant that no policyholder has gone unpaid at Lloyd’s because of a syndicate failure since the reforms following the 1990s reconstruction. The Society of Lloyd’s itself has historically held strong agency ratings reflecting the Central Fund and the market’s overall capitalisation.
UK company-market insurers authorised by the PRA participate in the Financial Services Compensation Scheme (FSCS). The FSCS protects policyholders if a regulated insurer fails. For non-compulsory commercial PI the FSCS pays 90 per cent of the protected claim with no upper cap on the protected amount. For long-term insurance and certain compulsory classes the protection is 100 per cent. The position becomes more nuanced where PI is required by a professional regulator — for example, solicitors regulated PI written through the SRA’s participating insurer scheme. Brokers placing PI for regulated professions should check the specific FSCS treatment that applies to that class because the relationship between professional-regulator compulsion and FSCS percentage cover is not always intuitive. The starting position is that commercial PI is protected at 90 per cent.
In practice this means that even at the same headline rating, a Lloyd’s placement and a company-market placement do not carry identical security profiles. Neither is universally preferable; the answer turns on the specific insurer, the specific syndicate, the class within the syndicate’s portfolio, and the firm being insured.
The period following the 2017 cladding-driven hardening saw substantial reshaping of the UK PI market. Multiple insurers withdrew from standard PI lines or narrowed appetite materially. Lloyd’s underwent its well-publicised performance review which led several syndicates to exit sub-classes including parts of the design-and-construct PI book. Consolidation through merger and acquisition further reduced the number of distinct underwriting centres of decision. The market has since softened in some segments while remaining hard or constrained in others — notably parts of construction PI affected by cladding exposure and certain financial-lines crossovers.
The point for a broker assessing security is not to recite the history. It is to recognise the pattern. A class that has seen multiple exits over a five-year window may see more. An insurer that has narrowed appetite in adjacent classes may be reconsidering yours. None of this shows up in an A-range rating until well after the strategic decision has been taken.
On larger PI programmes, limits are built in layers — a primary policy of perhaps £5 million, then excess layers stacking above. It is common, and frequently appropriate, for the security on those layers to step down as you move up the tower. The primary layer carries the highest probability of being hit and is typically placed with the strongest available security. Higher excess layers are placed with insurers whose ratings may be lower but whose participation makes the overall programme economic.
This decremental security pattern is not in itself a problem. But brokers should be transparent with the insured about where the step-downs are and what they mean. A firm whose £25 million top layer is placed with a B-range entity may still have appropriate cover, but the partner-level decision-maker should understand the position rather than assume the whole tower carries the same security as the primary.
PI typically requires run-off cover for six years after a firm ceases trading (longer for some professions, with auditors and certain construction-related work facing extended limitation periods). When a firm purchases a current-year PI policy, it is also implicitly relying on a market that will be willing to write its run-off later — or, if a single-premium run-off is purchased on cessation, on the insurer remaining solvent for the full run-off horizon.
This is the tail security question. It does not have a precise answer. But a broker recommending a primary insurer for a long-tail placement should be asking: Does this insurer have a demonstrated multi-year commitment to the UK PI line? Has its appetite been stable across the cycle? Is the underwriting team experienced and embedded, or recently assembled? Is the parent group strategically committed to the UK market? These soft factors do not appear in an SFCR but they materially affect whether the insurer that wrote your policy this year will be the insurer engaged with your claim five years from now.
The framework Apex applies on a material PI placement comprises the following:
None of these alone is decisive. Taken together they describe the counterparty risk the insured is actually accepting.
Not automatically. The headline rating is for the legal entity, not the PI line specifically. An A-rated insurer can withdraw from UK PI within a single renewal cycle without the rating moving. The rating is a necessary input, but it should be supplemented by class-specific evidence: how long the insurer has written UK PI, recent SFCR data, and the underwriter’s track record on similar firms.
The Solvency and Financial Condition Report is an annual public disclosure required of UK and EEA insurers under the Solvency II / Solvency UK regime. It sets out the insurer’s capital position, business mix, reserves and risk profile. For PI brokers it is the most authoritative public source for solvency ratios, breakdown of business by line, reserve adequacy commentary and reinsurance arrangements. SFCRs are typically published on the insurer’s UK website each spring.
For non-compulsory commercial PI written by a PRA-authorised insurer, the FSCS protects 90 per cent of the protected claim with no upper monetary cap on that protected amount. Where PI is compulsory for a regulated profession the FSCS percentage can be higher, and specific arrangements may apply through the relevant participating insurer scheme. Brokers should check the precise FSCS treatment that applies to the class being placed because the boundary between commercial and compulsory PI is not always intuitive.
Lloyd’s policyholders benefit from the Lloyd’s chain of security culminating in the Lloyd’s Central Fund, a mutual reserve that stands behind every syndicate. Company-market policyholders benefit from FSCS protection at the percentages described above. Both can deliver appropriate security, but they are different mechanisms. A material PI placement should be assessed against the mechanism that actually applies, not against an averaged view of “insurer security”.
Loss development triangles show how claims notified in each underwriting year develop across subsequent calendar years. They tell a broker whether an insurer’s initial reserves were conservative (releasing favourably over time) or aggressive (strengthening over time). Aggressive reservers can flatter early-year results and create capital strain three or more years later — strain that has historically driven exits from the class.
On layered PI programmes the security on excess layers commonly steps down from the primary. A primary layer might carry an A-range insurer while a top excess layer carries a lower rating. This is often appropriate because higher layers are statistically less likely to attach. The pattern is not problematic in itself but the insured firm should understand where the step-downs are and what they mean for the practical security of the tower.
No. The right insurer is the one whose rating, solvency, class commitment, claims handling and price together represent the best value. Paying a premium uplift for incrementally higher security is sometimes worth it; on other risks the next-tier insurer is the better commercial choice. The broker’s job is to present the analysis transparently so the firm can make an informed decision.
Annually at renewal at minimum. On larger placements or where a firm has open claims with a long expected resolution horizon, more frequent monitoring is appropriate — including checking any rating actions, reviewing the latest SFCR when published, and watching for public signals about appetite or strategy.
Apex Insurance Brokers Ltd is an independent UK insurance broker based in Bristol, advising professional services firms on professional indemnity insurance and related covers. The firm is authorised and regulated by the Financial Conduct Authority (firm reference 724952) and registered at Companies House (company number 07014570).
This commentary reflects market conditions as at May 2026 and is provided for general information. Insurance market conditions, policy wordings and regulatory positions change frequently; firms should obtain advice specific to their circumstances rather than rely on general commentary.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
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