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Praestar joins forces with Mutual & Federal

21 September 2010 Mutual & Federal

Mutual & Federal, one of South Africa’s leading short-term insurers, has acquired a 40% shareholding in Praestar Administration Services, an underwriting and administration manager specialising in performance bonds and guarantee products. Mutual & Federal executive general manager: Sales and Marketing, Caroline da Silva has also been appointed as a non-executive director to the Praestar board.

Da Silva says, “Mutual & Federal has joined forces with Praestar to professionally service the guarantee segment of the insurance market. Praestar management has many years’ experience in these niche markets and the choice of Praestar was an obvious one. It has the focus and expertise to operate in this area of business and the determination to succeed.”

Retired Mutual & Federal general manager (Financial Director Support) Chris Kemp is Praestar non-executive chairman, and Da Silva is second non-executive director. Executive directors, who are also the majority shareholders, are Jeff Whindus as managing director, Henry Ansara and Peter Muller.

The nature of this business is that guarantee products may not be offered directly to clients, and intermediaries must always be used. “This does not mean we do not know our end clients”, says Whindus. “Relationships are very important and we get to know clients through our brokers, and meet regularly with them. The decision to go with a particular Underwriting Management Agency (UMA), and conversely for an agency to go with a particular client, is not made on pricing factors alone. Other influences such as levels of security and collateral required by the UMA from the client are very relevant, and these can be more appropriately set when we know our clients well.”

Whindus says that this particular line of underwriting has a strong focus on the construction sector. “Activity in this industry has quietened down, particularly as government contracts tailed off after the 2010 Soccer World Cup and tenders for new infrastructural work have not yet been awarded. Nevertheless, Praestar has grown its revenue by six-fold in the last two years of operations. We pride ourselves on exceptional service levels which include quick turnaround on applications and queries, mostly within 48 hours.”

Da Silva highlights that partnering with a UMA facilitates a greater focus on the profitable development of business in a specialist or niche class. “This structure is more cost and time effective than having to establish one's own resources and capabilities in order to write such business. Performance expectations are managed through clear and upfront agreements which specify targets for both parties.”

Da Silva also points out that the insurer in these relationships, in this case being

Mutual & Federal, has a duty to manage the relationship with its UMA partners and to enforce professional standards of conduct that business partners need to adhere to. “The insurer is ultimately responsible for all policies issued by the UMA and is obliged to settle any valid claims which arise. It is therefore incorrect to assert, as some have, that the UMA model is inherently incentivised not to pay claims, as this would not be sustainable and would not be tolerated by the insurer principal. Also, the integrity and reputation of the UMA partner is of paramount importance to both the insurer and the broker. This model requires a high degree of trust between the principal and its agent. Reputation risks also arise if there is a lack of integrity or a lack of alignment between the various parties’ interests.

For more information on Praestar, contact Jeff Whindus on (011) 763 2075 or by emailing jeff@praestar.co.za .

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