Insurers that automatically take a share of risk through quota-share arrangements could suffer weaker risk management, according to AM Best.

Such companies’ performances could drop amid reduced controls on pricing and risk selection, the ratings agency says.

The warning comes amid concern at sidecar arrangements such as Aon’s deal with Berkshire Hathaway, in which Berkshire will take 7.5% of Aon-brokered retail business placed at Lloyd’s.

A proposed Willis sidecar could be even bigger, with more insurers likely to take a share of the risk offered.

Willis has released few details of its Willis360 plan, but AM Best says it aims to provide commercial cover for medium-sized UK businesses.

While similar arrangements have existed for years, “the new developments represent a key departure from current approaches, not least in terms of scale”, AM Best says.

The agency is fearful of insurers losing underwriting control.

“Should history repeat itself – as in the late 1990s and early 2000s, when many specialty companies in the US and several Lloyd’s syndicates gave their pens to US managing general agents, which were volume-driven and not focused on underwriting profits – the consequences could be disastrous.”

AM Best and Moody’s have raised concerns that the sidecars are a threat to smaller Lloyd’s syndicates.

Pooled arrangements could also raise the risk of non-disclosure, AM Best says.

“Significant discussion among insurers can currently arise when brokers are dealing with a single risk.”