LONDON—A second public sector mutual insurer is set to open its doors in the United Kingdom later this year, with others in the pipeline.

Following the March launch of the London Authorities' Mutual Ltd.--the first local government insurance mutual to be formed in the United Kingdom in 100 years--another mutual insurance company is currently being formed to provide property and liability cover for fire and rescue authorities.

"We have 10 fire and rescue authorities committed to inject the requisite amount of capital to get full Financial Services Authority authorization and committed to the transfer of their principal insurance coverages as soon as their long-term agreements expire," said Martin Fone, head of public sector development for the mutual development unit at Charles Taylor Consulting P.L.C., a London-based management company helping establish the mutual.

Of the nearly 50 fire and rescue authorities in England--which pay an estimated £20 million ($40.5 million) in annual premium--about half are targeted to join the mutual insurer, Mr. Fone said. "The key factor for a successful mutual is a degree of selectivity--you select the good risks rather than the poor ones."

The number of public sector mutuals is expected to grow in coming years, increasing competition in a soft insurance market, experts say.

In a trading statement earlier this month, CTC, which has won the contract to manage the Fire & Rescue Authorities Mutual, said that it has been instructed to develop and implement a new mutual insurance company for local government authorities in the United Kingdom. "We have got other groups looking to form mutual insurance companies, although they are not as far down the road as the Fire & Rescue Authorities Mutual," he said.

Following its general meeting on Aug. 1, the Fire & Rescue Authorities Mutual is expected to start underwriting risk on Sept. 1, with five fire and rescue authorities insuring all or part of their portfolios. The remaining five will join as their insurance contracts expire, Mr. Fone said.

The mutual will offer property, business interruption, material damage, fidelity guarantee, personal accident, employers liability, public liability, errors and omissions, and slander insurance coverage. Coverage limits are offered up to the full value of property, while employees and public liability limits are up to £50 million ($101.9 million).

The mutual is offering its members broader coverage at a reduced cost, Mr. Fone said. "Members can obtain broader coverage than they had with higher limits, with greater clarity on terrorism for liability covers and enhanced pollution cover," he said. "It offers all that and still shows a reduction in expiring rates."

A large percentage of the coverage is reinsured in the London and European reinsurance markets by the mutual insurer, Mr. Fone said. "There is a low, any-one-occurrence retention, but the plan is to increase that as funds are made available."

Until 1992, most local government entities bought their insurance from Municipal Mutual Insurance Ltd., although this ceased trading after it was unable to meet statutory solvency margins, according to Peter Bristow, the Sheffield, England-based director of the public sector group at Aon Ltd., the U.K. arm of Chicago-based brokerage Aon Corp.

Renewed interest in mutual insurers is caused in part by reform of local government, which encourages cooperation among local government organizations, experts say.