Huge Losses Force Lloyd's To Look for New Funding
LLOYD'S of London hopes to trade its way out of a crisis that has severely dented its reputation and left thousands of investors facing ruin. The world-renowned insurance underwriter is being forced to look to large corporate investors rather than wealthy individuals for much of its future funding. Analysts say Lloyd's could still be forced out of business.
David Rowland, who took over as chairman early this year, on Tuesday told a London meeting of 1,800 investors, known as "Names," that the future offered opportunities for growth. But he announced losses of 2.9 billion British pounds (US$4.3 billion) for the 1990 accounting year, bringing total losses for the last three years to nearly 6 billion British pounds (US$8.9 billion). Mr. Rowland said the 1990 results were the "low point" in the 305-year history of Lloyd's. He warned: "They must never be repeate d." Lloyd's accounts are published three years in arrears to ensure its figures are an accurate estimate of all final claims.
Trouble began for Lloyd's in the late 1980s when a series of major accidents and natural disasters strained the worldwide insurance market. Incidents included the Piper Alpha North Sea oil-rig disaster, the Exxon Valdez tanker spill, Hurricane Hugo, and the San Francisco earthquake. Under the Names system, investors pledged their resources on an unlimited liability basis.
Because of heavy market pressures and alleged mismanagement by some Lloyd's investment syndicates, thousands of Names were landed with huge bills instead of profits. Many were popular sporting figures and entertainers. The 2.9 billion British pounds loss for 1990 equates to an average of 100,000 British pounds for each of the 29,000 Lloyd's Names.
MORE than 30 action groups have been formed by unhappy Names who say they will sue Lloyd's for their losses. One group of 500 investors faces a combined loss of 1.2 billion British pounds. John Rew, chairman of the Society of Lloyd's Names, says the institution has "managed to turn disaster into an art form."
Rowland says he hopes that new limited liability rules introduced in April will persuade future investors that Lloyd's is a safe risk. But Mary Archer, chairwoman of a "hardship committee" set up to ease the plight of Names threatened with financial ruin, concedes that the institution could still face insolvency.
With capital supplied by Names expected to fall to under 8 billion British pounds in 1994 compared with 11 billion British pounds in 1991, Rowland must look to big institutions to make up the difference. If large numbers of aggrieved Names successfully sue for losses, payment will have to come partly from Lloyd's future income. Corporations reported to be interested in investing include J. P. Morgan, the United States bank, and Marsh McLennan, the world's largest insurance broker.
"The new management at Lloyd's is gambling on there being no major disasters resulting in big claims in the next couple of years. If they are wrong, Lloyd's could go down the drain," a leading insurance market analyst says.
Rowland says that losses in future accounting years would begin to tail off. He advised Names who could still do so to continue trading in the expectation of future profits. But he offered no comfort for critics who want an outside body to oversee Lloyd's and ensure that future trading is properly managed. Those campaigners got support from the London Times on Wednesday. It said the "sacred mystery" of Lloyd's was unjustified and called for the appointment of a regulator with tough policing powers.
Rowland's hope for heading off further legal action has been dashed by confirmation that a group of aggrieved Names plan a general meeting July 5. Meanwhile, London auction houses report brisk business in sales of family silver and works of art.