"1985 will undoubtedly be a memorable year for the insurance industry and I am sure, whether one’s role is that of underwriter, broker, or insured, we will all be faced with many searching decisions. But I am convinced that at the end of the day, the collective thoughts of one of the world’s largest body of professional people will ensure that sanity returns to the business." These words were spoken by the then managing director of H.S. Weavers Underwriting Agencies, Limited, at a speech he gave in September 1984.

The English Patience — we still await this return to sanity, but from whom? Equitas?

Equitas, which was set up in 1995 to ring fence and absorb all Lloyd’s losses from the pre-1986 underwriting years, is now operational. From figures supplied in a London publication in 1995, it was quoted that since the ring fence, long-tail losses had accounted for 49.6 percent of the entire market’s losses, but Chatset forecast that for the 1992 year of account, that proportion would rise to 70+ percent.

People were asking in 1995 how Equitas would finance pollution losses and how it would approach the question of litigation and the series of breast implant and tobacco claims. Those questions are still being asked in 1997. The wonderful English Patience — how long will we wait for answers? How real is Names’ finality? As of the beginning of this year, the trustees of Equitas say it is real, Equitas is solvent, and they hope it remains so. Lloyd’s, though, has made it clear that there may be some residual risk, so it cannot be guaranteed that Equitas will remain solvent.

However, the Lloyd’s claims culture seems to be changing. There is no doubt that much of the Lloyd’s old claims culture was transferred to Equitas at the start, but Equitas has started to change that old culture. One of its first tasks was to bring in a new information system in order for management to get a clearer view of the number and nature of claims from the different sectors of the market.

When Equitas began, it inherited staff from five City locations. Later this year it will be putting its staff under one roof at Exchequer Court, 33 St. Mary Axe. Rather than move out to cheaper rental areas, Equitas claims that recruitment of staff will be better accomplished by staying in the City of London, therefore allowing it to recruit from the insurance expertise within the City. For those of you that don’t know, the City of London is a one-square-mile area within London which is home to the vast majority of the insurance and financial businesses that call London home. The move out of the Lloyd’s building is being done to further emphasize the distinction between Lloyd’s and Equitas.

Equitas, which began operating under the guidance of Jim Teff, a former claims director for the Janson Green Syndicates, is supposed to have the financial statement for its first year made public in August. The statement will be for the period of September 4, 1996, to March 1, 1997.

It was originally stated that Equitas would be pressing for early settlement in situations where both it and the policyholder had a clear interest in avoiding or ending litigation — the Exxon Valdez case, for example. The London market’s liability was set at $480,000,000, despite the disappointment of underwriters. However, it is believed that the settlement that Equitas accepted on behalf of the 90 syndicates, which covered 40 percent of the risk, was generally in line with expectations. But, according to a U.K. press report published in December 1996, a dispute between bosses at Equitas led to the departure of Jim Teff. The article also stated that "friends of Teff say that Executive Michael Crail thought that some settlements negotiated by Teff were too high … he was in charge of the market’s handling of disasters such as the Piper Alpha oil rig blast and the Exxon Valdez oil spill."

It is now being talked about in London that the days of the small investor at Lloyd’s are coming to an end and the bigger corporate investor is getting more powerful. Membership in Lloyd’s has always been a complex and expensive thing. It is similar to walking past an exotic and wonderful casino on the French Riviera. A lot is offered inside, it is alluring, and you feel that you are certain to win. You enter and start to play using your hard-earned cash. When you win, the world is a wonderful place, the sun shines and life is good. But when you lose, the "house" takes everything. The small investor has financial problems when he loses heavily at the casino. However, the very wealthy can continue to play.

High-level talks are reportedly taking place between Lloyd’s authorities, the Inland Revenue and the U.S. Internal Revenue Service to establish a tax break to tempt the remaining Names (the small investors) to transfer their investments to corporations. Lloyd’s is being forced into finding new sources for investment. Around 25,000 Names have left the market since losses started to emerge. Obviously the use of corporate capital is the way forward for Lloyd’s.

However, and it is a big however, think back to the opening line of this report, to the suggestion in 1984 that sanity was about to return to the market. Those types of words are being used in the marketplace now. In the year 2010 will we be saying, "Remember what was said about the market improving in 1997?" Sanity will return, or should we recall what Groucho Marx once said: "There ain’t no such thing as a Sanity Clause!"

The English Patience will be paramount in our minds for a long time, and I hope that the stories now being written, the speeches now being given, and the predictions now being made will not receive any Oscars for best fictional piece of the year.

508 Twilight Trail, Suite 200  Richardson, TX 75080
Phone (972) 980-0088 Fax (972) 233-1548
http://www.roberthughes.com Send E-Mail