THE RHA REVIEW
Volume 1, No. 3, Second Quarter 1995

By Michael D. Jackson

Are the warnings in the press — e.g., "Lloyd's faces battle for life," The Daily Mail (London) 4/24/95 — a portent of things to come, or a current reality?

Lloyd's has been carrying on business for three centuries and has had more than its fair share of problems. Lloyd's deals in high-risk business:  insurance. Lloyd's is unique. Lloyd's will survive. But in what format? Lloyd's will, on May 30, unveil its plans for the future. There are many people to satisfy or placate: the names, the insureds and Parliament. According to the British media, both the chairman and the chief executive of Lloyd's have been called before a secret session of the Treasury Select Committee to answer the speculations that the market is on the edge of collapse. This is not a new experience for them. This will be their third visit. The chairman, Mr. Rowland, was allegedly subjected to tough questioning in February about what would happen if they failed to pay claims. Rowland was quoted in The Financial Times (London) 4/25/95 as saying that his aim was "to bring an end if we possibly can to this episode in Lloyd's history."

The Lloyd's market has been through tough times before, with pundits predicting its downfall, but it has survived. It will survive again. It will have to accelerate its financial reorganization in order to convince names and potential new names that it can trade its way out of its present problems. There have been mutterings and indications from comments made that the Department of Trade and Industry might force the market to change the way it operated.

In the latter part of this year Lloyd's has to pass two DTI solvency tests. The first considers Lloyds’ assets against expected claims. The second is one of a personal nature for the names. Do those names have enough assets to be able to pay claims on policies written by the underwriters for syndicates upon which they are names? In simple terms, do the assets exceed the liabilities? There is little doubt that Lloyd's will pass the first test, but concerns were brought to light in April when a letter addressed to a name was leaked to the press. In the letter the DTI admitted that the test for solvency was "giving rise to concern."

Will the companies and corporate capacity come to the rescue? No matter what happens now to change the future of Lloyd's, the existing names will get no respite from the current situation. From all directions come the words "cash crisis." The number of names not paying is increasing, creating a cumulative effect.

Lloyd's is part of the London insurance market, it is a part of the world market, and gives occupation to tens of thousands of people in the City of London. These people make up the market and it is with them that Lloyd's will again, probably, be going through the same questions next year, when solvency will again be the biggest question.