Had Lloyd's been honest about their financial situation in 1970, no reasonable person would have invested in Lloyd's syndicates thereafter, and Lloyd's and its then-Names would have gone bankrupt. It is ultimately that simple.


1 Jan 80

428 active syndicates (8% increase on 1979) of which 191 syndicates (45%) in a parallel situation (215 syndicates (54%) in 1979). 83 syndicates (19%) have less than 49 Members (91 syndicates (23%) in 1979), 63 syndicates (15%) have between 50 to 99 Members (55 syndicates (14%) in 1979). 261 Underwriters, of which 79 Underwriters (30%) underwrite in a parallel situation (239 Underwriters, of which 79 Underwriters (33%) underwrite in a parallel situation in 1979).


Financial Times: Brazilian Group seeks compromise on £1.6m claim

The Brazilian reinsurance group currently being sued by Lloyd's Underwriting Syndicate F H Sasse for claims of $3.14m (£1.6m), is seeking a compromise settlement out of court.

The move follows the arrival in London of Dr Jose Lopes de Oliveria, President of Instituto de Resseguros dio Brazil (IRB), who has discussed the matter with the group's solicitors Elborne Mitchell and loss adjusters Graham Miller.

On behalf of IRB, Elborne Mitchell yesterday issued a statement which said: "As a result of recent meetings held in London concerning the reinsurance claim made against them by F H Sasse and others, the IRB are prepared to seek a resolution of the present litigation through and in conjunction with the London insurance community.

"Elborne Mitchell & Company, their solicitors, have been instructed to explore the possibility of such a resolution and will proceed accordingly."

"If a resolution satisfactory to the IRB cannot be achieved in this way the IRB, who continue to reserve all their rights, are prepared for the dispute to be resolved in the courts".

The claim by F H Sasse arises out of 1,300 contracts made through the syndicate's Florida agents Den-Har Underwriters, by which clients were insured against damage to their buildings up to the first $500,000. The syndicate has met valid claims under some of the policies, and alleges that IRB, under the terms of reinsurance for the first $100,000, now has to meet its share of the liability. So far IRB has only settled $500,000. The F H Sasse syndicate was suspended by Lloyd's last December until the dispute was settled.

IRB declined to pay the balance of the claims until a complete report has been prepared.

1 Jan 80

In commenting on the examples in the draft report submitted with Slaughter & May's letter of 18 September 1985 to the Lloyd's commissioned Singleton Inquiry, Mr E E Nelson stated: "No criticism is raised up until the 1 January 1980. At that time, we were first becoming aware of the disaster to hit us on Asbestos and latent diseases, and it was imperative that the funds be available for those years for which the losses would undoubtedly have fallen. In the event, this turned out to be the 1980, 1981 and 1982 years of account. The benefit of those funds allowed the Syndicate to remain in a profitable position, and I know our Names were very appreciative of the results."


E E Nelson, the BPR/Alder Non-Marine Underwriter, placed an aggregate offshore run-off reinsurance with the Chester Reinsurance Company covering known but unquantifiable asbestos liabilities. To pay in excess of $100,000 all losses in aggregate and limited to $1,575,000 in the aggregate. This was a Time & Distance policy with claims not payable until December 1986.


The Committee of Lloyd's issues a directive advising agents that Computer Leasing Losses should remain in the 1977 year of account, unless the Committee approved otherwise.

Jan 80

The Committee of Lloyd's has been considering the best method of handling the Fisher report, which is now expected in the Spring of 1980. The Committee has decided that Mr C A Thomas, the Secretary General, should give this subject his full attention. To enable him to do this, Mr Thomas will gradually hand over his duties as Secretary General during 1980, and will formally retire at the end of the year. Thereafter, he will continue to advise the Committee on the Fisher Report for as long as may be necessary. Mr Thomas will be succeeded by Mr J T C Hodges FCA ACIS, who has started to take over his new duties


Mr John Elser of Wilson Elser Edelman & Dicker, who were one of the four law firms handling this matter on behalf of underwriters in the United States, wrote an article reviewing the American cases on this controversial subject. In a useful way, the timing and effect of the relevant cases from Borel, Porter, Forty-Eight onwards are set out

.Jan 80

Lord Bissell & Brook produced a further report, addressed to the interested insurers, under Bordereau No. 2 in relation to claims against United States Rubber, otherwise known as Uniroyal,, and stated inter alia:

Since our last report the number of claims filed against this assured has increased dramatically and we anticipate that the assured will be named in a substantial number of future claims. Because of this marked increase in the number of claims we are now of the opinion that it would be prudent for underwriters to establish a loss payment reserve for each of the 13 years when they were on risks for this assured. We still have not been able to obtain complete information or documentation as to the details of coverage provided by underwriters.

Asbestos cases: at the time of our last report 10 law suits involving 34 individual wrongful death and bodily injury claims had been brought against the assured as the result of its manufacture and sale of certain asbestos products. Since that time please be advised that an additional 33 asbestos-related suits involving 437 individual claims have been filed against the assured.

(80) Opinion as to liability: The asbestos-related claims as a class dearly represents serious potential exposure to the asbestos producers of the past 30 years

.(81) Reserve calculations: The problem with establishing loss payment reserves in these cases is that at this point it is uncertain as to what basis will ultimately be used to determine the applicable liability coverage for each individual loss. If the American courts eventually rule that coverage attaches on the date of the manifestation of disease, then we do not believe that underwriters will be required to make any loss payments on behalf of this assured .... If on the other hand, American Courts adopt an exposure theory of coverage then we believe that underwriters could be required to make substantial loss payments under their policies on this assured ... Underwriters will recall that at the meeting of the London Insurers' American Counsel in New York in June 1979 it was agreed that each asbestos related claim should be evaluated for reserve purposes at $75.000. It was further agreed that this assured should bear a 2% portion of this reserve or a $1,500 reserve for each claim. We therefore recommend that our gross exposure reserve on the asbestos claims ... equals a gross asbestos reserve of $2,868,000.

Jan 80

Mendes & Mount reported to Underwriters at interest care of Sedgwicks in relation to Johns-Manville and stated inter alia:

"With further reference to the captioned matter we held discussions with in-house attorneys and insurance personnel of Johns-Manville at their offices .... and they also participated in a one-day conference attended by all insurers from 1935 to date. Johns-Manville, legal and insurance officials and Marsh McLennan, at Marsh's office in New York. We have secured all available loss and expense reserve data from the primary insurer, the Travelers, on the in excess of 4,000 pending cases." Travelers was the primary insurer of Johns-Manville, the Home were on further upward layers, and Lloyd's underwriters stood above Home. The Travelers was the primary insurer of Johns-Manville, the Home were on further upward layers, and Lloyd's underwriters stood above the Home.

8 Jan 80

letter from Mendes & Mount to underwriters at interest C/- Sedgwick Forbes Bland Payne (N.A.) Ltd. Assured: Johns-Manville Corp.

... we have, as underwriters are aware, conferred with other legal representatives, and based upon these discussions as well as communications with underwriters, a preliminary reserve of $75,000 per asbestos claimant, 20% of which is ascribed to Johns-Manville, has been agreed. This percentage involves Johns-Manville for $15,000 per claim, which sum is strikingly close to the average contribution thus far made on behalf of Johns-Manville in the settled cases.

The litigated cases present a different picture. As an illustration, four cases tried in December in the US District Court, Virginia, involving shipyard workers at the Newport News Facility, resulted in Plaintiffs verdicts in the sum of $435,000 each. The damages recovered were compensatory only ...

Of further interests in connection with the Virginia cases generally is the fact that a Federal Judge had ruled that the US Government is not liable to asbestos manufacturers for injuries to shipyard workers at the Norfolk Naval Shipyard. Liability, the judge stated, stops as payments made by the U.S. under the Federal Employees Compensation Act. ...

As underwriters know, the Travelers' reserves are structured on the "exposure" theory which approach is concurred in by Johns-Manville. Reserves from a manifestation approach, although we have not accomplished a review of the in excess of 4,000 pending suits, would at most be minimal as far as Underwriters are concerned, for we doubt that there are any cases alleging manifestation dates arising during the period of Underwriters' coverage. Thus, we do not deem it necessary for Underwriters to establish manifestation reserves for any of these pending suits, pending our review of the individual files.

Lastly, the loss date issue is no closer to a resolution now than it was 12 months ago. The INA -v- Forty Eight Insulations case which Travelers cites as the basis for its establishing reserves on the "exposure theory", has been orally argued before the sixth circuit court of appeal. It's not anticipated that a decision will be forthcoming before the Springtime.

The case which adopted the Manifestations theory, Porter -v- American Optical, is still being briefed, thus the fifth circuit court of appeal has not as yet scheduled arguments.

[This report was supplied by Robin Jackson to W Beckett, solicitor to the Corporation of Lloyd's, on 4 December 1989 during the Donner enquiry.]

Jan 80

Telex from Mendes & Mount to Sedgwick Forbes.

The Travelers and J-M have agreed to the application of exposure theory for loss attachment purposes. Reserve Travelers established in accord this theory set forth in report without comment, as we have not as yet accomplished a review of the 4,000 plus pending actions. Underwriters' policies recited can only be involved if exposure theory becomes law of all asbestos cases. This issue still unresolved. Additionally Travelers has taken posture its policies or years 1951 through 1953 written on aggregate basis, but as we pointed out this also in doubt. Therefore in view a severe question regarding loss date and questions regarding aggregates for years 1951 through 1953, concluded best approach would be to leave it to each Syndicate's discretion whether or not to establish reserves consonant with those established by Travelers or on some other basis, each of which at this time could be equally appropriate.

Jan 80

Time Magazine: Who pays for the damage

referring not only to asbestos but to Agent Orange and Pintos - the Pinto car was an unfortunately designed vehicle which exploded when you ran into the back of it.

15 Jan 80

R F Kershaw Underwriting Agents Ltd: F.H. Sasse & Others Non-Marine Syndicate No. 762

I enclose a letter from Mr. Peter Green, Chairman of Lloyd's, dated the 2nd January. In this letter Mr. Green confirms the offer of an indemnity for all members of the Syndicate, despite the change from the proposed judicial arbitration to litigation.

I sought Mr. Green's confirmation on two aspects which I thought would be raised by Members. These points were described in my letter to Mr. Green of the 4th January; I enclose a copy of that letter and also Mr. Green's reply of the 10th January.

25 Jan 80

GAF Declaratory Action

Another major Californian asbestosis case involves the Plaintiff, GAF, a Delaware Company suing about 125 of its insurers including Lloyd's in the Los Angeles Court for a declaration that it was insured by them for the consequences of about 1,600 Asbestosis lawsuits with 600 more pending. The claims were against Ruberoid (an asbestos manufacturing company that GAF had taken over in 1966) in respect of which they were exposed to claims "for hundreds of millions of dollars" (para 37 of the claim). Lloyds had provided excess of loss cover for the years 1955 to 1973 and 1973 to 1976. In 1956 Sturge had underwritten 27.4% of Lloyd's share of the risk.

Reporting to the ‘exposure' underwriters on GAF were a firm of US Attorneys named Standard Weisberg Hedling & Roscow who reported to ‘underwriters at interest' through letters addressed to Sedgwick Forbes, Willis Faber, and Alexander Howden. Two of these were dated 25th January 1980 and 24th April 1980.

US Attorneys, Mendes & Mount, were acting for Lloyds Syndicates who subscribed to the ‘manifestation' theory, and they were sending through regular reports to London..

Throughout the litigation strenuous efforts were made to preserve legal privilege, hence access both to Court papers and Attorneys reports would have been restricted, though to what extent we could not tell. Although some information reached the public domain, and was reported in insurance and legal journals clearly much of it did not.

The first "claims information reports" seem to been sent through to London underwriters on 23rd November 1981.

1 Feb 80

An Unlimited xs £1,129,220 run-off reinsurance placed for Bishopsgate Insurance Company to incept at 1 October 1979 covering 1977 and prior years. Outhwaite wrote 32%.


A series of reinsurance contracts were placed for a non-related underwriter by Lloyd's broker, Bellew, Parry & Raven with a related BPR offshore company. They all came within the category of "Time & Distance" banking arrangements and brokerage was allowed of 1.50%. They were effected for years of account between 1975 and 1985 and were placed in the calendar year 1980.

The placing file clearly indicates that 75% of the anticipated investment earnings by the Reinsuring company would be included in the sum insured available on a "simple" interest arrangement.

21 Mar 80

Letter from Mendes & Mount to Underwriters at Interest. Re GAF.

On the claims side, GAF continues to settle cases where the plaintiff is able to establish (1) asbestos related disease, and (2) exposure to one or more of GAF products, on a per average claim of approximately $4,000. Defensively, the principal argument is still that the manufacturer's knowledge was such that prior to Dr Selikoff's report of 1964, the industry was not aware of undue exposure to insulation workers from the use of asbestos-containing products. In substance, what Dr Selikoff s report revealed was that the then considered threshold limit value of 5,000,000 pp/cu. ft. of air was too high and that insulation workers were at risk. Commencing in 1965, they placed warning labels on their products cautioning against the inhalation of dust particles and if adequate ventilation was not possible, to wear a respirator.

24 Mar 80

Excess Insurance Group memorandum from P B Thompson to L S Doyle:

Last week the Chairman telephoned me in London to enquire as to the position regarding liabilities arising from Asbestosis in North America. I advised that I knew nothing of the situation but would institute immediate enquiries.

Having done so, it would appear that we wrote many risks, both through the North American and Treaty accounts providing Products and Liability cover to Manufacturers and Suppliers of asbestos. I also understand that there are a few policies which cover W.C.A.

In so far as the North American account is concerned, very few claims have been entered and those that have carry a reserve for legal fees only.

Underwriters in the London market as well as companies in North America have not reached agreement to deal with these claims on an exposure basis. Whenever it is expedient for them to do so, Underwriters and companies have advocated that coverage should apply at the time of Manifestation. In my view, Manifestation is an unreasonable argument but clearly there is not going to be an agreed market position. The situation is not helped by the various decisions made by the courts in North America where, in certain cases, exposure has been ruled as the criteria for determining policy coverage, whereas other courts have ruled that Manifestation determines policy coverage.

Either way, it looks as though we could be faced with very substantial reserve determinations. In order to try to determine the position as quickly as possible. ( Colin Drage will in the first instance, endeavour to obtain from the Underwriting Department a list of cases which provided for public and Products' liability to Manufacturers and Suppliers of asbestos. He will also endeavour to obtain a list of risks in which cover was provided for W.C.A., although this is obviously going to be very much a stab in the dark. We agreed the bulk of our exposure relates to the Products and Liability coverages.

It is not clear how far back our records go, but obviously Colin will have to track back to the commencement of our records and build up the list from there

Having done that, the next step will be to call for the brokers' files in order to determine what claims, if any, have been made to date, whether a ruling has been made regarding manifestation or exposure and then set up suitable reserves. Perhaps Hartford could assist us by advising whether or not there is a ruling state made with regard to coverage being applicable for exposure or Manifestation. This would, at least, enable us to set more accurate reserves. In the alternative where no ruling has been given it seems to me that we still have to establish two sets of reserves, one on the basis of exposure and the other on the basis of Manifestation, although clearly we shall only be able to show one reserve in our records. However by proceeding on the foregoing course, we should, at least, be aware of potential liabilities either under the exposure or Manifestation situations.

It looks as though the majority of the business was placed by Sedgwick Forbes, Willis Faber, Howden and C. T. Bowring

A further report will follow in due course. I assume that you will want to convey the findings to the Chairman. It seems to me however that we have got to work in very close harmony with the Treaty department and as a starting point, they should at least be doing the same exercises we are doing on the North American account to determine the number of risks in which there is potential liability.

c.c. C. Drage

Hopefully the contents of this memo clearly reflect what was agreed between us when we discussed this matter ion Wednesday. Would you please treat this exercise as an urgent priority and endeavour to have the list of risks ready by next week together with a note as to the reserved losses against each risk."

26 Mar 80

Alan Pollard, Chief Executive at Chatham, writes on behalf of the Committee to all Underwriting Agents:-

In December 1977 the Committee issued detailed instructions to Underwriting Agents concerning the disclosure of information to be made to U.S. nationals and U.S. resident applicants for membership. In January 1979 the Committee again wrote to Underwriting Agents recommending that the same information be supplied to all Names joining an Agency and to all Names joining a Syndicate. It was also recommended that existing Names on a Syndicate be advised when information is prepared for distribution to New Names so that they might receive a copy if they wish.

It is now felt to be desirable to clarify the Committee's wish that all Names, irrespective of Nationality, should when joining Lloyd's, an Agency or a Syndicate, receive details as laid down in the Underwriting Agents Manual Section A 16.5. This Section will be re-numbered as A 17.2. The disclosure items relating to Lloyd's in general (currently A 16.5 (i) are issued in the form of the "Brochure for Applicants for Underwriting Membership".

Underwriting Agents are also reminded that, in accordance with the disclosure requirements issued in the Deputy Chairman's letter dated 23 January 1979, loss ratios and expense ratios for each of the past seven closed years should be calculated as a percentage of the premium income for the year of account, pure. The distinction between pure premium income and premiums received by way of closing reinsurances can be drawn to the attention of potential Names by reference to the Syndicate balance sheet (ref.: A 16.5 (iii) d).

Finally, Underwriting Agents are asked to draw to the attention of New Names factors which have materially affected past results or may materially affect future results, and to keep all Names informed of factors which might materially affect the results of the Syndicates.

27 Mar 80

Merrett Inter-Department Memorandum from CJ Ayliffe to RAG Jackson.

"Handling of asbestosis claims in the Lloyd's market".

You will recall that I discussed with you the developing problems that face our market in regard to long term products exposures, and also the fact that I wrote to the then Chairman of the NMA on the 10th December last year (copy letter attached) drawing attention to the developing problems in this area. Shortly before Christmas I was asked to attend an NMA meeting to generally discuss this matter and at which time it became apparent that many members of the Committee did not fully appreciate the impact which asbestosis will have with the developing momentum which we are assured will exist over at least the next 5 years.

Recent developments in connection with asbestosis tend to emphasise the need to collate the markets' approach to various problems that are developing . As you are aware there has been advice given on a broad basis by the Travelers in regard to their exposure to all their insureds involved in the asbestos industry, and it is quite possible that the course of action decided upon by their reinsurers could have some impact on other reinsurance situations with which the market will soon be confronted. In that particular involvement it would be the syndicates who led the contract in the 40's and 50's who will make the determination of London's response, and I am fearful that this will not necessarily reflect the best interests of the market overall.

Another issue which has recently been raised relates to the attitude which London wish to adopt in projecting potential exposure three or four years hence. We are advised by most major insureds that the frequency of loss reports will continue at much the current levels for at least five years to come and, to be realistic, if we accept this information as reliable, it would appear that we should now be calculating what the ultimate cost would be to the Market some five years hence. So far reserve recommendations for the Market have been based upon cases which are presently known. Lord, Bissell (& Brook), who are involved in reviewing the reinsurance of the Home for the account of Johns-Manville are seeking guidance and support from the Market to their putting up reserves to take into account a projection of something in the region of four years. Not unnaturally the size of the figures that would then be recommended would be very large and if indeed the Market wishes that the matter be dealt with in this manner it is also necessary that people such as Mendes & Mount, Peterson Ross and others also approach the problem in the same way. Inevitably the impact of projected reserves on our market will be substantial and I feel that it would be extremely difficult for the leads to make this type of determination by reason of the implications which it carries.

The other problem which presently exists is that although we have only 5,000 cases in suit at the present time most cases name all the majority companies with whom we are involved. There is, therefore, a danger that different representatives of the Market will be effectively duplicating the review work necessary to determine potential costs, dates of exposure and dates of diagnosis. It would seem much more practical to recognise this as a Market problem and to require that there be a pooling of information between those firms who are currently involved on behalf of the Market. The costs of conducting reviews on this volume of cases and setting up the necessary computer programmes can be very high and we must ensure that there is no duplication of effort of those who represent our interest.

At the same time I saw the NMA Committee it was felt that it would be beneficial for a small group to be set up who would have the ability to monitor developments as they affect the Market and to collate the different information that was coming from various sources. To date there has been no further move to set up such a Working Party. In conclusion may I stress the need for claims representation within that working group.

Mar 80

Johns-Manville, a major U.S. Asbestos Producer, file their 1979 year-end accounts with the SEC During 1979, J-M was a defendant or co-defendant in 2,707 asbestos health suits (1978 1,181) brought by approximately 4,100 plaintiffs (1978 1,500); J-M was named as a defendant in an average of 141 cases per month (1978 65) brought by an average 196 plaintiffs (1978 83). Auditor's report of 1 February 1980, Company's consolidated financial position as of 31 December 1979 was unqualified.


Dr Irving Selikoff of the Mt. Sinai School of Medicine in New York publishes "Asbestos-Associated diseases, Public Health And Preventive Medicine" being the 11th edition. At paragraph 597, Dr Selikoff estimates that between 2 and 6 million students may be attending schools wire asbestos surfaces in pupil areas, with an additional 100 to 300,000 teachers also exposed to asbestos. At paragraph 595, table 13-9, published statistics indicate that 24,827,500 tons of asbestos were consumed in the United States between 1890-1969, including 16,607,000 tons between 1940 and the latter date.


The U.S. Federal Government publications: "An Information Resource", published by the U.S. Department of Health, Education and Welfare in 1978 states at paragraph 9-10 that apparent consumption of asbestos fibre in the United States was slightly less than 4 million tons, with a similar volume of consumption anticipated for the 1976-79 period.

7 Apr 80

Business Insurance: asbestos manufacturer sues insurers.

Apr 80

Business Insurance Magazine: published an article about Owens Corning, another major defendant.

Apr 80

Product Liability International: Mr David McIntosh and Mr Bernard Seigne of Davies, Arnold & Cooper, London solicitors, have handled upwards of 1,200 cases during the last 15 years and are now involved in a further 360. They say: "The unfortunate message to be read from the UK experience of asbestosis claims is that the US explosion is likely to be even larger than has been predicted to date and that it will inevitably include many borderline cases which will need defending on diagnostic grounds." This is the view of an experienced solicitor in the London market.

8 Apr 80

Allstate Ins. Co. -v- Klock Oil Co., 73 A.D. 2d 486, 426 N.Y.S. 2d 603, 4th Dept April 8, 1980. Appellate Division of the Supreme Court of New York refused to enforce the pollution exclusion in an environmental claim. "[T]he word ‘sudden' as used in liability insurance need not be limited to instantaneous happening." Discharge of gasoline could be both sudden and accidental though undetected for a substantial period of time. Policy at issue expressly insured against risk of property damage from gasoline pumps and tanks.

9 Apr 80

Letter from Lumley, Dennant & Company Inc. We enclose a copy of the letter dated 6th December 1979 to the above assured (Owens Corning Fibre Glass) which is self explanatory and which we believe comes about because of the possibility of asbestosis claims being made under the umbrella coverage which has been written for a number of years. (Signatures on it indicate wide circulation).

14 Apr 80

Business Insurance: 9 accept asbestos settlements.

24 Apr 80

Lloyd's List: Court rulings may provoke claims flood

A flood of claims on asbestosis in the United States is expected to hit the London insurance market in future years and a recent decision by the California Supreme Court has further highlighted the trend. Several Lloyd's syndicates have already begun to increase their reserves to meet asbestos claims which may arise from cover taken out many years ago because the disease takes time to affect the worker ...

The California Court case, although it is not directly about asbestos but about the controversial drug DES, establishes a new basis of liability, called by the Court "industry wide". This has sometimes been described as "enterprise liability". Its findings mean that the person who has been injured does not have to identify specifically the manufacture of the product as long as the harm has been proved. If the Defendant manufacturers could have made the substance which caused the injury at the right time, then it and the others involved will have to share the cost of damages in proportion to their market shares ....

One of the main problems that insurers have in planning and then reserving for claims is that the illness often does not show for many years ... In Britain two leading lawyers in defending asbestos cases have predicted that there will be even more claims in the United States than originally expected. Mr David McIntosh and Mr Bernard Seigne of Davies, Arnold & Cooper, have handled upwards of 1,200 cases during the last 15 years and are now involved in about 360. Writing in the magazine Product Liability International, they say: "The unfortunate message to be read from the UK experience of asbestosis claims is that the US explosion is likely to be even larger than has been predicted to date and that it will inevitably include many borderline cases which grill need defending on diagnostic grounds".

24 Apr 80

GAF Declaratory Action

Another major Californian asbestosis case involves the Plaintiff, GAF, a Delaware Company suing about 125 of its insurers including Lloyd's in the Los Angeles Court for a declaration that it was insured by them for the consequences of about 1,600 Asbestosis lawsuits with 600 more pending. The claims were against Ruberoid (an asbestos manufacturing company that GAF had taken over in 1966) in respect of which they were exposed to claims "for hundreds of millions of dollars" (para 37 of the claim). Lloyds had provided excess of loss cover for the years 1955 to 1973 and 1973 to 1976. In 1956 Sturge had underwritten 27.4% of Lloyd's share of the risk.

Reporting to the ‘exposure' underwriters on GAF were a firm of US Attorneys named Standard Weisberg Hedling & Roscow who reported to ‘underwriters at interest' through letters addressed to Sedgwick Forbes, Willis Faber, and Alexander Howden. Two of these were dated 25th January 1980 and 24th April 1980.

US Attorneys, Mendes & Mount, were acting for Lloyds Syndicates who subscribed to the ‘manifestation' theory, and they were sending through regular reports to London..

Throughout the litigation strenuous efforts were made to preserve legal privilege, hence access both to Court papers and Attorneys reports would have been restricted, though to what extent we could not tell. Although some information reached the public domain, and was reported in insurance and legal journals clearly much of it did not.

The first "claims information reports" seem to been sent through to London underwriters on 23rd November 1981.

Apr 80

In April 1980, two reinsurance policies for the Graves Non-Marine Syndicate 471, managed by R K Harrison & Graves, was placed by Lloyd's broker Glanvill Enthoven. The first, being an excess of loss policy in respect of the whole account covering settlements on or after 1 December 1980. The premium was $650,000 payable by special settlement on 30 April 1980 and no claim was to be paid before 31 March 1988. The business was underwritten as to 50% by the Fidentia as a direct reinsurer on terms that a letter of credit was to be issued and as to 50% by the Brooks syndicate. The 50% line written by the Brooks syndicate was then retroceded to North Atlantic and in turn to the Fidentia. The second excess of loss reinsurance covered losses occurring on or after 1 May 1980. The premium was $350,000 payable in full at 30 April 1980, and no claim was to be paid before 31 March 1983. The lines written and the retrocession wee identical to those in respect of the first transaction. These policies are described as premium relief operations and had banking characteristics. (T & D policies).

Apr 80

U.S. National Institute for Occupational Safety and Health (NIOSH)

The Director of NIOSH concluded that tens of thousands of asbestos-related deaths occur annually based upon a six month study of asbestos fibre exposure in the workplace.

Apr 80

The content of auditors' reports was governed by the Auditing Standard "The Audit Report" issued in April 1980; paragraphs 8 and 9 of the Standard related to "Emphasis of matter" and read: 8. As a general principle the auditor issuing an unqualified opinion should not make reference to specific aspects of the financial statements in the body of his report as such reference may be misconstrued as being a qualification. In rare circumstances, however, the reader will obtain a better understanding of the financial statements if his attention is drawn to important matters. Examples might include an unusual event, accounting policy or conditions, awareness of which is fundamental to an understanding of the financial statements.

9. In order to avoid giving the impression that a qualification is intended, references which are intended as emphasis of matter should be contained in a separate paragraph and introduced with a phrase such as "We draw attention to..." and should not be referred to in the opinion paragraph. Emphasis of matter should not be used to rectify a lack of appropriate disclosure in the financial statements, nor should it be regarded as a substitute for qualification.

Apr 80

Bland Welch Underwriting Ltd brochure entitled "Underwriting Membership of Lloyd's" for citizens of the United States of America (Ref. 4\80).

Under "Introducing Bland Welch Underwriting Ltd", it states that "Bland Welch Underwriting Ltd is associated with the Sedgwick Forbes Bland Payne Group. This Group of International Insurance and Reinsurance Brokers, with subsidiary and associate companies throughout the world, is the result of the merger of the Sedgwick Forbes and Bland Payne Groups. (It is proposed that, subject to the approval of the shareholders, the name will be changed to Sedgwick Group Ltd). At the time of printing this handbook discussions are taking place with Alexander & Alexander Services Inc. of New York with a view to co-ordinating the world wide businesses of the Sedgwick Forbes Bland Payne and Alexander & Alexander Groups." and further on "Bland Welch Underwriting Ltd have a major shareholding in three Managing Agencies:-

Three Quays Underwriting Management Ltd - which manages the Hazell Non-Marine Syndicate at Lloyd's, the Underwriter for which is R D Hazell.

WMD Underwriting Agencies Ltd - which manages the Davies Marine Syndicate at Lloyd's - the Underwriter for which is C E Davies.

  1. G. H. Underwriting Management Ltd - which manages Tudor Motor Policies at Lloyd's, the Underwriter for which is R D Holmes.

Bland Welch Underwriting Ltd is the Joint Managing Agent of the Jackson Non-Marine Syndicate at Lloyd's.

In addition, there are two sister-companies, acting as Lloyd's Underwriting Agents, within the Group.

Edwards & Payne (Underwriting Agencies) Ltd, managing Marine, Non-Marine and Motor Syndicates at Lloyd's on which we have, and may place, Members for whom we act. This company also acts as Members' Agents.

Sedgwick Forbes (Lloyd's Underwriting Agents) Ltd, managing Marine, Non-Marine and Aviation Syndicates at Lloyd's. In its capacity as Members' Agents, this company places some of its Members with WMD Underwriting Agencies Ltd and with the Jackson Non-Marine Syndicate through the Agency of Merrett Dixey Syndicates Ltd (Joint Managing Agent with Bland Welch Underwriting Ltd).

Under "System of Accounting and Underwriting Accounts", the brochure states:-

"At the end of each of the first and second calendar years of an account, an estimate is made of the anticipated liabilities in order to determine whether the account concerned is projecting a surplus or deficiency based on the income received and claims made at those stages. A similar exercise is carried out in respect of the account which is at the end of its third calendar year. The estimated outstanding liability is calculated in accordance with the provisions of the Audit Instructions. The estimate must provide for liabilities in respect of claims reported but not settled, and claims which may have been incurred but not yet been reported with respect to policies attaching to the year of account. Once this liability has been estimated on the account at the end of its third calendar year, it must be reinsured by a valid policy of reinsurance before the account can be closed. The reinsurance will normally be accepted by the Syndicate's next year of account, but provision can be made for the reinsurance to be placed in the market or the account to remain open for a further year or years.

Under "Special Note for Prospective New Members for 1981", the brochure states:-

In the normal course of events we would be in a position to offer to prospective Members places in 2 Marine, 2 Non-Marine and 1 Motor Syndicate at the commencement of their underwriting participation at Lloyd's.

There has been, however, a very considerable increase in the total number of new Underwriting Members elected to Lloyd's in recent years, particularly for the 1977, 1978 and 1979 Underwriting Years and to a lesser extent for 1980.

The result of this rapid increase in capacity is that for 1981 the availability of suitable syndicate places is extremely limited. In fact, it is again not possible to offer places in any Marine Syndicates at all. In these circumstances we are in a position to offer places in two Non-Marine Syndicates and two Motor Syndicates, to those candidates who wish to join Lloyd's starting from 1 January 1981.

Under "Special Notes for U.S. Members", the brochure states:-

U.S. citizens and U.S. residents requiring information or guidance on any aspect of Membership of Lloyd's are most welcome to obtain advice from Lloyd's General Counsel in the United States, who are:-

LeBoeuf Lamb Leiby & McRae

(Lloyd's General Counsel in the United States)

140 Broadway

New York, N.Y. 10005,


and enquiries should be addressed to:-

Mr Donald Greene

Mrs Sheila H Marshall

22 Apr 80

Asbestos Liability suits are worrying insurers

22 Apr 80

Victor B. Levitt, Managing Partner of the San Francisco and Los Angeles law firm of Long & Levitt, delivers a paper entitled "Punitive Damages: Yesterday, Today and Tomorrow" on products liability actions incurring punitive damages to the Under 30's Lloyd's Non-Marine Claims Committee. (Not published by Lloyd's).

30 Apr 80

The knowledge of Merrett

Merrett was clearly aware of the potential impact of asbestos and other substances and the possible effect on older years of account before any of the Run-Off Contracts were written; for example, in a letter to Names, dated 30 April 1980, enclosing accounts of the syndicates as at 31 December 1979 Stephen Merrett stated that:-

A particular example of the insurance industry's delayed recognition of substantial exposure to losses, perhaps in years "closed" a long time ago, the asbestosis problem, is mentioned by Robin Jackson in his report. You may have seen or heard comment on recent activity in the United States Courts on the filing of numerous suits and in particular on attempts to determine whether the liability of insurers is on policies current at the time when the claimant began to contract the disease by his "exposure to the dust, or on the policies current when the claimant became aware of his disease by its "manifestation". If "exposure" is adopted there may be many claims made on policies current in the 1940's or even earlier, and it is inevitable that some insurers will have made inadequate provisions for such losses against those years. (and went on to say that) It would be prudent to suppose that other substances or work processes will increasingly be found by Courts to have damaged employees and others, and the exposure of the insurance industry to third party actions and Employers' Liability Workmen's Compensation claims against policy holders is very considerable indeed.

2 May 80

U.S. Federal Government publications: "(No 18) Prolonged and Variable Exposure to Asbestos Fiber (Special Listing), Current Cancer Research on Occupational and Environmental Carcinogenesis", published by the U.S. Department of Health, Education and Welfare.

3 May 80

Lord Bissell & Brook reported to underwriters at Interest care of Bowrings.

Report No. 1 Re: Reinsurance of the Home Insurance Company.

First and second casualty excess of loss treaties:

Assured: Johns-Manville Corporation.

Claims: Various asbestos and product liability claims,

We submit to the London reinsurers our first report concerning the asbestos-related bodily injury claims brought against the above named assured in numerous jurisdictions throughout the United States.

We have recently reviewed all of the reinsured's Home Office files and have conferred with both the reinsured and with the assured's primary insurer on several occasions concerning this risk. We have in addition discussed this assured's potential liabilities with many knowledgeable and involved scientists and lawyers throughout the country.

It is our present opinion that this risk presents grave exposure to the excess reinsurers on both the first and second casualty excess of loss treaties covering the 1963-1974 period.

General Background of Assured:

The assured conducts asbestos manufacturing and mining operations in the United States, Canada and thirteen other countries. Its principal manufacturing business consisted in the production of insulations, general building construction materials and roofing products. Its principal mining businesses included mining and processing asbestos. There is no doubt but that the assured was the largest free-world producer of asbestos fibre and one of the largest manufacturers of asbestos products including insulations, pipe coverings, firebrick, textiles, brake linings, and asbestos cement and board products.

In the last year of the excess reinsurers' coverage this assured had net sales of $1-1bn with earnings of $87m. It employed 26,600 persons and operated sixty two manufacturing facilities in the US and seven in Canada. Its principal mine was in Asbestos (the delightfully-named town of Asbestos, Quebec) and another asbestos mine was owned in Timens, Ontario. This assured owned 50% of the preferred stock and 30% of the common stock of Advocate Mines Ltd, near Baie Verte, Newfoundland, Canada. It also operated and managed this latter asbestos mine.

The assured sold to outside customers more than two-thirds of the asbestos fibers it processed. It used a wide range of methods to distribute its various products including the sale of finished products to distributors, wholesalers, jobbers, dealers, railway and contractors. It also sold raw materials directly to fabricators and manufacturers.

The assured first began putting cautionary labels on its asbestos products in 1964 and claims it had no knowledge of dangers to outside users of its insulation products prior to that time. However, there is no doubt but that the assured was settling asbestos-related workman's compensation claims brought by its own employees as early as 1933. In this regard Plaintiff attorneys throughout the United States have copies of the 1976 deposition of Dr Kenneth Smith, the assured's corporate medical director between 1952 and 1966 who testified he told the assured's executives as early as 1952 that insulation workers were exposed to the same potential hazards as its own mining and manufacturing employees. Dr Smith testified that he urged the assured to use a warning label on all of its asbestos products but that his advices were rejected.

In addition Plaintiff attorneys have unearthed some letters written by the assured's executives as long ago as 1934 indicating they had direct knowledge of the hazards of breathing asbestos fibres.

The assured for several years has been attempting to diversify its product lines away from asbestos. It has been involved for many years in the fiberglass insulation business and it no longer makes asbestos insulation products. The assured's percentage of operating income based on asbestos dropped from 37% in 1976 to 19% in 1978.

Cases against the Assured:

We have reviewed every claim that had been advised to the reinsured as of March 1980 and can report that the reinsured's files reflect 4,323 claims in suit against this assured. The reinsured's files reflect 196 closed cases with an aggregate loss payment of $2,338,548 or an average loss per case of $14,933. These figures include cases which have been closed without loss payments.

Our review of the closed files shows that the assured has made the major contribution to the great majority of the settlements achieved. Thus there normally are ten or more defendants in these cases but the assured by agreement has been paying between 15-20% of the average settlements.

(The potential liability of original assureds for punitive damages and the consequent effect thereon on insurers is something which is of significance in this case. The report refers to the mid 1960's when there was a general awareness that asbestos dust might be injurious and then states.)

New claims against the assured are now being brought on the average of 100 per month. The primary insurer has been trying to set up a satisfactory computer loss run which, if successful, should indicate the precise position as to the number of claims and paid losses and expenses at any given moment. The reinsured will provide us with this material when available. Meanwhile the reinsured has been filing these claims alphabetically but has not yet organised the claims so that meaningful statistics could be obtained. It is for this reason that we felt it necessary to compile the enclosed Bordereau which both we and the reinsured will now use to try to stay abreast of the changing aggregate positions.

Allocation of loss payments and deductible:

Both the assured and its primary insurers between 1947 and 1976, the Traveler's insurance company, have adopted an exposure theory of coverage for the asbestos-related bodily injury claims ....

A second major problem with the primary's allocations concerns the effect being given to the loss and expense $5,000 deductible per claim carried by the assured since 1966. We have see no evidence whatsoever that such a deductible has ever been applied or collected by the primary insurer. In addition, there is a related problem that the reinsured has argued that this deductible should apply to each claim per year of exposure. Both the assured and primary insurer maintain that one deductible applies to each claim only….

Current Aggregate Position:

The reinsured advises that there is no accurate information available as for the primary insurers underlying aggregate position at the present time. We were advised by the primary insurers several months ago that the underlying aggregate were between 20-30% exhausted in past years. However, statistics prepared by Marsh & McLennan taken from the primary's stat runs as of September, 1979 indicated on the average only loss payments by the primary in the $67,000 to $87.000 range in the 1963 to 1974 periods.

Of singular importance here is the fact that both the assured and its primary insurer now insist that the primary's separate underlying products liability aggregate has been exhausted in the 1970, 1971, 1972 and 1973 periods. In this regard we note that the assured filed suit on March 31, 1980 against the reinsured and 96 other insurance companies seeking a Clarification of Coverage issues but also claiming that it itself had paid $800,000 to 12 claimants alleging property damage. The assured maintained that the reinsured, as its product liability excess insurer, has refused to indemnify it for these paid Claims and has wrongfully asserted that it had no duty to indemnify the assured because the underlying aggregate carried by the Travelers was not exhausted.

This firm has not been instructed to investigate these property damage claims and we are not familiar with the merits of the dispute. We can advise that the reinsured admits that the primary insurers' .... property damage limits have been exhausted. Thus in any event we can expect that the reinsured will now commence making property damage loss payments allocated to at least these two years. In this connection it should be noted that the reinsured's own underlying aggregates beneath the First and Second Excess of Loss Treaties include both bodily injury and property damage loss payments as well as expenses.

Opinion as to liability:

The asbestosis cases as a class manifestly represent serious potential exposure to the asbestos producers of the past 40-50 years. It would appear that there may be convincing evidence against many of these producers to the effect that they did not take reasonable steps to warn the users of their products from the known dangers of asbestos and in some cases even purposefully concealed these dangers.

We believe that this assured is the major defendant in these cases. It was the largest producer of raw asbestos fibre and probably the largest manufacturer of asbestos insulation products used in the construction and shipbuilding industries. …

The assured, however, has additional exposure beyond the direct actions bought against it by injured plaintiffs. This is because the assured has been sued for indemnity or contribution by several other asbestos insulation manufacturers to whom the assured sold asbestos fibre.

Problems re Reserving Asbestosis Claims:

There are several difficult problems involved in recommending loss payments and expense reserves in the asbestosis cases. First of all, it is uncertain at this point at to what basis American Courts will ultimately use to determine the applicable liability coverage for each individual loss.

A second problem concerns the status of the underlying aggregates carried by the primary insurer ....

A third problem involves the applicability of the assureds deductible from 1966 onward, and a fourth problem is the ever present possibility of punitive damages in these cases. In our view it is not unlikely that American juries would return punitive damages in certain situations because of evidence tending to involve the assured in ignoring and even covering up the known dangerous aspects of asbestos.

Finally, the most insoluble problem of all stems from the fact that due to the long latency periods of the asbestosis diseases it is impossible to predict the number of claims that will ultimately be brought against the assured.

Suggestions as to Reserve:

In view of the above described problems, the best we can do is to suggest a reserve to the excess reinsurers based upon the bodily injury cases filed against the assured to date. Thus our review reflects that in the 4,323 claims filed thus far there were dates of exposure alleged in 64% of the claims. We have totalled these dates of alleged exposure and have determined that there were a total of 55,616 years of exposure alleged and that 31% or 17,166 of these years were during the 1963-1974 years when the excess reinsurers were on risk.

We previously advised herein that our investigation showed that in the cases closed thus far there was an average loss payment per claim of $14,993 and $3,308 in expenses.

Hence our reserve suggestion on an exposure basis for the cases filed thus far is based on 4,323 claims times $14,993 per claim equals $64,814,739 times 31% (the percentage of years of alleged exposure when excess reinsurers herein were on risk) equals $20,092,569 as a total ground up reserve for the 1963-1974 period. The per year ground up loss payment bodily injury reserve would be $20,092,569 - 11 years equals $1,826,597.

The casualty Excess of Loss Treaties include expense and our investigation indicates that the average expense of $3,308 per closed claim bears a 22% pro rata relationship to the average $14,993 average loss payment. Hence we suggest a per year expense reserve of $1,826,597 times 22% equals $401,851.

We therefore suggest a ground up per year exposure reserve of $1,826,597 plus $401,851 equals $2,228,448 for the 4,323 bodily injury claims filed thus far. …

Recommendations for future handling:

We must again stress to the excess reinsurers that the above suggested per year ground up bodily injury exposure reserve of $2,228,448 relates only to those claims known by the reinsured thus far. It does not take into account future bodily injury claims to be brought against this assured. In this regard we should comment that the assured believes the number of claims has now peaked and that because of improved working conditions there should be progressively less claims in the future.

On the other hand, there are numerous well informed people who profess to believe that the claims filed to date represent only the tip of the iceberg in this asbestos litigation. The Secretary of Health, Education and Welfare of the United States [Califano] recently stated that 67,000 each year will die from exposure to asbestos during the next 30 years. We know that between 8 and 11 million workers have been exposed to asbestos in the United States since the beginning of World War II and that of these 4.5 million people have worked in shipyards. Most of these shipyard workers were heavily exposed to asbestos and it is estimated by HEW that a third of those heavily exposed have died or are likely to die of asbestos-related cancer.

Because of these factors the primary insurer has informally indicated it expects probably a total of 7,000 claims by the end of this year. And the reinsured has cautioned us that its reserve estimates as set forth in this report should be deemed interim only.

We recommend that each underwriter on the first and second and third excess of loss treaties be shown this report. We also strongly recommend that each underwriter take all of these factors into account in determining the loss reserves to be posed on these claims. (Lord Bissell & Brook recommend a specific property damage reserve. Property damage of course is said to have been not even a premonition in late 1981.)

May 80

The New York Times published an article about a school board suing asbestos product manufacturers for the cost of removing asbestos products from a school.

12 May 80

Travelers Indem. Co.- v- Dingwell, 12 Envtl. L. Rep. 21,072, 414 A.2d 220, 12 May 1980. Supreme Judicial Court of Maine held pollution exclusion may not bar coverage and, therefore, insurers have a duty to defend against class action seeking recovery for contamination of well water as a result of the insured's operation of an industrial waste facility.

23 May 80

The Fisher Working Party forward their Report "Self-Regulation at Lloyd's" to the Chairman of Lloyd's. The Working Party met on seventy-nine occasions, and received four hundred and thirty-seven written submissions all of which we have read with care. We received written evidence from Market Associations, Lloyd's Underwriting Agents Association (L.U.A.A.) and Lloyd's Insurance Brokers' Committee (L.I.B.C.); from Underwriters, Underwriting Agents and Lloyd's Brokers; from many individuals who work, or have worked, at Lloyd's including present and past Chairmen and Deputy Chairmen and members of the Committee of Lloyd's, and from many non-working Names; and from firms of Panel Auditors. We also received written evidence from a number of Brokers in the U.S.A., and from Lloyd's General Counsel in the U.S.A., Attorney in Fact in Illinois and Attorney in Canada. Seventy-two individuals accepted our invitation to appear before us in person. (A list of the witnesses who gave oral evidence is contained in Appendix 1.) We wish to express our very real thanks to all those who have given evidence to us, either orally or in writing.

Chapter 9

Members of Lloyd's and Underwriting Agents. Sub-paragraph:- Information Available to Prospective Names, page 51; Recommendation, page 53, para 9.15.

Chapter 12

Ownership of Underwriting Agents by Lloyd's Brokers and Non-Lloyd's Insurance Interests. Sub-paragraphs:- Recommendations of the Cromer Report, page 74; Risk of Abuse, page 75; Actual Abuse, page 77.

Chapter 23

Audit. Sub-paragraphs:- Syndicate Accounts, page 139; Panel of Auditors, page 140.

Chapter 27

Miscellaneous Matters. Sub-paragraphs:- Settlement of Claims, pages 150 and 22; Tonner Policies, page 150

Appendix 1

Witnesses who gave oral evidence, include inter alia D J Greene of LeBoeuf, Lamb Leiby & MacRae, Lloyd's U.S.A. General Counsel.

5 Jun 80

A G Wrightson & Others, Non-Marine Syndicate 90, memorandum to Ray Barry of Winchester Bowring advising in relation to ‘Large Claims', i.e. Asbestos, D.E.S. and Agent Orange, that "we have taken a pessimistic view of these losses when establishing our reserves. At 31 December 1979 our reserves, including a contingent figure in addition to that suggested by our lawyers, was approximately $3m."

Jun 80

First approach by Winchester Bowring to R H M Outhwaite for unlimited run-off reinsurance for Wrightson Non-Marine Syndicate 90.

12 Jun 80

An Unlimited run-off reinsurance placed for the Universal Insurance Company to incept 1 January 1980 covering 1968 and prior years. Outhwaite 317/661 wrote 50%.

18 Jun 80

General Meeting of Members of Lloyd's: Statement by Peter Green, Chairman

The audit of underwriters' accounts as at 31st December, 1979 has been completed for all syndicates, other than those involved in the Sasse affair. The Department of Trade have granted our request for an extension. Nevertheless, I anticipate the Lloyd's Global figures will be available at the usual time in September.

I have been particularly concerned that Members of Lloyd's should fully understand the issues involved in the High Court action relating to the Sasse Syndicate, the hearing of which has been fixed for January 1981, and took an exceptional step in writing on 17th March to all Members, when I sought to explain the major issues raised by this litigation. I hope that it helped to put the Sasse affair into proper context. Turning to the question of Lloyd's response in the forthcoming legal proceedings, we believe that our defence provides a strong answer to the claims made against Lloyd's. I would like to take this opportunity of thanking Mr. Basil Edmunds and his team for all they have done in providing our legal advisers with the information needed to construct such a comprehensive defence.

Recently you may have read in the press that a secret meeting had taken place between myself and various underwriting agents who had Names on the Sasse Syndicates, together with our legal advisers. The object of this meeting was apparently to work out a compromise settlement. No such meeting took place.

I do not blame the journalist for writing this. He was obviously fed incorrect information which he accepted in good faith and it is because this can happen that I am so concerned in this particular instance.

In a case of the complexity of the Sasse litigation, with so many parties involved, meetings between our solicitors and counsel and ourselves are taking place all the time. With a pre-trial conference before the Judge due to be held shortly to settle the trial procedure, meetings are also taking place constantly between the parties' solicitors. It would be naive to think that with so much money and expense involved as in this case, opportunities or ways to seek an out of court settlement are never discussed. Of course they are, as in any other litigation.

To read about such discussions in the press or hear of them by way of market gossip, only raises the hopes of some and causes frustration in others. I hope that in future, parties to confidential discussions, whether it be on Sasse or anything else, will respect the confidentiality they expect from others.

On a number of occasions during the past two years, there have been suggestions that the Committee of Lloyd's should use some of the resources available to it to make loans to Underwriting Members who sustain heavy losses. Advocates of such a step doubtless have had in mind that the Central Fund might be used for this purpose. These suggestions display a basic misconception which I wish to dispel. The purpose of the Central Fund is not to assist Members to cover their losses. It was created to protect policyholders for payment of their valid claims if a Name defaults. Even then these moneys cannot be withdrawn from the Central Fund until the Committee has declared the Name in default and this is not done until the Underwriting Agent has assured the Committee that as many as possible of the Name's assets have been realised, including his Lloyd's deposit.

The Central Fund may also be used for the advancement and protection of the interests of the Members of the Society, but our legal advisers say that this means the interests of the membership of Lloyd's considered as a whole. Furthermore, such use is still subject to the proviso that the Central Fund cannot be used to pay a Member's claims unless he is first declared in default.

Thus it is frequently and correctly stated by way of explanation that the Central Fund exists to protect the insured, not the insurer. So far as the funds of the Corporation of Lloyd's itself are concerned I am advised they may not be used for the purpose of making loans to cover underwriting losses of individual Members.

Notwithstanding these restrictions your Committee, with the assistance of its bankers, has been able to make available to the Names in the Sasse Syndicate very substantial loans to cover their audit liabilities, pending the outcome of the litigation.

I now turn to the disciplinary procedures which are set out in Lloyd's Acts. They are cumbersome, requiring in some cases the appointment of arbitrators to determine guilt before the matter is considered by Members in General Meeting. This had led to delays. In other cases, the delay has been aggravated by pending litigation. Your Committee must find better disciplinary procedures.

This year we expect the number of candidates for Membership to be about 800. This is a reduction from the exceptional figures of recent years but is much more in line with the usual intake.

At the meeting of Members in November, 1979 my predecessor explained that the Committee believed that all members should raise their deposits to the level required of new Names within five years. Underwriting Agents were subsequently told that consideration would be given to bringing Members into line with the present means to premium limit ratio within the same period.

It has now been decided to defer action upon these proposals until after the recommendations of Sir Henry Fisher have been fully considered. However, the Committee has decided-in the interests of overall security - that Members will be asked to confirm every four years that they still possess the means shown at their last Means Test. Full details of the programme for this confirmation of wealth will be given to Underwriting Agents shortly.

We welcome the implementation of the EEC Co-Insurance Directive which came into force on 2nd June, and we are eagerly looking forward to the time when it is universally recognised that we have a free market for insurance services in the European Community.

You will recall that the Department of Urban Archaeology undertook a dig in the basement of Lloyd's Old Building. You will, I am sure, be pleased to learn that our collaboration with the Department earned The Times Award for the best contribution to archaeology in the United Kingdom by a commercial, industrial or business organisation.

Demolition of Lloyd's Old Building and Royal Mail House is due for completion in January next when the work of construction will begin. Bovis Construction Ltd. have been appointed management contractors. Since the appointment of Richard Rogers & Partners as architects of the New Lloyd's Building there have been many meetings with the numerous Authorities who advise on or control City developments. There have also been many meetings of the technical and redevelopment working parties, the market users group and the redevelopment committee at which the needs of Lloyd's have been discussed with architects, engineers and surveyors. As a result of these deliberations your Committee was recently able to approve the plans and design of the New Building as shown in the form of a model. There is of course much detailed design still to be done.

Arrangements have been made for the model together with plans and drawings to be shown to Members in room 128 on the first floor from 10.00 a.m. to 5.00 p.m. on each working day up to and including Wednesday, 25th June. In response to Market comments and recommendations it has been agreed that the Captains' Room together with other catering and coffee facilities will be provided in the New Building. In addition your Committee has decided that the present Committee Room restored to the original designs of Robert Adam will be located in the New Building together with the Dining Room preserved from the Old Building. The offices for the Chairman and Deputy Chairmen will also be there.

The model and drawings show an additional gallery floor which it may be possible to include within the total floor space of 562,000 square feet allowed by outline planning permission. This possibility is still being discussed with the Authorities. If they approve, your Committee is satisfied that the extra floor will be a valuable investment as the shortage of office space in the City is expected to continue.

When the redevelopment project was launched in 1978 estimates were produced by our advisers which showed that the building proposed by the architect, with associated fees, would cost around £45 million at 1978 values. This budget allowance was arrived at in advance of a design and it was recognised that the ultimate cost of the building would depend not only on the final specification which could only be determined after a great deal of additional study, but also on the impact of inflation in the building industry from 1978 until the date of completion.

Having regard to the changes to which I have referred, the cost of the building and associated fees is now expected to be approximately £55 million in 1978 values. Inflation in building costs from mid-1978 to April 1980 has been approximately 27+% which brings the total up to £70 million. The final figure obviously depends on the effect of inflation from now to the end of the project.

In the summer of 1979 your Committee reviewed the project and the plan to finance the building from a combination of current revenue and bank borrowings and concluded that there was no reason to make any changes. It is proposed that a similar review be carried out during the latter part of 1980 before actual construction begins.

This autumn additional underwriting space will be made available under the existing Room. This will be used until the New Building can be occupied. The 8,000 square feet which will be provided should be adequate to meet new demands for space within the Market and will also enable us to relieve the serious congestion which at present exists in some parts of the Room.

Your Committee is fully aware of the difficulties which will be caused to the Underwriting Syndicates who are being asked to move to the new area but it will be readily accessible from the Room and the brokers' telephone booths will also be situated there.

On 22nd February, at a small ceremony at Gun Wharf, Chatham a perpetuity box was buried containing various Lloyd's mementoes. This ceremony marked the official end of relocation of Corporation Departments to Chatham.

The reference in the Annual Report to changes in the wording of Lloyd's Open Form of Salvage Agreement does not really do justice to the long and often difficult negotiations which are now complete. Our thanks are due to the working party and, in particular, to our Appeal Arbitrator, Mr. Gerald Darling QC, who has steered a difficult passage through some troubled waters, and also to Mr. J. R. K. Beckett who has chaired a number of very lengthy and contentious meetings.

There is no doubt that Lloyd's as a whole is coming under criticism for its daily handling of the routine of insurance-the delivery of the policy or other evidence of insurance, the collection and payment of premium and, perhaps worst of all, delay in the assured receiving the proceeds of his claim, about which I receive frequent complaints from all parts of the World. On investigation of the complaints, the blame is found sometimes to be a combination of faults by the various parties involved, the producing broker, the Lloyd's broker and the underwriters, but too frequently the fault lies fairly and squarely in London. Invidious comparisons are made between payment by local insurers within a matter of hours and the weeks or months that it takes to receive money from London.

The time for exhortation is past. Your Committee and the Underwriting Associations will be giving this subject very close attention in the coming year. It behoves the senior executives of all brokers to examine their systems and performance, not against past standards but rather of what the World and Lloyd's expects of them today. I have given instructions that all complaints of late payment of claims made to the Advisory Department are to be shown either to myself or one of the Deputy Chairmen. Very many of the complaints will as in the past be then dealt with by the Department. Serious cases will be investigated by one of the Chairs.

We have taken some steps already, particularly in the aviation field, but they pale into insignificance when compared to the whole problem.

I am sure that many of you are awaiting some mention of the recommendations made by Sir Henry Fisher and his working party.

We have recently received the Report. It is a lengthy, well-argued document with a large number of recommendations. Your Committee has reached its preliminary conclusions, but you will appreciate that it will be necessary to give such an important Report very careful consideration and we shall have to consult with many people.

We have made arrangements to send copies of the Report to all Members next week, together with the Committee's preliminary views. Copies will be given to the press embargoed until Friday of next week. A press conference has been arranged for Thursday of that week. I am sure those who are prepared to devote the necessary time to reading it will find it a fascinating document.

I know it would be your wish that I should express our deep gratitude to Sir Henry and his working party including those members of the Corporation Staff who formed the secretariat.

The Annual Report states that our Secretary General will devote his attention to the implementation of the Fisher Report, vacating his office at the end of this year. Having now had a chance to study the Report, Mr. Thomas has intimated his wish to vacate the office of Secretary General forthwith because he does not wish to hold that title whilst not being able to fulfil the functions of that office. Your Committee has accepted this request. His knowledge of Lloyd's, its traditions and rules, the functions of all the various Corporation Departments and Market Organisations is truly encyclopaedic. This knowledge will be invaluable in preparing for all the changes which will follow from acceptance of the Fisher Report. Not the least of these will be a new Act of Parliament and subsequently many new Bye-Laws and changes in our Regulations.

On behalf of all the Members, the Corporation Staff and all those connected with Lloyd's both here and abroad I wish to express to him our deep gratitude for all he has done for Lloyd's over the last 30 years including five arduous years as Secretary General.

Mr. Thomas will be succeeded from 1st July by Mr. J. T. C. Hodges.

Members will be interested to know that the Saval Sabbatical Awards have enabled four young people from the Market to spend five weeks studying at The College of Insurance, New York. The award will be made each year and should be of great benefit in developing the new generation of underwriters and brokers.

Finally I would like to mention that on 27th March I signed a contract with the Australasian Salvage Syndicate which gives them exclusive rights to carry out salvage operations over the site of HMS Lutine.

(In the near future approximately 1,500 Members will be asked to provide this confirmation of Means; they will be selected at random but those who have completed a Certificate of Means within the last four years, will be excluded. If any Member is unable to provide proof of assets to the appropriate value, there are a number of different courses available to Members, e.g. the Member may alter the form of assets or rearrange his underwriting commitments. He was fearful of the "Asbestos Cascade" and wanted assurance that Members had the money).

24 June 80

Peter Cameron-Webb writes to the PCW Names stating

During the past twelve to eighteen months I have been engaged on a working party dealing with the Computer Leasing claims. One of the matters which has come up on several occasions are the powers given to us as your underwriting agents under the terms of our agreement. It seems that some of the duties we carry out in the normal way during underwriting and for which we have always assumed we have a mandate so to do, may not be strictly true.

In the light of these facts it is necessary that the mandate given to us under our agreement should be more clearly defined, and also in order to effect any changes recommended by the Fisher Report, I have decided to give formal notice to you to terminate our present underwriting agreement with you.

Later on this year I will be sending a new agreement for you to sign, which I sincerely hope you will, which will be effective from the 1st January 1981. As I have said I do wish to bring our agreement up to date and for it to properly reflect all the duties we carry out or may have to carry out on your behalf as a member of our syndicates.

(P CW wanted to insert "immunity" in his agency agreements! SF/BW threatened to take away Names; they knew what he was up to!)

6 Jun 80

P Green, Chairman of Lloyd's, forwards the Fisher Report to Names.


Asbestos School Hazard Detection and Control Act (Public Order No. of the USA) passed by the U.S. Congress. Asbestos Property Damage Claims have their genesis in this Act. Congress in this Act found that the presence in school buildings of "friable" or easily damaged asbestos created an unwarranted hazard to the health of school children and school employees who were exposed to such materials. Under the Act, Local School Authorities were required to inspect for the presence of asbestos within the schools and to notify parents and staff if asbestos was indeed found. There was very little activity under this Act as it soon became apparent that the inspection and the concomitant laboratory testing was very costly. The School Districts learned, in addition, that abatement activities such as removal or encapsulation or replacement of the asbestos material were so expensive that compliance with the Act was not practical. It offered technical guidance and assistance to schools who were concerned with the potential health effects of asbestos.


Sindell -v- Abbott Laboratories (Case No. 26 Cal. 3rd 588, 507 P. 2nd 924), California Supreme Court 1980. The case concerned a woman who had sustained injuries due to ingestion by her mother of the generic drug diethylstilbestrol (DES). Although plaintiff was unable to identify the manufacturer of the injury-causing product, the court held that where a plaintiff joins in a legal action those producers constituting a substantial share of the appropriate market, the cause of action may be maintained. In such instances, the burden of proof shifts to the defendants to demonstrate that they could not have made the substance which injured plaintiff. Damages are apportioned among those defendants pursuant to their proportionate share of the market. Certificate denied. This is the leading case on market share liability, introduced the concept of "market share", extending to the liability of middlemen and retailers, and sets the tone of the legal theory to be applied in DES cases. Essentially, the case shifts the burden of proof from the plaintiff to the Defendant. . However, the motion alleging contribution of damages according to a concept of market share apportionment succeeded in the Hardy -v- Johns-Manville case, dated 13 March 1981. This is a case which could be very damaging to the defence in the pollution area.


Deregulation and Money Control Act (Public Law Order No. of the USA) passed by the U.S. Congress, which removed the interest rate controls on savings accounts for commercial and Saving & Loan Institutions.


The Asbestos Health Hazards Compensation Act, re-introduced to Congress by Senator Gary Hart, but again not passed. Senator Gary Hart re-introduced this proposed legislation again in 1980, after consultation with Johns-Manville, which in 1972 had moved its world headquarters from New York to the Denver area. Hart as it would turn out, had ties to Johns-Manville and his Bill was, if anything, more favourable to the asbestos industry than Fenwick's proposed Bill. It not only proposed to bar the victims of asbestosis disease from filing suits under the tort system but left the administration of asbestos-compensation claims with the States. Since the provisions of many State Workmen's Compensation Statutes had been heavily influenced by employees and their insurers, the Statutes tended to be grossly biased against claimants. Moreover, all of them required diseased workers, or the survivors of workers who had died, to prove their claim in adversarial proceedings that could be contested by manufacturers. It is true that Hart's Bill, which the Syracuse Law Review later described as being "of questionable constitutionality", and called for the establishment of Federal minimum standards for compensating asbestos workers, providing that such compensation for total disability or death could not be less than two-thirds of a claimant's average gross weekly wage during the highest three of the five years preceding his disability or death. But it proposed that adherence to the minimum standards would be voluntary on the part of the States, and that workers who failed to receive adequate payments would have to file petitions for supplemental compensation with a Federal Benefits Review Board. Both Bills appeared to reflect a desire on the part of their author to accommodate a powerful corporate constituent and, both had been bitterly attacked as Johns-Manville's bailout bills. With such profound shortcomings, neither the Fenwick nor the Hart measures had a prayer of being enacted when they were re-introduced again in 1981.

24 Jun 80

Lloyds List: Defendants fight ship yard asbestosis case award.

25 Jun 80

Lloyd's: Circular letter from the chairman, Peter Green, to the members of Lloyd's

Whilst Parliament in the Act of 1871 said that one of the objects of the Society of Lloyd's was "the advancement and protection of the interests of the Members of the Society", it was all too clear by 1978 that the Committee was sadly lacking in the powers necessary to promote that objective. This led to the decision by Mr Ian Findlay, then Chairman of Lloyd's, and his colleagues that it was time for a thorough review of self-regulation at Lloyd's. The Committee therefore set up a Working Party under the Chairmanship of Sir Henry Fisher. The Report was received at the end of May and I enclose a copy.

As you can see it is a very lengthy Report. The covering letter from the Working Party at the beginning is an admirably concise statement and this is followed by a summary of the main recommendations. It is however necessary to read carefully the whole Report if you wish to appreciate all the thought and argument that lie behind the recommendations. I urge you to do this. Whilst it may appear a daunting task at first sight, you will find it a pleasure to read. It is written in clear simple English, is totally free of any technical jargon and it is so well drafted that to understand it does not require a detailed knowledge of the present workings of Lloyd's. I am sure that when you have read it you will be delighted that you have done so.

The Committee has studied the Report carefully and welcomes the three fundamental recommendations contained therein.

First, the Committee accepts the concept of a Council and believes that the structure and purpose of such a Council as set out by the Working Party is correct, embracing as it does the provision of much enhanced powers of self-regulation.

Second, the Committee accepts the consequential transfer of authority to the Council which the recommendations imply. In particular, it welcomes this because it gives to the Membership a more effective say in the affairs of the Society through its representatives on the Council.

Third, the Committee accepts that a new Act of Parliament is essential to give effect to the recommendations.

The Working Party was clearly concerned to effect a greater degree of control of their destiny by Members of Lloyd's. The Report shows that the percentage of Members attending General Meetings and voting for the election of the Committee is falling and this we believe may continue as the number of Members grows. The Committee believes that the rights of the non-working Members will, through the Council, not only be protected but also their views will be known far more effectively, particularly as any new or changed Bye Laws require a "complete majority" (see draft Bill, Clause 2 and Clause 6 (2) pages 164/165) of the Council.

The Committee's reaction is overwhelmingly favourable to the principles and procedures set out in the Report. Certain of the recommendations must obviously wait upon the appointment of the Council for precise formulation, approval and implementation. Much of the detail will be subject to consultation with the Market through the various Lloyd's Associations and with other interested parties, and by definition will require very searching analysis, before final decisions are made. Some however had been anticipated by the Committee such as new rules for Binding Authorities. These rules are being considered now with the intention of introducing them as soon as possible. Others, such as Premium Limits, are under constant discussion and requirements for new Members were announced last year. Ways to improve the monitoring of premium limits by using new processes are already being examined. The requirements for the annual audit are reassessed every year.

The report addresses itself to a number of aspects of Lloyd's, including its ability to govern itself, the maintenance of its leading role in the world's insurance markets, the position of members, and others. However, one particular aspect which your committee has kept uppermost in mind, id addition to the safeguarding of the policy holder, is the best interests of the underwriting members.

You will be interested in the sections dealing with Members of Lloyd's and the relationship of Underwriting Agents with their Names. Of particular interest will be the recognition that the proposed Council and Committee must play a far more active role in the overall responsibility towards Names without derogating the general principle of unlimited liability. In this connection, there are important recommendations with regard to agency agreements and the duties of Underwriting Agents to their Names.

The proposals in respect of the organisation of Underwriting Agents, and the ownership of Managing Agents present a number of practical problems. Nevertheless the Committee accepts the force of the arguments in the Report and is confident that these changes can be implemented in the time scale envisaged.

To carry out these recommendations we will strive to present a Bill to Parliament by the end of November. Failure to do so will result in a delay of twelve months. Before such a Bill is submitted we will wish to discuss its provisions at an Extraordinary General Meeting of Members. I therefore ask you to retain your copy, especially if you wish to attend the Meeting.

I am sure you will join the Committee in expressing our gratitude to Sir Henry and his colleagues who, supported by a small secretariat, have spent seventeen months in this most painstaking examination of our Society. You may well be one of those who has given evidence and to all those who contributed in any way we must also express our thanks.

Perhaps I can best conclude by quoting from Sir Henry's covering letter to the Report:

"Finally, all members of the Working Party would wish to record two convictions. The first is that recent problems at Lloyd's should not be allowed to obscure the very great success which Lloyd's, despite its antiquated constitution and the restricted powers of regulation over its community, has achieved over so many years and the high reputation in which it is held world-wide, particularly by members of the insurance industry. Secondly, if Lloyd's can be strengthened by the new constitution and self-regulating powers which we have recommended, it will be able to put aside any suggestion that it is not in control of its own membership and affairs and will continue to play a dominant role in the world's insurance -markets."


An article in a very highly-regarded journal, particularly read by lawyers concerned with insurance matters, prior to the heading "products Liability Lawsuits" stated: "Studies since 1965 are numbered in the hundreds and seem only to confirm or refine the obvious - there will be tens of thousands of asbestos-related deaths over the next thirty years." And further under the heading "Products Liability Lawsuits:" "According to one estimate there are currently pending approximately 5,000 bodily injury products liability lawsuits against past and present asbestos manufacturers, distributors, and other suppliers. That is to say 5,000 plaintiffs have seen fit to seek legal recourse against (that group of defendants) and a host of other national, regional and local defendants. Secretary of State Califano ... said that an estimated 8 to 11 million .... It hardly takes a mathematical genius to appreciate the magnitude of the current problem. Do not forget that asbestos can also damage buildings by decreasing their market value and necessitating prophylactic repairs. To date, only a handful of property damage claims have been filed, but the New York City Board of Education, which plans to spend $30m in remedying the asbestos problems in its schools, is reported to be looking into legal avenues of recovery. Considering the extensive use of asbestos in the construction trades, perhaps the property damage claims will surpass the personal injury claims in economic terms."

30 Jun 80

Wall Street Journal: reported on page 1, that as of July 1980, Johns-Manville had disposed of some 600 cases at a total cost of $9m, plus about the same amount in legal fees and expenses.

1 Jul 80

A J Archer joined Alexander Howden Underwriting Ltd and appointed Underwriter of Marine Syndicate 868/35 to replace Colin Hart who resigned in June.

Jul 80

A J Archer commenced underwriting a new preferred Marine Syndicate 505/669, managed by H S (Underwriting Agencies) Ltd.

4 Jul 80

Letter from RAG Jackson to EE Nelson. I have been trying to get hold of you for some time to talk about asbestosis ... Jim Ayliffe ... wrote you a letter on the 10th December about the seriousness of this problem. Since that time as you are probably aware it has become even more serious a problem particularly as the split between the exposure and manifestation ....... has become embittered ... a number of people have persuaded me to be the catalyst in getting a working party under-way and it is to this end that Jim Ayliffe and I have been speaking to a number of people in the market. A number of us, such as

Ralph Rokeby-Johnson


Alec Wallace

Lambert Bros

Charles Skey

Edwards & Payne, a Sedgwick subsidiary

Murray Lawrence


and myself feel that the split in the market must be healed and that we must have a more co-ordinated effort through a small working party. The bitterness is between the Marine Underwriters representing the exposure theory and the manifestation Underwriters." And further on states "Apart from the bitterness, I am equally concerned about not only the ultimate cost of asbestosis to the London Market but perhaps more importantly that we should recognise this cost as soon as possible."

Jul 80

The California Supreme Court ruled that employees of Johns-Manville could sue Johns-Manville for concealing dangers in the work place.

Jul 80

Best's Insurance Review published an article entitled "The tangled asbestos liability web. Will insurers be caught" and states under "Staggering legal costs" "Total legal costs by any count be staggering, and can be calculated only as the number of suits unfolds." Then there is a reference to between 8 and 11 million workers being exposed to asbestos as stated by the Secretary of Health, Education and Welfare, J A Califano, in April 1978.

Jul 80

Winchester Bowring obtained two quotations, based on separate terms, from R H M Outhwaite in respect of the unlimited run-off for the Wrightson Non-Marine Syndicate 90. Both were declined by Wrightson.

Jul 80

An Attorneys report to "Underwriters at Interest" care of Sedgwicks about some asbestosis claims in relation to CNA, another well-known defendant.

Jul 80

Letter from Attorneys to underwriters at risk. Assured: ... Nature of claim: asbestosis. Current developments in asbestosis litigation.

Reserves: Since our last report of May 28, 1980 we have received approximately 500 additional cases naming the assured as a Defendant. This brings the total number of cases in which the assured is named as a defendant to approximately 2,300 .... The average disposition cost of an asbestos claim to all defendants continues to total approximately $67 000 ... therefore, we suggest that underwriters increase the gross loss reserve to $460,000 from the ground up for each and every policy year they were on the risk.

25 Jul 80

Asbestos Litigation Reporter: at 2104, published an article stating the situation presently facing the United States District Court for the Eastern District of Pennsylvania is indicative of that in many courts throughout the country. By the latter portion of July 1980, more than 250 asbestos cases had been filed there, causing one law clerk to remark that an "administrative nightmare" had been created.

Jul 80

Wilson Elser Edelman & Dicker reported to "Underwriters at Interest" in relation to Armstrong Cork, another very well-known defendant, and again referred to the current state of the litigation in the United States. The penultimate paragraph states: "In a number of asbestosis suits throughout the country in which Johns-Manville is a defendant, plaintiffs have alleged that the company was guilty of a "corporate cover-up" involving known dangers of asbestos exposure. Discovery in these cases has uncovered written documentation authored by a Johns-Manville physician, containing the results of a 1949 survey at a Johns- Manville mine in Canada. The document, authored by Dr Kenneth Smith ... states that the survey found seven of 708 workers had symptoms of asbestosis. The document added "they have not been told of this diagnosis, for it is felt that as long as the man feels well, is happy at home and work, and his physical condition remains good, nothing should be said."

Jul 80

The California Supreme Court ruled that employees of Johns-Manville could sue Johns-Manville for concealing dangers in the work place.

Jul 80

Following a study by a Working Party under the Chairmanship of Mr R J Kiln, the Committee of Lloyd's decided that there would be certain benefits in permitting Syndicates to underwrite an element of their allocated premium limit in risks which are normally placed in another market at Lloyd's. These changes are described below; they affect the Marine, Non-Marine and Aviation Syndicates, but not Motor.

For the 1980 and Subsequent Underwriting Accounts.

All Marine Syndicates have been allowed to accept 10% of their capacity in Non-Marine risks. Normally these are underwritten as "Incidental" Non-Marine business within the Marine Syndicate. With effect from 1 January 1980, Marine Underwriters have been permitted to establish an independent Non-Marine Syndicate, the capacity of which is not necessarily related to the capacity of the original Marine Syndicate. A few Syndicates have taken advantage of this alteration for the 1981 Account and it is likely that others will follow this course for 1981.

For the 1981 and Subsequent Underwriting Accounts.

From 1 January 1981, all established Syndicates in the Marine and Aviation Markets will be entitled to underwrite business of other markets on the following basis:- Non-Marine Syndicates will be permitted to underwrite "Incidental" Marine risks with a limitation of 5% of their total capacity. Aviation Syndicates will be permitted to underwrite "Incidental" Marine and "Incidental" Non-Marine risks for a limitation of 5% of their total capacity overall.

(It is very apparent that Lloyd's issues regulations, directives etc. upon market practices coming to their attention. The notes of a Panel Auditor at the Panel Auditors' meeting held on 15 January 1982 state "Asbestosis is a latent risk, but has spilled over into both the Marine and Aviation market". The actual date of underwriting certain long tail liability business may disclose that this practice existed prior to 1980, and that the Marine and Aviation markets were already polluted with asbestos related problems and the subsequent pollution problems). (Kiln was under pressure from underwriters).

31 Jul 80

Winchester Bowring letter to J J Meenaghan, Executive Vice President, of the Fireman's Fund of San Francisco, which states:-

If you wish to consider the possibility of our arranging further reinsurance for you, along the lines mentioned in my letter of 31 July, I would still be very pleased to hear from you.

5 Aug 80

Lloyd's Market Circular letter advising of the setting up of the London Market Asbestos Working Party, with ten of its fourteen members belonging to Lloyd's, formally set up.

During the 1970's, existed as an informal association of certain leading Non-Marine Underwriters. Advice was given that reserve recommendations to the market would be based upon an average cost of $75,000 per claimant, bearing in mind that in most suits that have been issued there are multiple defendants a percentage scale was arrived at which embraced the major direct writings within the London Market. Now that matters are developing with some rapidity more Market considerations are presenting themselves of which the following represent some of the issues which require to be considered. The letter stated inter alia:-

As you are no doubt aware the problems of our markets involvement in the claims arising out of asbestosis have been gathering momentum over the past 6 months to the extent that there are now 6 declaratory relief actions pending and more could arise.

These developments have emphasised the importance of there being a co-ordinated approach within the Market to the various problems that are gradually developing in the on-going handling of the Market's interests. You should be aware that during the course of last year discussions took place with those law firms representing the Market's interest to ensure that there was a standard approach to the manner in which reserves were established, and following discussions with each of the firms involved it was agreed that for the present reserve recommendations to the Market would be based upon an average cost of $75,000 per claimant. Bearing in mind that in most suits that have been issued there are multiple defendants a percentage scale was arrived at which embraced the major direct writings within the London Markets and by application of the scale percentage attaching to any particular insured we have been able to ensure that no duplication of reserve arose in regard to the different insureds named in any particular suit.

Now that matters are developing with some rapidity more Market considerations are presenting themselves of which the following represents some of the issues which require to be considered:-

  1. The need to establish co-ordination between the four firms of Attorneys' who are representing Underwriters' interests to ensure as far as possible that there is a consistent approach to the defence effort.
  2. That there be free exchange of information developed as between representatives arising out of reviews carried out of particular insureds accounts which have developed information or claimants who figure in suits issued against other insureds. ...
  3. With the developing accent upon Declaratory Relief and the filing of written interrogatories it is essential that there be co-ordination between both defence Attorneys' and the named Underwriters' to ensure that as far as possible, there be a consistent approach adopted in responses made to interrogatories.
  4. Bearing in mind that well informed sources indicate that the frequency with which new cases are filed is likely to continue at the present level for at least five years consideration needs to be given to the basis which we require our representatives to adopt in their reserve recommendations to the Market. Johns-Manville had indicated that in their opinion there are likely to be between 2,400 and 3,000 cases filed in each of the next ten years and similar statements, although somewhat less pessimist have been made by other firms involved in this litigation. This then raises the problem of whether or not our representatives should be taking into account in their reserve calculations forward projections of claims in regard to both direct and reinsurance business. Bearing in mind the substantial increases in costs over the coming years it will be immediately apparent that reserve projections in this manner will have a serious impact on the Market as a whole and as yet, on the other hand, not to acknowledge the fact that reserves will inevitably increase would be irresponsible.
  5. Problems have and will continue to arise in regard to inward reinsurances with treaties placed in this Market, and it clearly important that there be some consistency on the attitude that may well be adopted in order that the Market can be seen to be acting in common accord.
  6. Inevitably we shall soon reach a point where excess Underwriters' supporting a manifestation approach will be faced with claims presented by insureds following exhaustion of underlying limits on an exposure basis, and it is important that again consideration be given to the manner in which excess carriers respond both to their obligation to provide indemnity and defence.
  7. Arising out of the Market's inability to arrive at a common agreement on the basis on which losses of this nature attach it has been necessary for there to be dual representation on each of the Declaratory Relief suits that have been filed. Bearing in mind that the costs that are likely to be incurred in handling this matter will be extremely high it is essential that careful monitoring be imposed to ensure that some control is exercised and equally to be certain that adequate reserves are established in Underwriters' books to meet on-going Declaratory defence costs.
  8. Regular contact be maintained with the leading Domestic underwriting organisations.

The above items indicate some of the problems that are currently arising out of the litigation that is now being pursued, and it becomes increasingly evident that these various issues will be of considerable significance to the entire Market. This being so it is unreasonable to expect matters to be controlled by the few leads involved and it has therefore been proposed that a joint inter market working party be established which would have the responsibility of considering the day to day problems that have and will develop as this litigation proceeds. It is contemplated that the working party be made up of representatives from the Non-Marine and Incidental Non-Marine Markets and also to include a representative involved in LMX writings. It is intended that the party should include both Underwriters and claims representatives.

The setting up of the working party will in no way impair your ability to participate in the handling of those matters in which you are involved, but is more intended to co-ordinate the Market's interest on a broad basis.

It is suggested that a small working party be formed as soon as possible. ... The following have been suggested as members of this working party and have agreed to serve:

HR Rokeby-Johnson, EE Nelson, RAG Jackson, CHA Skey, D Tayler

Advice was given that:- Lunco will be furnishing the appropriate secretarial needs.

It must be emphasised that the potential involved here is so large and the issue so complicated that we cannot allow a "muddle through somehow approach". Recently with one of the insureds, Eagle Picher, taking depositions of a number of London underwriting representatives it has become clear that the split in the market is serious and that the legal costs involved are going to be astronomical.

The letter is signed by

Committee Member



H R Rokeby Johnson



E E Nelson



R A G Jackson



C H A Skey



D Tayler



The fourteen Committee Members of the London Market Asbestos Working Party:


Committee Member



E E Nelson (Chmn)



H R Rokeby Johnson



D P Tayler


Matthews Wrightson Pulbrook

R A G Jackson


Merrett Dixey

J Ayliffe


Merrett Dixey

C H A Skey


Edwards & Payne, a Sedgwick subsidiary

P E J Cameron Webb



W W Maitland


Janson Green_

J W Pryke



P A Froude

Claims Director

Janson Green

L E Kemp

Claims Director

Lambert Brothers

J R Heath


Weavers/Walbrook/PCW/Minets (L.U.I.)

A J P King





Claims Representatives


C J Ayliffe


Merrett Dixey

P A Froude

Claims Director

Janson Green

L E Kemp

Claims Director

Lambert Brothers

In 1980, Johns-Manville brought an action against its insurers for a declaration of the extent of the coverage of the policies which it had concluded since the 1940's. It had itself previously calculated its insurance protection against claims by asbestos victims at over $600m.

7 Aug 80

Pulbrook Underwriting Management Ltd and Playford Baker & Co. forward the following letter stating: "Please accept this letter as notice that Syndicates 90, 91, 92, 95, 730 and 731 subscribe to the manifestation theory of date-of-loss, and I would be grateful if you could mark your records accordingly." The letter is addressed to

R Hall of Willis, Faber & Dumas in relation to Asbestos Claims - A/C GAF;

P Crane of Sedgwick Forbes in relation to Asbestos Claims - Declaratory Actions in respect of (a) Johns-Manville, (b) G.A.F./Ruberoid, (c) Armstrong Cork;

J Jasper of L Clarkson (Insurance Holdings) Ltd in relation to Asbestos Claims - A/C Celotex;

A Mallboro of Hartley, Cooper & Co in relation to Asbestosis Claims.

8 Aug 80

Position Paper entitled "Intention of Cover Afforded by the 1966 C.G.L. Form" prepared by C J Smith, Underwriter of Non-Marine Syndicate 660, jointly managed by Fenchurch Underwriting Agencies and Birrell Smith Underwriting Agencies, which states:-

  1. Prior to the introduction of the 1966 C.G.L. form, the standard policy in use was drafted to apply "only to accidents which occur during the policy period". The term "accident" was not defined and the insuring clause merely referred to bodily injury and Property Damage "caused by accident".
  2. This phraseology caused no problem where Bodily Injury or Property Damage was caused by a sudden and unexpected event. It was not, however, satisfactory where injuries or damage arose from a gradual exposure to injurious conditions - for example the pollution of oyster beds over a period of year or the illness suffered by individuals who had been exposed to toxic materials for a prolonged period. There this type of loss occurred arguments were inclined to develop on two fronts: first, was the loss caused by an "accident" which some hold should be identifiable in time and, secondly, which policy or policies should respond to the claims for damages.
  3. For some time the more sophisticated buyers of insurance sought to solve the problem by the use of an endorsement amending the policy to place it on an "occurrence" basis. These endorsements usually defined as "occurrence" as including a continuous or repeated exposure to conditions which resulted in Bodily Injury or Property Damage during the policy period. It was fairly standard practice to charge a 10% additional premium for this endorsement. An alternative solution used by many was to purchase "umbrella" coverage which provided similar "occurrences" protection
  4. As the number of disputed claims increased the I.R.B came to the conclusion that a revision of the standard C.G.L. wording was essential. Particular concern had arisen over pharmaceutical products losses where the uncertainties over coverage intention had led to criticism of the insurance industry and a decision was taken to replace the existing wording by one which would eliminate all the uncertainties. The result was the 1966 C.G.L. wording.
  5. The 1966 form abandoned the whole concept embraced by its predecessor that the policy would only apply to accidents occurring during the policy period. The revised wording stipulated that it would respond to Bodily Injury and Property Damage "caused by an occurrence". As "occurrence" is defined as "an accident, including injurious exposure to conditions, which results during the policy period in Bodily Injury or Property Damage". The intention is reinforced by the wording of the definition of policy period which stresses that "this insurance applies only for Bodily Injury or Property Damage which occurs during the policy period".
  6. At the time of the publication of the 1966 form there was a mass of explanatory documentation which made the intention of the drafters quite clear. The uncertainties of the old form were to be replaced by the unambiguous fact that the new policy would be "triggered" by the occurrence of the injury or damage during the policy period. Certainty those Underwriters actively engaged in the business at the time had no doubt as to the significance of the change of format. They would now be exposed to liabilities arising from conditions which had been present for some years but which might result in injury or damage during the policy period. Suggestions were made that the insertion of a retroactive date might be provident where the new wording was being used although, for commercial reasons, this never became common practice. Another suggestion mooted in the Lloyd's Market was that the Insureds should be asked to sign a statement that they were not aware of any circumstances that might give rise to a claim at the time coverage was issued on the 1966 form. Even when the 1966 form was itself revised the I.R.B. confirms that "the former requirements that the Bodily injury or Property Damage must occur during the policy period is now handled under the definition of Bodily Injury and Property Damage".
  7. By conclusion is that the only point at issue on Asbestosis claims is when the Bodily Injury occurred. This may well be for medical opinion to decide but I have no doubt whatsoever that the policies in force at the time the Bodily Injury and for which the insured is held liable, is deemed to have occurred should respond to the losses."

Aug 80

Insurance Monitor Magazine: reported the setting up of the Asbestos Working Party and referred to the possible total quantum of claims at that stage thought to be as much as two billion: "These are purely speculative, and no one yet knows the effect on Lloyd's, which is now beginning to feel the impact of recent American Lawsuits." And further on: "Syndicates may have to check records going back many years to find out what cover they offered, while in the meantime workers may have had several different jobs with a series of employers and worked with asbestos in various forms."

20 Aug 80

letter from Peter Green to Membership

As I indicated to you in my letter of 25th June, 1980 which accompanied the Report of the Fisher Working Party, the Committee of Lloyd's accepted the principles set out in the Report: in particular the concept of the Council, the consequent transfer of authority to that Council and the promotion of a new Act of Parliament. I went on to say that much of the detail will be subject to consultation with the Market and other interested parties and will require very searching analysis before final decisions are made. Indeed, much of the implementation must of necessity await the appointment of the Council.

During the past two months the Committee has been consulting, among others, the Market Associations. All the Associations support the Committee in its view that it is necessary that a new Act of Parliament establishing a Council should be sought. The Associations did, however, express reservations about certain points and these will form part of the continuing discussions with them. The support of the Associations and further consideration within the Committee of Lloyd's have reinforced the Committee's conviction that the new Act and Council are essential if we are to have the self-regulatory powers required for the future.

The first step along the road to implementation will be the presentation of a Bill to Parliament. In order to comply with the rules of Parliament we must call an Extraordinary General Meeting of Members to seek approval of the promotion of the Bill. This meeting will be held in London on the morning of either 3rd November at the Royal Festival Hall, or of 4th November at the Royal Albert Hall. The actual date will depend on how many Members indicate an intention to attend.

Parliamentary rules require that, in order to promote the Bill, not less than 75% of those voting at the meeting must be in favour. Voting on this occasion may be in person or by proxy. It will be important to show that a considerable proportion of the membership voted.

Nearer the date of the meeting further details will be sent to you, including proxy forms.

In the meantime, it would be extremely helpful to the Committee when preparing for the meeting if you would indicate on the enclosed questionnaire:-

(i) whether you hope to attend the meeting, and

(ii) your support for the three fundamental issues mentioned in the first paragraph of this letter.

The views that you now express are not in any way binding and cannot be counted towards the 75% majority referred to above. However, it will be helpful to me in the final drafting of the Bill to have the views and support of as many Members as possible.

I enclose an envelope for the return of the questionnaire.

21 Aug 80

Colin Hart resigned from the Alexander Howden Board, having resigned totally from active underwriting in June 1980. The DTI Inspectors investigating the Howden Affair were told that his heart was not really in the job, and that he was " ... an outdoor man and would be happier hunting, shooting, and fishing rather than underwriting at Lloyd's .... the joint chairmanship (of AHUL) with Ian Posgate did not rest too happily on his shoulders. Really he preferred the open air life".

Aug 80

Letter number ... from Attorneys to the insurers at interest. Assured: ... Claim: Asbestos-related claim review.

Even assuming no further delays on the part of the assured, it will no doubt be several months before we are able to assimilate the data on these thousands of claims and render our final report to underwriters.

25 Aug 80

Business Insurance: Waste liability spills forth Waste Liability Spills Forth

.... undefined liability for cleanup of old dumps under decade-old liability policies ... estimated 1200 abandoned waste dumps ....

Law Suits filed against Hooker by Love Canal residents have hit $3 billion ....Insurance companies are also worried about the bill. Many acknowledge they have no idea what their ultimate involvement in the cleanup will be.

27 Aug 80

Meeting of the Asbestosis Claims Working Party:

Present: C J .Ayliffe etc.

E E Nelson elected Chairman. In the Chairman's absence Mr Ayliffe opened the meeting by emphasising to members that the purpose of the Working Party was to deal with overall market problems and it was therefore important that there should be seen to be complete impartiality in regard to the manifestation/exposure attitudes that exist .... Present indications are that the rate at which law suits are being reported will continue for at least the next 5 years, and that projections indicate that by that time there will be some 25,000 cases in being .... Mr Ayliffe suggested that the first meeting should consider three issues which were:

  1. The manner in which we require our attorneys to approach the question of reserves, bearing in mind the indications of the steady increase in suits over the next few years.... A general discussion followed on the three issues and the salient points were: ....
  1. It was recognised that whatever approach was adopted by a particular Underwriter or Company they would undoubtedly use their discretion on posting reserves which produced to them their highest involvement, even though that reserve may not necessarily be in line with the position that they were advocating.
  2. it was important not to adopt an unreasonably pessimistic approach which could mislead the Market in considering the reserve problem. Before making recommendations to the Market it was felt essential to canvass the views of all attorneys involved in this problem in order that the Working Party could digest the various views that are expressed and then formulate some responsible approach to the manner in which reserve projections should be approached if it was accepted that by the time the views of the various firms of attorneys had been received it would most probably be too late to issue any recommendation that would have the effect of materially inflating reserves for the purpose of the year end closing. Nevertheless it was felt that it was more responsible to take the time to give reasoned consideration to the problem rather than adopting the alternative course of simply setting reserves on a full projection at full costs basis....

Recommendations. The Working Party agreed that:

  1. A course of action to determine reserves should be recommended to the Market which, if possible, should be provided prior to the year end closing ... It was reported that Mr Orgelfinger of Mendes & Mount will be in London during the course of the coming week and has offered to generally discuss the problems of asbestosis with the Working Party and a meeting has now been set to take place on Friday 5 September.

28 Aug 80

National Institute of Environmental Health Sciences: Estimated Cancer Risk Associated with Occupational Asbestos Exposure

A paper entitled published by Michael D Hogan and David G Hoe. This paper estimates the number in the united States who were occupationally exposed to asbestos during and after World War 11 and assesses the impact of this exposure on overall cancer mortality. The results suggest that over half of the estimated 7-8 million potentially exposed workers employed between 1940 and 1970 may still be alive and at risk of dying from some form of asbestos-related cancer. While the maximum number of excess cancer deaths associated with this occupational exposure is likely to occur sometime in this decade, such deaths will continue to be seen for many years thereafter. At their peak, these deaths may amount for an estimated 3% of the annual cancer death toll, with an associated range of 1.4 - 4.4%.

Aug 80

Letter from CJ Ayliffe to Attorneys.

I recently attended the first meeting of the Working Party and one of the initial points to which we wish to give consideration to the approach which the market should be adopting towards the question of reserves: we are acutely aware that some positive instructions should be given to all attorneys involved in this matter in order that we achieve uniformity of handling. It was the view of my colleagues that it would be helpful in considering this question if each of the firms that are involved can give their own independent assessment of how they see, from the accounts which they are handling, the likely development in the future as more and more suits come in. Of equal relevance to this issue is the current reserving basis that has been adopted by the Market and the point in time that this will need adjusting upwards to take care of inflationary trends, and also the likelihood that costs incurred in defending these actions will shortly become the burden of excess Underwriters as primary aggregates become exhausted. It seems to me that the knowledge you have of the number of cases that have been filed to date and the average cost of those that have been settled, both in regard to indemnity and defence costs, should give us an initial basis on which to work. The more intangible aspects of this problem relate to development of loss reports in the future, and in this regard it would be helpful if you could relay the views that have been conveyed to you by those accounts which you are handling, and perhaps express your own feelings on how you see the future developing in this overall problem. It would be helpful if you could provide me with a response to this enquiry not later than the end of September in order that the Working Party may analyse the results of the enquiries to consider what recommendations should be made to the Market and indeed to those attorneys who are representing our interests.


U.S. Department of Labor: An Interim Report to Congress of Occupational Diseases, 1980

US Government Publication. Paragraph 96-97 sets out the cost of litigation:

These costs are much higher where a case is disposed of by means of court verdicts; on average 95 cents will then be expended for defence costs for every dollar paid for the bodily injury claim. In addition to these legal costs, the insurer also incurs normal administrative expenses.

2 Sep 80

Lloyd's List: Lloyd's to look into asbestosis.

A working party has been set up at Lloyd's to help co-ordinate the handling by underwriters of the thousands of asbestosis claims which are arising in the United States.

Sep 80

Alexander Howden appoint M J Harris to replace J S Miles on Non-Marine Syndicate 947 and 391.

8 Sep 80

A stop loss $500,000 xs $500,000 reinsurance placed for D J Walker, Underwriter of Non-Marine Syndicate 164 managed by Gooda Walker to incept at 1 January 1978 covering the 1968 - 1975 years. Outhwaite 317/661 wrote 25%.


Maximum Premium Income Limit £350,000 increased to £450,000 (+28%) for 1981 year of account. Deposit ratio requirement 1:5 (20%) increased to 1:4 (25%) of premium Income Limit.

Sep 80

Forum Magazine:

The publication of the American Bar Association, published a well written and entirely accurate report setting out the history of the asbestos problem. Half way down, the author states: "As we have seen, within the past few years, with the development of the asbestos industry, an entirely new and devastating element has been introduced into our environment. ...

A tremendous amount of litigation, ... It is estimated that, for the balance of this century, 20,000 asbestos workers will die annually as a result of exposure to the product. Thus, we can expect this flood of cases to continue and even to increase."

And further: "The situation is growing in another direction. These cases started out involving only insulation workers. We are beginning to get cases involving persons who were peripherally exposed to asbestos, including the wife of the asbestos worker who washes his clothes, the worker in some other trade who has worked on jobs where asbestos insulation has been installed, and even members of the general public who have simply had the misfortune to be in a locality where asbestos fibres are in the air or even in the water."

And further on: "The mere fact that we have now become aware of the hazards of asbestos, to the extent that substitute products can be used, does not afford a solution. Asbestos by its very nature is almost indestructible and there remains thousands of installations containing asbestos which ultimately will be removed, with the necessary release of asbestos fibres into the environment. I am told that there is an entire housing project in Puerto Rico built from wallboard containing asbestos. Practically every ship in the US Navy contains much asbestos insulation.


It seems to me that we are inevitably going to have to have some sort of Federal Compensation Law covering asbestos-related diseases. I would have in mind a statutory Enactment like the Black Lung Legislation." The Black Lung Benefits Act was enacted in 1976, being a scheme introduced in the United States to deal with pneumoconiosis.

Sep 80

WIR: Law and Regulation

The rise in the number of lawsuits presents the most serious problem facing the U.S. insurance industry, according to American Insurance Association president T Lawrence Jones. He told an AIA seminar in September 1980 that the public needed persuading to support tort reform.

Sep 80

Letter from Attorneys to CJ Ayliffe, Merrett Dixey Syndicates: Re ...

You are no doubt aware of this tremendous volume of pending litigation involving asbestos, the high rate of new filings, and what appear to be increasing verdicts. These general factors, combined with the preliminary information gathered in our claims review, leads us to be concerned that the present method of reserving (as we understand it) may be under estimating the exposure of underwriters.

17 Sep 80

Interoffice correspondence from L W Biegler Inc. to Reinsurers

Owens-Corning Fiberglass: Asbestosis Litigation

We recently received information from the primary carrier, Aetna Life & Casualty, regarding the many asbestos related losses presently pending throughout the nation. At present approximately 4,000 separate actions are on file. New actions are initiated at the rate of approximately 150 per month. In view of the magnitude of the litigation and in light of our level of attachment, we have elected to monitor developments on an aggregate as opposed to a specific case basis.

Below, please find a schedule of amounts paid and reserved by the primary carrier:









$ 253,736


$ 610,819



$ 330,518


$ 780,203



$ 943,005







$ 922,568





$ 728,175





$ 108,713

As the North River policy attaches at $25 million in underlying insurance, there appears no imminent threat to our layer of coverage. However, we will continue to solicit information from the primary insurer on a periodic basis in order to monitor the erosion of the aggregate limits of liability.

This information is certainly not a guarantee that the funds of our layer of coverage will not become involved.

Sep 80

Peterson Ross, U.S. appointed attorneys reported to "Underwriters at Interest" in relation to Celotex and state at paragraph two:

"The uncertain corporate history of Celotex, Carey ... and their predecessors and successors makes it impossible to determine with any certainty at this time what policies are relevant and provide coverage for the Celotex Corporation. This problem is presently being litigated in .. an action in Tampa, Florida."

And further on: "You are no doubt aware of this tremendous volume of pending litigation involving asbestos, the very high rate of new filings, and what appear to be increasing verdicts. These general factors .... lead us to be concerned that the present method of reserving (as we understand it) may be under-estimating the exposure of underwriters. We will do our utmost to give underwriters as helpful information as we can, just as soon as we can."


During the Outhwaite case in 1991, it was argued that not only were property damage claims completely unforeseeable as late as the summer of 1981, but that claims of that sort, sometimes known as the "Third Wave" claims, were something of which there was no reasonable foresight when Mr Outhwaite wrote the 51 run--off policies.

0 Oct 80

Lloyd's Log: Keith Brown fund guests at Lloyd's

At the beginning of October Mr C. H. A. Skey hosted an informal dinner marking the start of a one week study tour of the Lloyd's market by a group of seven young Americans as guests of the Keith Brown Fund. This was the second project undertaken by the fund and followed the successful study tour to New York by a group from Lloyd's in May 1979.

The seven in this year's group came from locations in the United States as far apart as San Francisco, Houston and New York and included a representative from Le Boeuf, Lamb, Leiby & MacRae and from the Lloyd's Attorney-in-Fact offices in Illinois and Kentucky. The other four members of the party consisted of brokers and underwriters from four well-known insurance organisations.

The advisory committee of the fund had organised a full programme for the week, which included a day spent with a broker, another at a box with an underwriter and a third at the Corporation of Lloyd's administrative headquarters at Chatham.

For most members of the group this tour had been their first opportunity to come to London and their initial reactions were that the project for them had not only been very exciting but also very valuable to them in understanding the Lloyd's market and its operations.

Pictured above, from left to right, are:-

Mr Charles Skey


Mr Philip Johnson (secretary)


Mr Kenneth Wylie

Lord, Bissell & Brook, Chicago

Mr Bob Daniels

J. Blades & Co, Houston

Mr Arthur Pagram

Lloyd's aviation underwriter

Mr Charles Gibb

A Deputy Chairman of Lloyd's

Sir Henry Mance

Chairman of the Keith Brown Fund advisory committee

Mr Peter Demmerle

Le Boeuf, Lamb, Leiby & MacRae

Mr Peter Green

Chairman of Lloyd's

Mr John Osaben

Chubb & Co, New York

Mr Timothy Koo

Fireman's Fund, San Francisco

Mr Bill McCarthy

J. H. Crowther Inc, Omaha

Mr W. Bruce Isaacs

Attorney-in-Fact's office, Kentucky

Mr Alec Higgins

A Deputy Chairman of Lloyd's

Oct 80

Letter from Attorneys to underwriters at Lloyds, c/o Merrett Dixey syndicates. Attention: C J Ayliffe.

We can provide data as to the loss payments and costs incurred by certain of the American assureds thus far in the trial and settlement of asbestos claims. We believe that these statistics form a reasonable basis from which to estimate probable future loss payments and expenses to be made on behalf of these assureds. The resolution of the manifestation -v- exposure issue obviously is of monumental significance. We note that in regard to Johns-Manville, Lloyds would be on risk on 31% of all of the years of alleged exposure by the asbestos claimants. However, Lloyds would be on risk on only 7% of the claims if the manifestation rule is adopted and this percentage would no doubt decrease with future claims under the manifestation rule.

Estimate as to the number of future claims: It is widely accepted that asbestos liability will be the most significant legal and loss cost issue in the history of the insurance industry. This is because of the almost incredible widespread use of this mineral with its unique combination of heat resistant and tensile strength characteristic. It is estimated that there are as many as 3,000 different products in daily use throughout the world containing asbestos. There is no reasonably priced material which can outperform this product and its use is so necessary that despite its obvious dangers it still has not been banned by the United States government.. The number of potential fixture claims is staggering. The Secretary of the Health, Education and Welfare Department of the United States stated on April 26th, 1978 that he estimated 8 to 11 million American workers were exposed to asbestos since the beginning of World War 2. Dr Selikoff, a renowned scientist in the field, predicted 20,000 asbestos related deaths per year in the United States until the turn of the century ... Similarly in 1978 a study by 3 federal agencies projected that in the next 30 years 13-18% of cancer deaths would be asbestos related ... In any event it is our opinion that due to the long latency period of the asbestos diseases we can continue to expect thousands of new asbestos claims at least into the 1990's. This is because it does not appear that any strict safety precautions were taken in the insulation trades or asbestos manufacturing industries prior to the late 1960's and early 1970's. Most of the claims files to date have involved insulation workers in either the ship building or construction trade industries. However, there were an estimated 4 million people employed in the ship building industry during World War 2 and we believe it is reasonable to expect many additional future claims from this source. For example, we note that there have been more than 950 law suits filed in Pennsylvania Courts by former workers in the Philadelphia Naval ship yards. We are advised there are several thousand more claims likely to originate from this source. The same can be said for the 300 Suits pending in Mississippi and the 190 suits pending in Connecticut and the 1,600 suits pending in Los Angeles which all arise from asbestos diseases sustained by shipyard workers in Hawaii, but we estimate that claimant attorneys predict that 500 suits will eventually be brought in that area. We also anticipate a greater level of additional suits in the Virginia, San Francisco and Seattle areas. Similarly, very few claims have been brought to date in industrial areas such as Chicago , St. Louis, Detroit and Pittsburgh. Yet, we note that more than 270 suits have been brought in industrial New Jersey and more than 100 suits have been brought in Ohio and 82 suits have been filed in Knoxville, Tennessee. It is only reasonable to assume that a great number of claims will ultimately come from all of the major industrial areas.

Prior asbestos verdicts and settlements. Despite the 8,000 or more cases filed to date there have to our knowledge been only about 25 asbestos products cases tried to Verdict thus far. The results are surprisingly even with both the plaintiffs and defendants winning fifty percent of the time. However, Underwriters should mark the size of several of the jury verdicts in favour of the plaintiffs .... It would seem evident from the size of these awards that the asbestos claims can be presented in such a manner so that a jury believes the asbestos producers and manufacturers did not properly warn of the hazards of their products.

Prospects of indemnity relief from other sources: Several of the asbestos product manufacturers have attempted to seek indemnity or contribution relief by bringing third party actions against the companies who supplied the manufacturers with the raw asbestos. We believe these third party actions could be deemed to have merit and represent a serious potential exposure to the suppliers ... A second mode of indemnity or contribution relief attempted by the asbestos manufacturers has been against the United States Government. Underwriters should note that the Federal Government contributed substantially to the 1977 Tyler, Texas $20,000,000 settlement with 445 asbestos workers. Since that time, however, the United States Department of Justice has vigorously refused to contribute to any asbestos settlement. The Department has a staff of more than 60 attorneys defending more than 92 indemnity and contribution claims brought against the United States Government. Johns-Manville and Keene Corp. have appealed the dismissal of their indemnity claims against the U.S. Government arguing that their asbestos products were fabricated precisely as instructed by the United States Government. They also argued that it was the Government that was responsible for the unsafe conditions in the shipyards. In this regard it should be noted that the United States General Accounting Office reported to the Congress that the U.S. Navy did not follow safe work practices at the Norfolk Naval Shipyard in Virginia and at the Long Beach Naval Shipyard in California we believe it not unlikely that sooner or later courts will permit indemnity or contribution actions against the United States Government which could provide some relief to the asbestos manufacturers....

The potential claims against asbestos employers: since the early 1930's awards have been paid in workman's compensation cases for asbestos related diseases. However, it was believed until recently that the sole remedy of these employees was under the local Compensation Act. The Supreme Court of California in the Rudkin case, however, recently ruled that an employee can sue Johns-Manville directly for fraud in concealing the dangers of working with asbestos. This decision, if followed elsewhere, could open the door to a great number of suits under the employers liability policies.

The possibility of intervention by US Government: .... In 1977 an "Asbestos Health Hazards Compensation Act" was introduced into the House of Representatives but was never brought to a vote. This bill was re-introduced in 1979 in the 96th Congress calling for the establishment of a compensation program in lieu of tort remedies for persons afflicted by asbestos related diseases, which would be similar to the Black Lung Program for coal miners. Benefits would have been funded by the United States Government, asbestos suppliers, miners, manufacturers, etc., as well as by the tobacco industry. Subsequently, in June, 1980 a bill was introduced by Senator Hart of Colorado which utilised the state Workman's Compensation scheme as its basis. This bill also would eliminate third party litigation. Hearings on this bill were scheduled for September, 1980. If the state benefits currently being paid to the disabled employee would be less than the federal minimum then the difference would be paid by the last private or public employer who exposed the worker to asbestos. It is believed that support for the Hart bill is mixed in the asbestos industry and that the insurance industry has not taken a position ... It would appear that any federal relief to insurers is fairly remote at the present time.


It is our view that Underwriters for the time being can continue to reserve each claim on the $75,000 basis previously suggested by their counsel. However, we believe that more sophisticated information is now available and that a reallocation of percentages among the various assureds would now be useful. As indicated we believe the number of claims will continue to increase for the next several yearsassigned to the various insulation manufacturers involved in asbestos litigation.


Protection of Trading Interest Act 1980 receives Royal Assent.

Oct 80

Office of Technology Assessment, U.S. Congress: Assessment of Technologies for Determining Cancer Risks from the Environment

U.S. Federal Government publications: In process of being published by the (in press).

3 Nov 80

City Forum Meeting: A Parliamentarian's view of insurance institutions

The November meeting was addressed by Jonathan Aitken MP. Mr Aitken's talk was mainly concerned with the Lloyd's market, and ranged from his previous experience as a journalist, touching on the public interest, the Fisher Report, self-recognition and fraud, and was highly topical with the meeting of Lloyd's members being held the following day at the Royal Albert Hall.

4 Nov 80

Extraordinary General Meeting of Members, of Lloyd's: Address by Mr Peter Green, Chairman

(The "Wharncliffe Meeting" held at the Royal Albert Hall to propose the Lloyd's Bill.)

May I welcome you to this Extraordinary General Meeting of the Members of the Society of Lloyd's. It is probably the first occasion on which such a meeting has been held away from Lloyd's premises since the Royal Exchange was burnt down in 1838. The number of Members who indicated their wish to be present made it essential for us to find a venue for the meeting away from Lloyd's. There is no doubt that the number of Members present today is a record in the history of the Society; while I am not yet certain of the exact number, I am informed that it is more than over 3,700. I am grateful to you for taking the trouble to be present, as I am to the many Members who have indicated their views by way of proxy. When Lloyd's promoted its first Act of Parliament in 1871 there were 673 Members. At the time of our most recent Act in 1951, there were 2,931 Members and 435 attended the Wharncliffe Meeting which was held at Lloyd's.

We are assembled here as Members of Lloyd's in response to a summons from your Committee to an Extraordinary General Meeting for the purpose of promoting a new Act of Parliament. We can only proceed if both the Committee and Parliament are satisfied that the Resolution which we are to consider has been passed so as to comply not only with our own Byelaws - thus satisfying the Committee - but also with Parliament's Standing Order for Private Bills as first laid down by The Earl of Wharncliffe (in the 19th Century). Our own Bye-laws require only a simple majority, which can be determined by a show of hands. The Standing Orders of Parliament, however, require the Bill to be consented to by a majority representing three fourths of the Members voting either in person or by proxy at the Meeting. A poll can be demanded by three Members. I have here such a demand and at the end of the Meeting I will give you the procedures which are to be adopted.

Before I turn to a discussion of the Bill itself, I have to draw your attention to Byelaw 35, which states that "none but Members may be present at General Meetings". For this reason we have not been able to admit members of the Press to this meeting. There are, however, Members of Lloyd's who are themselves members of the Press and some of them may be present.

By tradition, the Secretary General and other members of the Corporation Staff have always been present to assist the smooth running of the meetings. I am sure you will agree it is today even more necessary for certain Corporation and Albert Hall staff to be present to assist with and to record the meeting.

I have also asked three of our senior legal and Parliamentary advisers to be present, in case there is a question which your Committee could not readily answer. May I take it that there is no objection to the people I have described being present at this meeting?

As far as the Press is concerned, I shall be holding a Press Conference immediately after this meeting, but I will not identify to them the personal views expressed by any Member. A copy of this speech will be released to the Press and it is my intention that copies should be available for Agents to send to their Names together with the speech I shall give to the General Meeting of Members which is to be held on 19th November to elect the new Members of Committee and for other purposes.

I now turn to the subject matter of the meeting. May I say how helpful the Committee has found the very large response to the questionnaire and the many comments from Members. We have been greatly encouraged by the overwhelming support shown for our proposed course of action.

I think it is right to start by reiterating why your Committee continues to be sure that a new Lloyd's Act is essential. A number of institutions in the City of London which operate a system of self regulation are under critical examination and the failure of self regulation, wherever it may be in the City, attracts wide publicity in the Press.

If, therefore, we are to continue to be able to regulate our own affairs, we have to be sure that those of us at Lloyd's who have the responsibility for such regulation also have all the powers needed to exercise that responsibility. The consequence of our failing to regulate our own affairs effectively will undoubtedly be regulation by Government.

As the Fisher Report makes clear, the powers of regulation at present available to the Committee are quite inadequate. Therefore, we are convinced that we must have a new Lloyd's Act not only for the greater good of the Market as a whole and the general benefit of the Members of Lloyd's, but also in the interests of Lloyd's policy holders. I know that no Member of my Committee would disagree with the proposition that Lloyd's has changed and grown so much over the last 20 years that it is now impossible to regulate it properly under the existing out-dated Statutes and Byelaws.

In the old days, and I will refrain from calling them "the good old days", respect for the Chairs was enough to ensure in almost all cases that the members of the community did not overstep the bounds of what was thought prudent and correct. While I am sure that there is still a very deep measure of respect within the market for the institution of the Chairs, nevertheless, it is clear that the powers which we at present have are inadequate to deal with the problems which we face. If Lloyd's is to continue its history of successful development and expansion, we must have this Bill. It is no use thinking and saying, as some have said, that the Committee could; if it chose to, do what is necessary under the existing rules. It is just not so, as events of the last few years, including litigation, have shown only too clearly.

You will be familiar with the shape of the proposed Bill from the Report of the Fisher Working Party. May I, at this stage, pause and, on behalf of all the Members of Lloyd's, acknowledge our debt to Sir Henry Fisher and the members of his Working Party and its Secretariat. I thank them on behalf of all Members for the enormous amount of work which they put into the preparation of what I believe is widely accepted and acclaimed as an excellent Report. You might like to know I received this morning a telegram from Sir Henry Fisher saying: "Best wishes, and you can tell the Meeting easily understood rules of conduct. But in tying up the numerous loose ends, I am sure we are well aware of the dangers of strangling ourselves and will take every precaution to avoid this.

You will have noticed that the resolution empowers the Committee to accept amendments to the Bill as it passes through Parliament. However, the rules of Parliament do not permit any amendments that will extend the scope of the Bill.

To conclude my comments on the Bill, its central feature, reflecting the concept of the Fisher Working Party, remains unaltered, namely that Lloyd's future will be governed by a Council representing separately the Members who work within the Market and those who do not, strengthened by three nominated members from outside the Society. I believe that Lloyd's will be immeasurably strengthened by a new Council on the basis proposed in the Bill.

I will now propose the Resolution, which reads:-

That the Bill proposed to be introduced in Parliament intituled "A Bill to establish a Council of Lloyd's: to define the functions and powers of the said Council; to amend and repeal certain provisions of Lloyd's Acts 1871 to 1951; and for other purposes", a copy whereof is now laid before the meeting and initialled by the Chairman for the purposes of identification, be and is hereby consented to subject to such additions, alterations and variations as may be approved by the Committee and sanctioned by Parliament.

After taking questions from the floor, the Chairman asked for a show of hands on the resolution, in accordance with Lloyd's Bye-laws. The resolution was passed overwhelmingly.

In response to a request received, the Chairman then announced that there would be a Poll as required under Parliamentary Standing Orders, at which proxy votes could he cast.

The result of the Poll was as follows :-


votes for the Resolution


votes against the Resolution.

These figures include 10,319 proxy votes.

Nov 80

Attorneys sends to RAG Jackson a copy of the recent decision in Insurance Company of North America -v-48 Insulations.

8 Nov 80

Asbestos Working Party meeting.

10 Nov 80

Letter from CJ Ayliffe to EE Nelson re: Asbestosis Working Party

My concern basically stems from the fact that all attorneys who are handling the asbestos problem are aware that the working party is giving consideration to the difficult question that is raised by the manner in which reserves should be approached ... My basic concern on this problem is that whilst I am as conscious as you of the delicate manner in which the year end reserves must be handled, and also fully agree that our obligation must be to provide to the markets sufficient background information to enable them to make the final decision, I am nevertheless concerned that reserves now are possibly lower than they would have been had the working party not come into being. In the case of matters being handled by Mendes and Mount, as I have said, it has been made clear to me that it would have been their recommendation that reserves be increased on a per claim basis and, equally, so far as Lord, Bissell are concerned the reserves they would have put forward would have taken into account some form of projection. Neither of these developments have taken place due to the belief that a Working Party would be providing guidance, and if matters were left as they now stand it would effectively mean that we would be explaining to the Market the imponderables and that any loadings that individual Boxes decided to apply would be attached to reserves which would have already been higher had we not become involved in this problem....

Nov 80

Peterson Ross Schloerb and Seidal, Attorneys, report to the insurers at interest. Letter number ... Assured ... Tampa claims review

… that they had put in a huge para-legal team to investigate a situation in Tampa and try to report what was going on there in relation to claims against Glen Alden Corporation and McCrory Corporation. The report states:

As we have previously noted, the assured has more than 4,000 open claims files, and this figure is growing by approximately 100 each week. In addition, there are more than 500 settled claims files, and claims continued to be settled on a daily basis. The assured claims file possess only the most rudimentary organisation, and we do not believe there is any manner of obtaining the information required by underwriters other than by proceeding with a claim by claim review of each file. Aetna Casualty is alone among the insurers in having paid a significant number of claims. Yet we can confirm that neither Aetna or any other insurer has ever reviewed the insureds claims files. We have reliable but unconfirmed information that Aetna simply paid claims in a possibly deliberate attempt to exhaust its coverage so as to be able to close its files. We are further informed that Aetna has indeed exhausted its limits for certain policy years. If this is so, any information obtained from Aetna, assuming its availability, could not be relied upon in formulating or implementing any rational claim handling policies.

Forty Eight Insulations decision:

As underwriters are no doubt aware, the Court of .Appeals for the 6th circuit has recently affirmed the decision of the lower Court in the Forty Eight Insulations case . .. In Forty Eight Insulations, the Court did not hesitate to state that it was basing its decision on a mode designed to provide the maximum available insurance coverage ... Finding that medical testimony strongly supports the exposure argument and that "cumulative disease cases are different from ordinary accidents or diseases", the Court found that the parties reasonably would have expected that coverage would parallel the theory of liability ... Liability among the insurers, says the Court, is not joint and several, but rather is individual and proportionate. Therefore, if an insurer can show that no exposure to asbestos products manufactured by its assured took place during certain years, it is not liable for those years. However, the valve is effectively closed when the Court makes the burden of demonstrating this exculpating factor purely the insurers'. This burden will be well nigh impossible to carry in many situations.

In the Outhwaite case, it was stated that: "It is absolutely extraordinary that Mr Outhwaite displayed no interest whatsoever in the mechanism whereby underlying claims accruing to the run-off policies were handled, in the competence of those handling them, or anything of that nature."

12 Nov 80

Lloyd's List:

Published an article about an argument that was put forward by some of the asbestos defendants that cigarette manufacturers should share claims.

19 Nov 80

General Meeting of Members of Lloyd's: Address by Mr Peter Green, Chairman

Many of you will have attended the Extraordinary General Meeting of Members at the Royal Albert Hall 15 days ago. Those of you who were unable to do so will no doubt have been regaled with the proceedings.

You all know the outcome, which we regard as extremely satisfactory. The final figures were: in favour 13,219 (99.570/o); against 57 (0.43%); including spoiled papers this represents a poll of 72% of the total membership on the day of the poll.

There are a number of points on which I feel it is right to comment but first I must express gratitude to Mr. Peter Miller and Mr. Victor Hudson and all associated with them for their tremendous efforts in overseeing the production of this Bill on time and the arrangements for the Meeting. We are also grateful to Mr. Jeremy Skinner of Linklaters & Paines, and his staff, who at very short notice devoted themselves almost exclusively to the re-drafting of the Bill. They did an excellent job in a short space of time. For those people who said that we were rushing too much, let me quote what one of our team said. "A tight deadline is no bad thing. Had we had longer, we probably would even then have only just met the deadline and the Bill would probably have been no better".

In anticipation of the new Council of Lloyd's, we have already set up a number of task forces. Over the coming months, they will devote their time to drafting new Bye-Laws for the better regulation of our daily affairs. Thus, as soon as the Council has been elected, it can start discussing the many recommendations in the Fisher Report and after due consideration and consultation, pass such Bye-Laws as are necessary to give effect to the recommendations which the Council accepts, in whole or in part.

In the meantime, where the Committee has power to act, it has already taken steps to implement certain of the Fisher recommendations. A case in point is the registration of binding authorities. As you will recall, a working party under the chairmanship of Mr. B. J. Brennan had made numerous far reaching recommendations on the operation of binding authorities. After lengthy consultation with the Market Associations, guide lines were agreed and a separate working party under the chairmanship of Mr. Alan Parry drew up the rules for registration of all binding authorities. These came into force on 1st October.

Another Fisher recommendation was that all Underwriting Agents should carry Errors or Omissions Insurance. This will be made compulsory in January 1981.

Following consultation with Lloyd's Insurance Brokers' Committee, your Committee has advised all Lloyd's Brokers of revised Errors or Omissions Insurance requirements.

The next General Meeting will be in June 1981, at which time we hope the Bill will be well advanced on its passage through Parliament. As soon as the Bill receives Royal Assent we shall move to the election of the External Members of Council. The first step will be to write to all External Members seeking nominations. The candidates will have to be nominated by not less than 16 other External Members. The candidates will be asked to provide a full curriculum vitae. They will also be asked to confirm that they are able and prepared to devote sufficient time to the affairs of Lloyd's, because there is no doubt that for at least the first two years the Council is going to be very busy. After the closing date for nominations, all External Members will be sent the list of the candidates together with all details and information which the candidates wish to give and a ballot paper to be returned by post. All this procedure has to be completed within four months of the passing of the Act, as laid down in Schedule 4 of the Bill. Early in 1981 work will start on compiling the registers of Working Members and External Members. Thought is being given as to the best method of promulgating the registers.

At the Royal Albert Hall several Members asked for an External Names' Association to be formed. A show of hands demonstrated fairly wide support for such a scheme. Since then a number of letters have been written to me supporting the formation of such an Association and as promised I have forwarded these to those who promoted the idea. I understand that the promoters will be holding a meeting here at 4.15 p.m. on 1st December with the authors of the letters. There will also be a short article in Lloyd's Log, probably in the January issue, on the subject. This will give the names of the organisers and an address to which those interested should write. It is up to those with a common interest to form, manage and finance their Association as is the case with all other Associations at Lloyd's. The Committee of Lloyd's plays no part in the Associations' day-to-day business but of course we consult each other on matters of common interest. I see no reason why this proposed Association should not be treated in the same way.

Having said this, I must add that I have also received a number of letters and many more verbal representations from Names, saying they are against such an Association because they regard their Agents as the proper channel of communication and consider that it is their Agent's job to protect their interests and to keep them informed of matters which may concern them.

Any Member who has a problem which he cannot solve with his Agent has always been able to write to or call on the Chairman or another member of the Committee. This is the traditional method and the one which I hope will continue to be followed in future. Indeed the field will be extended when the Council is formed, in that the External Members of Council will no doubt also wish to receive views. Those supporting the Association must clarify in their own minds what they believe it will seek to achieve and whether the work it does may not duplicate that of the External Members on the Council.

In the past External Members may have been somewhat lacking in information. But I believe that today Names are far more aware of events at Lloyd's as a result of the distribution of the Log and the Chairman's speeches at General Meetings, not to mention letters from and meetings with their Agents. That is not to say that we cannot do better but there is a danger that if too much paper comes through the letter box it is ignored.

Lastly there were comments on the composition of the Council, especially on the six External Members. There seems to be a feeling that these six are insufficient to represent the large number of External Names and that the 16 Working Names who are Council Members will also outvote them, and that this is a reason for the External Names Association. This thinking seems to me to be based on two serious errors or misconceptions.

The first is on the thinking behind the Fisher Report Chapter 4. Fisher thought that General Meetings such as this one are attended by an ever reducing percentage of the growing Membership and that the vast majority of those present are Working Members. The cumbrous procedure and impossibility of adequate discussion, makes such meetings the wrong forum to pass Bye-Laws. Moreover the External Names by the very small numbers present could never make a proper or cohesive view known. The Fisher Working Party therefore considered that rulemaking should be taken away from General Meetings and given to a freely elected Council who can discuss all aspects before making new Bye-Laws. Should there be a conflict, which I believe to be most unlikely, between the Working and External Members over a Bye-Law, then the "Complete Majority" concept prevents one group overriding the other. Further, the "Long-stop" provision gives the Members a right of veto if they think the Council has lost its senses. In addition the present Bye-Law 33 gives Members the right to call an Extraordinary General Meeting at any time and I am sure this should be retained in future, even if amended in respect of the number required to call an Extraordinary General Meeting.

The second misconception relates to the way in which the present Committee of Lloyd's works, and I am sure the future Council, will operate. We are no different from any other committee or board of directors. Papers are prepared by the managers of the departments concerned, or by the Policy Boards, as we call them, which oversee the running of the major departments. Members of the Committee and representatives from the market sit on these boards. These papers are circulated to the Committee in advance of the weekly meeting and are then discussed, often at length. They may be agreed, amended, or withdrawn for further consideration as a result of the Committee of Lloyd's suggestions. Seldom is a formal vote taken; all our efforts are directed towards reaching a unanimous decision. To believe that Members of the Committee divide on narrow sectional interests displays a total lack of understanding. The Committee is elected to represent and guard the interests of the Members of Lloyd's. This has always transcended any personal involvement such as underwriter, broker or agent. We are there to do our best for Lloyd's. This is always in the forefront of our minds and our discussions. I am convinced the Council must act in the same way. Indeed it will be a disaster if it does not.

Your Committee still believes 25 to be the right number. Any larger number will become unwieldy. This certainly is a view given me by a past member of The Stock Exchange Council which numbers 46. Anyway the Bill allows the numbers of our Council to be changed and if in practice it is considered desirable to change, it can be done, as indeed the number of the present Committee has been changed over the years.

When referring at the June General Meeting to the High Court action relating to the Sasse Syndicate, I pointed out that in a case of such complexity and high costs, it would be surprising if the legal advisers to the various parties did not seek ways of settling the matter out of court. I expect some of you will be aware that in July, following certain disclosures to the press by other parties, I addressed a meeting of Underwriting Agents concerning proposals for the settlement of the litigation. At that stage, the negotiations were far from complete and Agents were asked to refrain from discussing the matter more widely than was absolutely necessary. However, as the terms of an offer by Lloyd's have recently been accepted by the Names to whom it was made, I am now taking this opportunity of advising Members formally of the reasons why your Committee decided to make the offer, and of the terms of the settlement which has now been concluded.

I had received advice from our three leading counsel that the Members of Syndicate 762 had justifiable grounds for complaint which went beyond mere lack of skill. Disciplinary proceedings have yet to be concluded against certain individuals and firms and as these must be regarded as sub-judice, I am unable to comment more fully. Suffice it to say that had the Names been fully aware of the affairs of the Syndicate in the latter months of 1976, it may well be said that they would have made every effort not to continue into 1977.

As I reminded Agents m July, the High Court action directed against Lloyd's involves, in effect, each and every Member, because Lloyd's is a Society comprising all the Members. There is little doubt that if the litigation had been allowed to run its course it could, after allowing for appeals, have taken years to resolve and involved legal costs amounting to millions of pounds. We were also advised that some of the claims against certain of the defendants had some prospect of success but more particularly, as far as Lloyd's was concerned, advice had been received from our three eminent counsel that whilst the Plaintiff Names were unlikely to succeed on the main issue relating to the conduct of business under binding authorities, similar assurance could not be given in regard to certain of the other issues (although other parties were considered to be at greater risk). Finally and most seriously the publicity which would have attended a court trial would inevitably have caused irreparable damage to the reputation of the Lloyd's Market both at home and overseas.

For these reasons, your Committee decided it was right to offer the Names an alternative to litigation which could afford them substantial relief towards the losses they had sustained. Certain Members of Syndicate 762 are, however, either involved personally or through their firms in the disciplinary proceedings I have mentioned. The offer has not been extended to those Names but once these and other proceedings involving the Syndicate have been concluded, their position will be reviewed.

I appreciate that the terms of the offer are now widely known and I will therefore summarise only the main provisions of the agreement which has now been signed on behalf of the Names and Lloyd's. These are-

(1) that Lloyd's will indemnify the Names for any loss in excess of their proportion of a loss of £6.25m on the 1976 account (as at 31st December 1979 the loss on this account before recoveries was £15.4m).

(2) that the Names will be put in a no profit/no loss position in respect of the 1977 account (as at 31st December 1979 the loss on this account was £6. 1m).

(3) that all parties who accept the agreement will cease the litigation against each other and will bear their own costs and expenses.

The agreement additionally provides that Lloyd's will benefit from future recoveries made by the Syndicate. The Members' Agents of Syndicate 762 have already made a substantial contribution to the settlement and further large recoveries are expected from the various reinsurers of Syndicate 762 and from Errors and Omissions Underwriters. It will be appreciated that as certain of these recoveries are the subject of litigation, it is not possible to say exactly when they will be received or the precise amounts involved. It may well be a long time before we know the ultimate cost of the settlement to Lloyd's. It has, however, been possible, as a short term measure, to finance the settlement with the Syndicate by means of borrowing and by the establishment of letters of credit where cash is not immediately required for the payment of claims.

I have been advised by leading counsel that had the case been fought to a finish and had Lloyd's lost on one or more points, the Names would have been awarded damages and these damages would have fallen on and been the liability of the Membership at the time of the award. I am further advised that the decision to reach an agreed settlement must be recognised as a compromise in respect of a potential award of damages and therefore falls on the Membership at the time of the agreement, that is to say the 1980 Membership.

How can the money be raised? There is only one source, the funds of the Society. If the funds of the Society are depleted thereby or are inadequate, they must be made good by the only source available, the subscriptions paid by Members. The Bye-Laws state the subscription is due and payable on 1st January and I am advised by counsel that the Committee has no power to levy any subscription except on 1st January. There is no power to levy an additional subscription thereafter in any year. However the rate of subscription is "such sum as the Committee in their discretion may from time to time determine". Counsel advises that the Committee may, in the exercise of that discretion, differentiate between those who were Members when the Society's liability under the settlement agreement was incurred and those who were not.

A substantial sum of money has to be raised from Members and your Committee has decided that this will be collected by means of an additional subscription of 0.3% of allocated premium limits. This subscription will be collected on 1st January 1981 but will be borne only by the 1980 Members. The total collected in this manner equates, in broad terms, with the total Central Fund contribution payable by Members during 1980, although the basis of calculation is obviously different. There will be no central fund contribution for 1980 as I indicated at the Agents Meeting last July.

As I have stated, there are a number of imponderables, both as regards liabilities and recoveries and it may well be that this subscription will be insufficient. If this is so, a further subscription may have to be charged on 1st January, 1982, but again only to the 1980 Members.

Finally I would like to pay tribute to Mr. Chapman, the chairman, and to the directors of Additional Underwriting Agencies (No. 2) Ltd., especially Mr. Goodier, Mr. Hazell and Mr. Outhwaite for all they have done in managing the affairs of Syndicate 762 and looking after the interests of the Names. The Committee is aware of the many problems they have had to face and have nothing but admiration for the way in which they have handled this most difficult task.

In 1979, the basis of calculating annual subscriptions was changed from a fixed sum per Member to a percentage of Members' premium limits. At that time it was hoped that a steady increase in market capacity would enable us to keep the percentage rate of subscription constant. Unfortunately, the combination of world recession and the strength of the pound has confounded our hopes. With so much of our business transacted in U.S. dollars and other foreign currencies, we are suffering from the ever rising value of the pound, in the same way as much of British industry. With only a small increase in capacity forecast for 1981, it is necessary for us to raise the subscription rate from 0. 55% to 0. 6%. It is already clear that the rate will need to be increased to at least 0. 65% in 1982.

Taking account of the "Sasse" contribution, the total subscription rates for 1981 will, therefore, be 0.60% for new Members and 0.9% for l980 Members. For administrative simplicity, it is proposed to ask Managing Agents to forward their subscriptions at 0.9% of allocated capacity and that refunds will be made to Managing Agents to reflect the reduced rate for new Members.

It is perhaps appropriate at this stage to remind Members that the Corporation's initial budget is prepared in October each year. The subscription is then calculated upon an estimated premium capacity in order to provide sufficient funds to meet the running costs of the Corporation.

If Agents should take action that reduces this estimate of capacity, the income will not meet the budgeted requirement for the coming year. Any shortfall would have to be made up by an increase in subscriptions the following year. Your Committee hopes therefore that Underwriting Agents will not reduce the capacity of their Syndicates because of low premium writing at this time.

1977 may have been the second best underwriting year in Lloyd's history but since then there has been a steady erosion of profit margins. Your Committee shares the concern of everyone in the Market at this sustained reduction in profitability and is determined to contain increases in overheads. To this end the Corporation managers will be ensuring that the cost of operating its departments in 1981 shall not be more than 12.5% higher than in 1980.

This will not be easy to achieve, particularly, as the cost of rates, energy and communications are expected to go up by considerably more. Employment costs account for more than 50% of the cost of running the Corporation departments. These departments provide a wide variety of services to the Market and high standards of efficiency are maintained. It is, however, believed that we can operate with fewer staff and it is planned to reduce staff numbers by 5 %. This reduction will be achieved by retirements and natural wastage during the coming year. Such a reduction is likely to involve changes in the service provided. Your Committee considers that such changes are preferable to excessive escalation in costs. Our objective is to maintain all key services to the Market at their present levels and we shall endeavour to ensure that the essential nature of life at Lloyd's will not be prejudiced. We know that we can rely on your support and understanding for the staff who have accepted a difficult challenge.

At the beginning of October, I was privileged to address the joint annual conference of the National Association of Casualty and Surety Agents and the National Association of Casualty and Surety Executives at the Greenbrier, West Virginia, when the opportunity was taken to put Lloyd's problems in perspective. It was observed that, at Lloyd's, difficulties were invariably followed by reforms, an evolutionary approach which had led, among other things, to the Cromer Report and, more recently, the Fisher Report.

Reference was also made to the closer links being forged between Lloyd's brokers and their American counterparts and to the 20% rule, the elimination of which was foreseen once new Bye-Laws for the regulation of Lloyd's Brokers had been introduced.

Attention was drawn to the results for 1977 which, despite losses on Computer Leasing Insurance, had shown the second highest profit in Lloyd's history. This spoke well of the underlying strength of the Lloyd's market which, because of our strict security requirements, consistently showed a ratio of surplus to premium income of around 1 to 1 as opposed to 1 to 2 or even 1 to 3 for many insurance companies.

Looking at the United States, it appears from the figures 50 far available that on current business, American insurers are likely to face an underwriting loss and expense ratio in the region of 110% to 115 % of written premium. They, like us, are experiencing intense international competition which the profligacy of some reinsurance contracts has made worse. A remedy lies in a greater degree of consultation and co-operation between markets, compatible with the U.S. Anti-Trust Laws and our own Fair Trading Act.

In the meantime, with ample capacity provided by a world-wide Membership, a more effective method of self-regulation soon to be enacted, and a new building in prospect, Lloyd's looks forward to the end of the recession and to enhancing, still further, its reputation in the field of international insurance.

At the General Meeting last June, I spoke to you about my concern over a number of matters affecting our daily routine, particularly the unjustifiable delays experienced by some assureds in receiving the proceeds of their agreed claims.

I held meetings in June with senior directors of the eight largest Lloyd's brokers to seek their advice and co-operation in improving our performance. At the same time, the marine and non-marine associations have set up working parties to investigate the matter. There is, I believe, far greater awareness of the problem and of the urgent need to find a solution.

In fact, the overall number of complaints received since then has risen by 30% against an increase for the year as a whole of 26%. This perhaps may be a result of my remarks in June. I should stress that many of the complaints received relate to comparatively trivial matters but, regrettably, a majority of complaints received are to some extent justified. We simply cannot afford to allow this trend to continue if we are to provide our assureds with the service to which they are entitled and preserve our deservedly long-standing reputation for fair play. To be fair to the Lloyd's Underwriters, many of the complaints involve business placed by Lloyd's Brokers with insurance companies, especially overseas insurers, and there is no Lloyd's involvement at all.

Throughout the industry, insurers are being faced with ever increasing cases of fraud. The greatest deterrent to would-be criminals is the certain knowledge that insurers will take every step open to them to bring justice to bear. In the U.S. alone, during the last year, four successful prosecutions have taken place and more are expected not only in that country but also in various other parts of the world.

Fraud is easy to allege but hard to prove. The present law is clear. The onus of proof lies fairly and squarely on the Underwriter; unless he can produce evidence to satisfy a court that the claim is fraudulent, the claim must be paid. The widespread concern expressed from time to time about opportunities for fraud to occur could be diminished by improved statutory provisions which would help the insurers to deal with problems in this area. Here we must look to Parliament and legislators around the world to assist us, rather than to criticise us for lack of action.

During the year, a special scheme was introduced to enable certain package risks for oil companies to be placed with both Marine and Non-Marine Syndicates. Lloyd's "Dual Market" arrangements have been amended accordingly and it is anticipated that the additional capacity so generated will be to the benefit of both markets.

In response to requests from certain leading U.S. brokers, the current Committee requirements governing the issuing of cover notes in respect of reinsurance business in North America are under review. This will inevitably involve detailed consultation with the market associations and with our General Counsel in the U.S.A.

The management services group, which among other things operates the Corporation's computers at Chatham, has made considerable progress in developing both the redesigned central accounting system and the membership system. However, the problems of supporting the concurrent development of these two large systems grew to the point where it was decided we must concentrate our resources on the redesign project and defer the later parts of the membership project. The department has, however, continued to maintain a smooth flow of day to day production work. The membership department is taking action to counter as far as possible the problems resulting from the delay to the development of the department's new computer system.

The number of applicants currently going forward for election as Underwriting Members of Lloyd's is approximately 950 compared with 1,500 in 1979 and 3,300 in 1978.

Allowing for deaths and resignations, the total number of Members as at 1st January 1981 is expected to be around 19,250 an increase of 4% over the previous year.

In view of the reduced number of applicants, it has been possible to revert to individual Rota interviews and I thank all those Members, past and present, of the Committee who have carried out this important but time consuming task.

This year was the first year of the four year cycle in which all Members will be asked to confirm that they still have the necessary means to support their underwriting. The response has been good and all returns received so far show an acceptable level of means.

The Committee has not found it necessary to introduce any major changes to the Membership requirements for applicants wishing to start underwriting on 1st January 1982. It is, however, proposed to introduce a new, simplified election procedure, which will involve a reduced number of forms and fewer stages than at present. Particulars will be advised to Underwriting Agents before the end of this year.

At the General Meeting of Members in June, I welcomed the implementation of the EEC Co-Insurance Directive, which came into force on 2nd June and which is a first step towards freedom of services. Your Committee very much hopes that the Lloyd's community will take full advantage of the limited freedom available under this directive in the coming months. Nonetheless, this directive is 110 substitute for the development of one market within the European Community.

It is most gratifying to learn that the Government is now publicly committed to moving as quickly as possible towards freedom of services in the insurance sector and it is hoped that this long debated saga will be finally, and satisfactorily, resolved during 1981.

Of equal interest to us all was a recent speech given at Lloyd's by the Minister of State for Trade, Mr. Cecil Parkinson. He expressed very great concern at the European Community's slowness in securing freedom of services similar to that which had been created by the freedom to supply goods. He went on to say that the creation of freedom of services within the Community would bring irresistible pressure for world-wide liberalisation, which the Government would back, thereby creating a strong political momentum.

I am pleased to report that the redevelopment project is proceeding well. Demolition of the Old Building inevitably affects those who work nearby and our tenants and neighbours have been asked to bear with considerable discomfort. However, the demolition is proceeding on time and on completion in early January, the "dusty" stage of redevelopment will be over.

In June, following interviews with a number of leading United Kingdom contractors, Messrs. Bovis were appointed management contractors for the project and they are now working closely with the other members of the project team. They will take over the site early next year to start piling and the construction of the lower floor.

A year ago we formed the Lloyd's redevelopment users' group comprising representatives from each part of the Market. I am glad that they are all of an age to ensure that they will work in the new Room for a number of years. I am confident that during the next few years they will play an important part in ensuring that the new Room will provide the facilities which Members of the Market will require. We are anxious to keep the Market informed of developments and at the same time through the market users' group hear the views of those who use the Market. Communication is, however, a two way thing and the Redevelopment Committee will know the views of the Members in the Market only if the latter keep their representatives fully informed.

There are many matters of detail to be considered but as the design is developed, your Committee is increasingly confident that when complete, the new Lloyd's will provide a fine new home for the Market and be one of the outstanding buildings in the City.

So far as costs are concerned, your Committee anticipates that the only major effect on the estimated costs will be increases attributable to inflation as it affects the building and construction industry. A very careful watch is being kept on redevelopment expenditure and also on how best to finance the project.

The conversion work in the basement of this building was completed in September and on 6th October the first line was written in the new underwriting area which now contains ten boxes and in addition all the brokers' booths. This has resulted in a useful alleviation of congestion in the rest of the Room. We hope to improve the position further during the coming months and are at present discussing with a number of Underwriters how best this may be done. Not surprisingly, individual views of the new underwriting area differ but your Committee is confident that once everyone is settled in, it will soon become a busy part of the Market and that those with boxes there will find it a congenial and efficient place of work.

During the year the Captains' Room Policy Board have made some significant changes. In March, reorganisation of the basement area was completed and the new Wine Bar and hot lunch counter were opened. These supplement the snack, Grill and Angerstein Bars to provide a comprehensive variety of meals for the Market.

May I on behalf of all Members of Lloyd's whether present here or not and of all those who work at Lloyd's express our thanks to the Corporation Staff for everything they have done in the past year.

(Another Fisher recommendation was that all Underwriting Agents should carry Errors or Omissions Insurance. This will be made compulsory in January 1981". (This was discontinued in the 1990's).

Nov 80

The Sedgwick Group acquired 60% of the share capital of Three Quays Underwriting Management Ltd, which it did not already own. The consideration for this acquisition was £1.65m, satisfied partly in cash and partly by the issue of new ordinary Sedgwick Group shares.

28 Nov 80

An extraordinary meeting of shareholders in Unione Italiana di Riassicurazione (Uniorias) on 28 November approved the doubling of the Italian reinsurance group's capital from L 15,000 million to L 30,000 million, to bring total assets of L 51,800 million. This followed a report of an increase of about one-quarter in both Italian and foreign currency exposures in the 1979 underwriting year. Total premium rose by 27% to L369. 600 million, premiums in foreign currencies by 23% to the equivalent of L158,000 million. Profit brought down was L8,200 million against L8,100 million in 1978.

28 Nov 80

Meeting of the Asbestos Working Party following the meeting of 8 November 1980.

Matters Arising:-

  1. The Chairman reported the outcome of a discussion with Mr Richard Von Wald, the "In-house" Attorney for Johns-Manville Corp., Ken-Caryl Ranch, Denver, Colorado 80217, U.S.A. Mr Von Wald had invited any Member of the Working Party to make contact with him to exchange views. A statistical bank of information was available but Members would be asked to preserve the "confidentiality" of any details that were received.
  2. The Chairman reported that a draft agreement for the collection of fees in respect of Declaratory Relief Actions had now been approved for circulation to the Market. A similar document had been agreed for use by the London Companies.
  3. The Chairman proposed that the Meeting should discuss the desirability of circulating the Market with a report for the valuation of outstanding claims for audit purposes at year end. Mr Ayliffe believed that Attorneys should make recommendations for year end purposes but it was for the individual Underwriters to determine the figures used when closing the account. He was concerned that reserves currently carried on files, were lower than would have been the case under normal circumstances. Those concerned were looking for recommendations from the Working Party before final decisions were made. This view was supported by Mr Jackson, who thought that a figure of U.S.$125,000 per average claim was more realistic than the present figure of U.S.$75,000 currently used as a yardstick. He thought Attorneys should in fact provide two sets of figures:-
  1. Reserves as at 31 December 1980 on known cases.
  2. The projected likely number of claims for the next five years, based on information currently available but to include an inflation allowance.

The projections should estimate the number of new claims, together with a likely settlement figure. He thought realistic totals could be provided if the Attorneys requested each Insured to state the total number of their workforce and divide that figure by the percentage of known Asbestos cases so far reported. Mr Jackson was also concerned that some Underwriters did nor appreciate the likely number of cases expected to develop. He further commented on the fact that the Audit Committee would not be making specific reference to Asbestosis reserves at year end.

Messrs Rokeby-Johnson, Skey, Tayler, Kemp and Froude thought that U.S.$125,000 was excessive and U.S.$100,000 was more realistic. They were not in favour of making projections of the eventual numbers involved, but did agree that Attorneys should provide information on this matter.

Mr Ayliffe, agreeing with Mr Jackson, asked if there was merit in inviting the Attorneys to produce a combined, rather than an individual, report. The Committee did not favour this course of action. They did, however, confirm their previous opinion that a meeting of the instructed Attorneys should take place during 1981 for an assessment of the current position.

Mr Heath was in general agreement with Mr Jackson and said that it appeared the number of new cases was more than doubling in each successive year from 1976 onwards. He also felt that at the report stage to Underwriters, the individual opinions of the members of the Working Party should be stated rather than a general statement

In summary, the Chairman stated:-

  1. The Audit Committee were reluctant to identify individual situations for audit purposes. The Asbestosis situation was well known in the Market and they believe that the Underwriters were aware of the potential problems.

b) Attorneys should be invited to give a view on the present valuation of an average, individual claim and should indicate an additional expense allowance. they should also provide information on the likely eventual number of claims which could develop

In reply to a question from the Chairman, Mr Jackson reported that there had been no developments to his knowledge on reinsurance aspects since the last meeting

Committee Members Present



E E Nelson


BPR/Alder, Committee Member of Lloyd's

C J Ayliffe

Claims Director


P Froude

Claims Director

Janson Green

J R Heath



R A G Jackson



L Kemp

Claims Director

Lambert Brothers

H R Rokeby-Johnson



C H A Skey


Edwards & Payne (Sedgwicks)

D P Tayler



G W Bradford


Elborne Mitchell


Following the issue of the Report of the Fisher Working Party, the Committee of Lloyd's set up a number of "Task Groups" to examine the various proposals of the Working Party and to make recommendations to the Committee of Lloyd's. Some 21 Task Groups were set up at various stages.

A Task Group was established in the autumn of 1980 to examine Annual Financial Reporting to members of Lloyd's and to consider the Financial and other Information that should be provided to Names and to prospective Names.

Nov 80

Lloyd's announces £130m profit on the 1977 year of account, the second highest on record.

0 Dec 80

Innovative underwriting: is it worth the effort?

Those of you who are familiar with Elgar's cello concerto will know that the dismal opening bars prelude a work filled with gloom. I recognise that the title of my paper exudes similar warning signals that I am not going to be exactly bright-eyed and bushy tailed.

But like most underwriters, I have been known to lead the odd specialist class or two, and some personal experiences over the past 18 months have forced me to sit back and take stock. If I have had to bend my mind to the subject rather more than most, it is because my syndicate only got off the ground for the 1978 account, so that it entered the non-marine market just as it moved into a period of reducing profitability. That being the case, we have had no comfortable cushion of income from bread and butter business to sustain us through the lean years; so have concentrated on the development of new classes.

But when I pose the question ‘‘Innovative Underwriting: is it worth the effort ?" What yardstick should I use? Who is it who must benefit to make it worthwhile ? Should it be my colleagues and myself, my Names, the brokers, or the Lloyd's market as a whole ? The answer must be my Names, since they are my commercial raison d'être. Agreed, if I benefit them, the others should benefit too.

But there is nothing altruistic about Names. They, with everything at risk, can only be interested in the financial returns given them by their investment in Lloyd's. My job is to maximise that return without being unduly rash or over ambitious.

Therefore, when I say "Is it worth it?" the question I must ask is this. When an underwriter and his colleagues spend hours, weeks, sometimes months working on an innovative underwriting project, are they sure then are working to the best advantage of their Names ? In today's market place, can the potential rewards warrant the risks and the costs involved? If not, why not?; and what can be done about it?

Before one can begin to debate such questions it seems to me that a number of points must be considered. First, in our market, who initiates innovation - and why ? Secondly, is it possible to identify which new classes stand any real chance of success ? Thirdly, what are the potential financial gains and losses?

I have no hesitation in saying that the vast majority of genuinely innovative ideas are broker inspired. In fact, it could hardly be otherwise, since brokers are in the front line of those positioned to learn of the needs of the private and corporate buyers of insurance.

As to why; well, experience has taught me that just as fat cats choose not to hunt mice so, by and large, brokers need to be hungry before they are prepared to venture out and follow, with any conviction the uncertain trail of a new idea.

But when time, opportunity, and a broker's threatened bottom line combine with the appearance of an apparent new insurance need, the nettle is grasped, enthusiasm is generated and before long a coterie exists within a firm of brokers ready to convince anyone prepared to listen that they have identified the most original leap forward since Cuthbert Heath left our stage. So armed with their gem of an idea, the brokers, be they provincial, transatlantic or just plain foreign will, more likely than not, contact their Lloyd's broker. Now they, particularly if the producing broker is from the USA, may well, for one of several possible reasons, some too embarrassing to mention, feel obliged if not actually anxious, to pursue the matter with diligence. Enter the London, if not the Lloyd's, underwriter.

Now if that sounds altogether too cynical, let me counter it by pointing out, first, that no underwriter can be forced to work on a new idea and secondly, that in the pursuit of bringing a new class of insurance to the market, most of the cash costs will be borne by the broker. So it is the joint responsibility of the underwriter and the broker to determine the feasibility of any presentation.

How then can an underwriter begin to assess the commercial viability of a new idea ? The answer is, as I have found to my cost, with difficulty. Over the past year or two I do seem to have proved pretty unsuccessful at identifying the commercial shortcomings of at least five schemes involving what I would regard as genuinely innovative underwriting.

I think it is fair to say, that if income forecasts were being met on all these schemes, we would be on track to be bringing more than £10 million of new premium into the market. As it is, my expectations are now so lowered that 5% of that figure would prove a pleasant surprise.

It is not necessary for me to explain all these schemes in detail but it will help if I very briefly outline three of them so that I can use them later on to make a point. Two are personal lines policies, the other corporate.

The first is a scheme that is the dental equivalent to BUPA. It was the first of its kind in the UK, was endorsed by the British Dental Association, and vigorously marketed through individual dentists, 2,000 of whom put the promotional literature on display in their surgeries. To them we have sent no less than 175,000 application forms, of which 100,000 have been to replace those taken home by patients.

At the close of our second year we have sold a pitiful 143 policies and, of course, the claims record has been bad. It only took one rogue dentist to make it so.

There now exist at least three other very similar schemes; though my enquiries suggest that their experience has been much the same as our own.

The second scheme, Expatriates' Contingent Tax Insurance, is the least ambitious in income terms but a convenient example for me to use. The policy was designed to reimburse expatriate Britons for UK income tax for which they would become liable if they had to return home for reasons beyond their control - injury to, or illness of, themselves or their families, political unrest in most of its forms, loss of visas and so on. Now when you consider that a great many of the people who have opted to endure the deprivations of a two or three year-stint in the Middle East only do it for the very high salaries paid, which are often absolutely free of tax, and when you realise that the number of days allowed back in the UK is critical, so that one day over the top can mean that you will be deemed "ordinarily resident" and therefore subject to UK income tax at the full rate, you might agree with me that such a policy would sell. The policy sounds simple enough but of course nothing to do with tax is simple, and it was necessary, in putting the policy and application form together, to do a fair amount of reading and to spend several hours in the company of tax consultants.

When the scheme was launched it received a favourable press both in the national dailies as well as the specialist journals for expatriates. At least one financial journalist was so convinced it was no less than blatant tax avoidance that he wouldn't write on it until duly given clearance from Lloyd's Advisory Department. The brokers to the scheme, have distributed 5,000 application forms and spent hours on the telephone explaining the coverage. In the past 15 months we have sold 24 policies!

My last example is a new class of insurance launched by us in May called Tender Offer Defence Expense (TODE). Designed for the American market the product reimburses insureds for the costs incurred in fighting off unwelcome take-over bids. For a claim to succeed the defence must be successful. Pitched as it was straight at a corporate buyer's financial director and corporate attorney, who must together consider the merits of the cover being given, in the light of the prevailing climate on Wall Street, a legion of SEC regulations, the current belligerency of stockholders, and the likely high costs of mounting an effective defence, the wording and application form were technically complicated as any I have worked on. It took eight months and many meetings on both sides of the Atlantic before we had got it right. In May I went to the States to help launch the policy, and the response from the alphabet house brokers visited by myself and an American colleague was tremendous. One broker alone asked for, and got, 1,000 application forms. A high risk take-over candidate is reported to have received no less than 10 application forms from as many brokers within 14 days of our launch. The coverage in the financial Press was favourable and very wide, ranging from the Wall Street Journal to Business Insurance. Everything signalled success; yet here we are today with 83 completed application forms, and two firm orders.

By the way, within three weeks of my return from the States one group had lifted the scheme lock, stock and barrel and claimed it as their own.

Now it is much too early to write off these schemes as total disasters, but things have not exactly gone according to plan. Let me tell you where, on reflection, I think we have gone wrong.

I believe that not enough market research was undertaken. No manufacturing concern would contemplate launching a major new line without exhaustive surveys first being made of the likely response from potential buyers. You may argue that that is because manufacturers have to incur research, tooling up and marketing costs of an order not experienced by insurers.

I would disagree, and suggest that our costs have to be measured in terms of cerebral effort rather than material outlay. There is nothing more diverting than a promising new idea. But, operating as we all do in a highly technical service industry, the most valuable commodity that we have is our time. Too often we tend to forget it - so too readily we squander it. Skilled market research will save us time and, therefore, money. The dental scheme and the expatriates' tax policy are cases in point.

My second mistake has been to make products too complicated. This has been in part due to an over-estimation of the sophistication of both the private as well as the corporate buyer, and in part due to an instinct for self-preservation. In today's world where the consumer is always right we have all come to suspect that our chances of defending against unscrupulous claimants are very thin indeed, especially in North America; so it is understandable that we take great care in the preparation of our application forms and wordings. In retrospect, I feel that I may have made the former unnecessarily complicated, and the latter altogether too legalistic. For what it is worth, I am cynic enough to believe that, from a marketing point of view, it is much more important to simplify the application form - which everyone must be able to understand. Both the expatriates' tax and TODE policies have suffered from application forms that expected too much.

Lastly, I am persuaded that underwriters and brokers fail properly to consider the importance of timing. As I have said, all too often new ideas surface when markets are soft. So competition is rife, rates are falling, coverage is being broadened and the corporate buyer of insurance, the risk manager, is under pressure from his financial director to show a saving in total premium costs. When, as is the case today, soft markets coincide with a general economic recession the effect is compounded. Perhaps innovative ideas will always tend to surface during soft markets, but perhaps we should learn through market research to develop them perfect them, then tuck them away until the climate has improved and our marketing efforts are more likely to meet with success. The threatened stumbling block to this approach will be everybody's unwillingness to postpone the launch, as we will all live in fear that a competitor might learn of our product and beat us to it. The counter-argument to this is that if you launch too soon, you expose your new product to the inquisitive gaze of those very competitors and allow them, before you have assembled a book of business, to prepare their "improved" version in time to catch the upswing in the market. In retrospect, we launched TODE about six months too late, and it will now need a new wave of take-over activity on Wall Street to galvanise any real interest. With interest rates climbing again there can be little real prospect of that happening during the next six months.

So, to stand a better chance of identifying winners from losers in a field of what are always deceptively strong looking runners, my advice to myself is this:- more market research; keep it as simple as you dare; pay great attention to timing.

Now, turning to money! What are the potential rewards and costs involved if one does become embroiled in innovative underwriting? Can the rewards justify the work, and the time or would underwriters be better employed concentrating less on underwriting, more on cash flows, ingenious stop losses and sophisticated investment policies ?

On the positive side, one can list the potential gains as follows:- the underwriting profit that flows from a successful product; the investment income and capital gains derived from the new premium; the intangible benefits which follow in the possible form of increased good business from the broker handling the successful new product, and an increased showing of new business from other brokers who may hope that a success with one broker can be repeated with them; the improved morale amongst one's colleagues that comes from being associated with success - any success.

On the debit side the list is longer, and should be considered in the dark shadow of the simple fact that for every successful new venture, you must expect several failures: - inadequate penetration of your potential market will lead to selection against underwriters and, therefore, underwriting losses; any underwriter who launches a new product in the litigious climate of today without doing a great deal of homework is a fool. Homework takes time, and time, as we have said, is expensive; time spent working on new ideas must, to some extent, mean time lost in the Room at Lloyd's. Profitable business may therefore be placed elsewhere and lost to your syndicate; the extra workload assumed by lead syndicates necessitates a greater degree of delegation. Delegation is only cost-efficient when passed to people with experience, good brains, and a decent education. Employing high quality staff, and more of them, is very expensive, there are no laws of copyright in the insurance world. A brilliant new product developed with great care over a period of months may after its launch be yours one week - everybody's the next; when competitors move in they can but reduce your profit margins, since they will offer one or a combination of the following: - lower rates, broader coverage, smaller deductibles, more commission. If they anticipate a substantial volume of premium they may be prepared to operate at minimal margins of underwriting profit.

Last and most important - all syndicates incur other additional costs, and I don't think for a moment that the market at large begins to appreciate their scale. For instance, statistics thrown up by an exercise just completed by me show that since April last year my colleagues and I have made eleven trips overseas, and on one account alone have visited 71 offices in the USA. If one includes visits to offices to talk about excess loss medical, accident and health, TODE and other miscellaneous classes the total climbs to over 100.

And in London a glance at my diary shows that in a normal week I spend an average of 12-15 hours away from the box meeting with brokers to talk about business where we are the lead or potential lead underwriter. At the box, with a staff of seven, some 75% of our total time is spent quoting and working on classes we lead.

Please don't imagine that I claim these figures as exceptional. I can think of several other non-marine syndicates who could better them.

But the point is this - syndicates leading any class of business will incur additional costs. Syndicates therefore that lead much of the business they write have a price to pay. It shows, sometimes dramatically, in their expense ratios. So, unless better than average loss ratios compensate for such increased expense ratios the Names may be better off on a non-lead syndicate. But somebody has to lead.

Lloyd's after all, is a market that derives some 75% of its income from overseas. At home Lloyd's is ill-placed in most classes of business to compete with the companies and their provincial offices. That we have succeeded over so many years is because we are the market of first call - and last resort. Apart from the soundness of the security we offer, our strength is drawn from our reputation to give coverage where others won't - and to innovate. It is that reputation which pulls business into Lloyd's. Destroy it and we are doomed.

So, if to survive we must lead, but the costs of leading have become too high, how can we correct the imbalance? Since there can be no simple way for lead underwriters to apportion their disproportionate costs over the following market, a method must be devised to give them additional remuneration.

I want to examine a couple of possible alternatives but must first stress that, in my opinion, this is an underwriting problem, so any solution must come from underwriters' pockets - not the brokers.

The first alternative could be to grant lead underwriters an overrider on premiums written. It would be simple to administer and was in fact mooted a year or so ago by underwriters leading banker's blanket bond business. At that time a number of underwriters, including myself, protested strongly against the idea. It was, as I recall, an overrider of 2% on gross premiums. For a number of reasons I still believe that it should be disallowed.

First, if an overrider became widely used, a glance at the global figures for Lloyd's non-marine syndicates would quickly demonstrate that only the most successful syndicates would survive, since the average return on net premiums over the past five closed years, including investment income, was a paltry 2.59%. So you would threaten to put the non-marine market as a whole almost on to a nil return basis.

Secondly, an overrider would encourage underwriting for volume rather than profit. With a 2% overrider on gross premium a lead underwriter could write a 10% line and sustain a 125% loss ratio on premium net of 20% brokerage without himself losing money. So bad leads would proliferate, especially in the high excess casualty field.

Thirdly, although a lead underwriter's workload may to some extent be reflected in the volume of premium he writes as a lead, volume is no measure of skill. He is only accepted as a lead by his following market because they have confidence in his ability to produce them an underwriting profit.

It seems to me, therefore, that the basis of remunerating lead underwriters has to be a compensatory share in profitability, i.e. profit commission; even though from an administrative point of view it will be much harder to introduce, and any number of anomalies will have to be recognised and accepted. It will take a better brain than mine to iron out all the problems, but as a non-marine underwriter these thoughts come to mind:-

Firstly, to keep the brokers' administrative costs within bounds facultative underwriting will at the outset need to be excluded: so profit commission should only be paid on treaties, line slips, binders and other market facilities. It is possible to argue that this would be fair because on treaties and market facilities of one sort or another the lead underwriter does carry a particularly heavy burden.

Secondly, the formula for such profit commissions should be calculated on an absolutely net basis and incorporate three deficit clauses. Included in the outgo should be an allowance for underwriters' expenses at not more than 5%.

Lastly, the level of profit commission should not exceed 15% and if there are joint leads they should share on a basis agreed between themselves.

If you accept that for Lloyd's to continue as the cornerstone of the London insurance market it must maintain its role as an innovator; and you accept that diminishing returns threaten to sap the mainspring of its creative thought; then you accept that a means must be found to invigorate those who could be, and should be, in the forefront of innovative writing.

The means volunteered by me may not be the right one, but any alternative should also be based. on the simple premise that if a lead is to be remunerated by his following market, that remuneration must be linked to underwriting profit. Such a basis will promote tight underwriting, and discourage lead underwriters from writing massive lines on the back of quota share reinsurance yielding large overriders. It will improve the quality of existing leads, and perhaps most important of all, will encourage the emergence of new, strong, better lead underwriters.

O Dec 80

Lloyd's eyes and ears in the United States

Mr Cameron MacRae, a partner in LeBoeuf, Lamb, Leiby & MacRae, Lloyd's General Counsel in the United States, retired recently. At a ceremony held at Lloyd's, Mr Peter Green presented a silver replica of the Lutine Bell to Mr MacRae in recognition of his service to the market, which began in 1965 when LeBoeufs were appointed General Counsel.

In 1776 the colonies stretching along the Atlantic seaboard from Maine to Georgia had long been known to the underwriters at Lloyd's. After London, Philadelphia was the largest city in the Empire. International commerce had been growing for 150 years and colonial merchants and planters looked abroad for markets and supplies. Insurance for this trade was almost entirely English, although the Insurance Company of North America was to begin business in 1792.

For 75 years after 1789, American shipping expanded prodigiously and the United States flag was seen in every port in the world. Many insurance companies were spawned but Lloyd's continued to hold a prominent place during the era of accelerated industrialisation following the end of the Civil War in 1865 which also saw the genesis of the system of insurance regulation that still prevails. It was given greater precision and a sharper bite in legislation adopted by the various states beginning early this century following the revelation of scandals and regulatory inadequacies.

In 1 868 the Supreme Court of the United States held that an insurance contract did not constitute "commerce" within the meaning of the Commerce Clause of the Constitution. This ruling meant that the responsibility for the regulation of the insurance industry rested not, with the Federal Government but with each of the now 50 states. The states license, tax and examine every aspect of insurers' operations as well as those of agents and brokers. Lloyd's as unlicensed insurers, fitted awkwardly into such a scheme, but before the end of the 19th century, primary insurance was flowing to underwriters as "surplus line" business - insurance that cannot be placed with licensed insurers. One of General Counsel's continuing tasks is to monitor surplus lines' legislation in order to protect Lloyd's underwriters' interests. This means, among other things, that General Counsel must maintain close relations of mutual trust and confidence with insurance commissioners in all states.

More recently the Federal Government has become increasingly involved in many areas of insurance and this has greatly increased the scope of General Counsel's activities. General Counsel advises the Legislation Department at Lloyd's and the underwriters' associations of significant legislative, regulatory and judicial developments at both state and Federal levels as well as seeking to maximise opportunities for underwriters in the US. As a part of this effort, General Counsel reviews more than 50,000 bills introduced in various legislative bodies each year and reports on those deemed significant. The same thing is done with respect to regulations, decrees and guidelines issued or proposed by insurance departments and other regulatory bodies.

Much effort is devoted to assisting and making possible the placement at Lloyd's of all types of coverage and, when necessary, creating and adapting policy wordings for this purpose. This is done for the non-marine, marine and aviation markets and General Counsel constantly advises and assists both Lloyd's and American brokers as well as underwriters.

The advent of United States members opened a new era of responsibility for General Counsel who assist the Committee of Lloyd's and underwriting agencies at Lloyd's on membership matters and are also available to assist existing and prospective members. General Counsel handles all US tax matters for non-United States members which includes the filing of annual tax returns, the preparation of tax estimates and the payment of quarterly instalments on behalf of each.

All complaints, breaches of Lloyd's rules on advertising and various other aspects which would adversely affect Lloyd's reputation in the United States are monitored by General Counsel. Often, their opinions are sought as to whether the interests of Lloyd's would best be served by underwriters taking certain courses of action. All of these matters involve close liaison with the Advisory Department at Lloyd's.

Because General Counsel is looked upon as the primary source of information about Lloyd's in the United States, it deals with many enquiries from publications, associations, individuals and governmental bodies as well as distributing much written and film material about Lloyd's. General Counsel is also closely involved with the Publicity and Information Department in respect of articles and speeches by persons at Lloyd's and visits by Lloyd's officials and others to the US.

A former Chairman of Lloyd's referred to General Counsel as Lloyd's eyes and ears in the United States; often it is Lloyd's tongue too.

0 Dec 80

Lloyd's broking and the London market in the 1980's

The story is told of J. P. Morgan, the great New York banker, who was asked to forecast the trend of the stock market, and is supposed to have replied " of two things you can be certain, it will go up and it will come down". In this way he kept his reputation for infallibility. I am tempted to make the same comment, and when forecasting there is always the risk of looking foolish if the prediction fails to happen. With hindsight you have 20/20 vision, but there are trends apparent today which I believe give a clear pointer to the future of our industry.

We are on the threshold of changes in the structure of the insurance world which could lead to transformations as dramatic as those which have shaken many industries, from textiles and shipbuilding to banking, in recent years. Out of many inter-acting influences there are certain factors which will determine the pattern of the market, and London cannot be looked at in isolation.

The cyclical trend

First there is the cyclical trend which affects brokers as well as insurers, and which many of us forgot in the golden days of the mid-1970s when growth in brokers' earnings was treated almost as an inexorable natural law. Linked to their first point is the correlation between weakness in insurance premiums and high rates of interest. This is likely to continue so long as insurers, through their investment departments, can create profits out of underwriting losses.

In the UK, investment income provides a return of over 25% on shareholders' funds for most insurance companies which means that loss ratios on underwriting of more than 100% can be accepted with equanimity. Nonetheless in England it is still heretical to regard investment income as a major factor in the corporate planning for an insurance company. Underwriters are still instructed by their management's to produce an underwriting profit on each line of business, when in current market conditions, this is impossible to achieve. Investment income will increase if only because of the large loss reserves made necessary by the concentration on " long tail" and liability type insurance risks. Traditionally good years and lean years have followed each other in cycles of seven years with almost Judaic precision. Traditionally too, there is a time lag of two years between the dates when underwriters begin to alter their rates upwards, and the availability of statistics on the results the new rates have produced. At the present time the exceptionally high level of money rates, and the likelihood that these will continue, may well extend the period and it will be longer before there is a return to a higher rating structure.

The development of new products

The second factor is the need to develop new products and to recognise that the insurance requirements of major industrial companies are altering. Traditional insurance techniques are already irrelevant for the largest multinational companies, and even medium sized industrial companies are now forming " captives" and self-insuring their smaller risks. As the developed industrial societies become dissatisfied with standard insurance packages, and as consumer organisations start to interfere with motor and householders business, so insurers throughout the world are competing with unprecedented aggressiveness for conventional industrial risks such as fire and consequential loss. These are regarded as being politically less sensitive and more profitable to underwriters. At the same time, with the increasing ease and speed of communication, insurance has be-come truly international, and in spite of tariff barriers an international " free-for-all" is likely to develop.

In London, Lloyd's brokers have concentrated on reinsurance and on new types of cover for product liabilities, oil exploration and off-shore development, pollution, satellites and other esoteric risks associated with the frontiers of technology. This trend will continue, and while there is a surplus of capacity for conventional risks, there is still a lack of capacity for the oil industry, product liabilities and the new era of commercial satellites and aerospace. Lloyd's brokers have been in the fore-front of innovation and, through their world-wide connections, in marshalling the capacity to cope with these risks.

At the other end of the scale, more attention will be given to the neglected areas of private motor and domestic insurance which have been rejected in the past as unprofitable to handle. Interesting experiments have been carried out in Australia and South Africa on mass marketing and retailing for "personal lines". These concepts may well be relevant in the U K and Europe, and suitable for investment by brokers.

The emergence of new markets

The third factor associated with the need for new products will be the emergence of new markets, some of which may limit the opportunities for existing and established insurers. The trend in the developing countries to set up national insurance companies with barriers against foreign competition is bound to increase. This means that insurers will be deprived of the opportunity to balance their portfolios by spreading their risks in those particular countries.

More important, however, will be the appearance of a new type of institutional investor in the insurance industry. Individuals have already found that by becoming a member of Lloyd's and by using part of their capital as a base for underwriting, they are able to double the return on their money. In the same way the multi-national companies which set up " captives", to insure only their own risks, soon found that by using the assets of the parent corporation as a backstop, they were able to transact a large volume of external business. Bellefont Insurance Co., the Bermudan subsidiary of Armco Steel, and Insco belonging to Gulf Oil, have become major international insurers in their own right, and others such as Ford's Transcon have followed into reinsurance. The volume of premium which currently goes through Bermuda is estimated at over $2 billion per annum and in the years ahead will escalate. Many people in London are apprehensive at this development, not because it has taken business away from the London market, but since Bermuda is still unregulated in financial terms and there is anxiety about the security offered by some of the "pools" consisting of captive companies.

The major life insurance companies in the USA, Australia and in Europe have already entered conventional underwriting through the acquisition of subsidiary companies already in that field. This is a natural way to use their capital resources, and the development is favourable, since it produces new underwriting capacity from people who are familiar with the principles of insurance and the ethics, under which this type of business is best conducted.

As a reaction to the "export" of insurance and reinsurance business from the USA to London in the late 1970s, two moves have already taken place in the formation of a "free trade zone" for the City of New York and the setting up of the New York Insurance Exchange, with its capital made up by participations in syndicates. This concept is potentially important, but its impact on Lloyd's will not be felt for some time, and ultimately exchanges may be opened in other major business centres such as Chicago. One consequence of these developments could be that business will come into London as reinsurance out of the new Exchanges, better considered and better processed than before.

Despite mergers and the arrival of newcomers on the scene, the list of the world's leading insurance companies has changed little in the last thirty years although London has lost its singularity. There is, for example, at least one insurance company in the USA whose premium income is twice that of Lloyd's, and the major European reinsurance companies such as Swiss Re and Munich Re will play an increasingly significant international role. The industrial pension funds may enter the insurance field by using some part of their assets for that purpose.

Europe and the Third World

The next point concerns Europe and the Third World. Lloyd's brokers have mostly been involved with the American market, Australia and of course the UK itself, with little attention being paid either to Europe or the Third World.

Because of political inhibitions, brokers will mainly be concerned with reinsurance, and the fastest growing markets over the past few years have been found in the Middle East. The experience of Lloyd's brokers in these countries has often been unprofitable, but those who take the trouble, and who have multi-lingual personnel, will do good business in the Middle East, Africa and South East Asia. The same applies to the largely unexploited areas of South America which have hitherto been the preserve of a small number of Lloyd's brokers.

The " micro-chip" revolution

Before dealing with the factors which will exclusively affect Lloyd's, there is another which will affect insurers and brokers to an extent few people fully realise today. This is of course the " micro-chip revolution" which will have a profound effect on the mechanisation of clerical processes and on current staff levels. The insurance industry has been profligate in its use of people, and we are often accused of duplicating what is done in an insurance company and overpaying the people who do it. The "micro-chip" is going to do away with the need for clerical processes out of which brokers obtain substantial earnings. Most brokers would view with horror the prospect of the client paying the insurer through a computerised bank transfer system. At present the use of computers has not had a noticeable effect on staff levels. Management has been provided with better statistics, and clients with more accurate documentation, but although productivity is enhanced, an increased volume of business has kept staff levels fairly constant.

Development of risk management and other services

Brokers in Australia and the USA are as conscious of these developments as we are in London, and the immediate reaction has been to look for new services and new activities to supplement the erosion of traditional earnings. Brokers increasingly will offer services such as risk improvement, valuations for fire insurance, control of pollution, noise abatement and other industrial hygiene applications. These services may be useful to the client, but will not provide the same degree of profitable turnover as conventional broking. My own firm was one of the first to start a risk management arm, and after early trials and tribulations we now have a business which genuinely supplements the role played hitherto solely as insurance intermediaries.

We are, however, far behind the USA in providing an effective service in this particular discipline. In America the Factory Mutual were the originators of a risk improvement attitude to underwriting which has been copied elsewhere, but in London and in Australia we have a long way to go before we can claim to offer a service comparable to that which is available in the USA.

In the relationship with major industrial companies, brokers can expect increasingly to earn fees rather than commission, and to act as consultants for the management of captive companies or formalised self-insurance arrangements. During a period when insurance rates are falling a remuneration based on fees can be an advantage since it is not linked to a reducing volume of premium. Recognition will also have to be given to the growing strength of the various organisations of insurance and risk managers in industry and commerce, and to their ambitions for taking over functions previously performed by brokers.

The London Market

The foundations of London's supremacy were made by a combination of Lloyd's, the brokers, the large tariff companies, and the specialist insurance companies with offices in or around Lime Street. This combination will still provide the best concentration of insurance ideas in the world. The cohesiveness, however, of the composite insurance companies will come under pressure both from within and from without. In 1971 the Monopolies Commission recommended that the Fire Offices Committee (FOC) should be abolished, and although it is still very much alive, sooner or later the tariff will collapse. American and European insurers will provide new competition, and the cosy relationships between insurance companies and industry, formed by board room appointments and investment links, will be threatened.

Already one of the best known tariff companies, once regarded as a cornerstone of the London establishment, has formed a captive management subsidiary under its own name in Bermuda. To the chagrin of fellow members of the FOC, it has been instrumental in transferring a large volume of profitable fire business out of the London market into Bermuda. A few years ago this would have been unthinkable.

Brokers will increasingly use sophisticated programmes based on reinsurance for the largest industrial risks in the UK. These will replace the traditional methods of "scheduling" a risk whereby the tariff companies shared the premium and prevented fire rates falling below an agreed level. Cartels seldom work in favour of the buyer, but there is merit in the stability of an insurance market, and if it is allowed to become unregulated, ultimately the policy-holders will suffer. Similarly in the marine market, rating agreements will become less effective, although in the immediate future underwriters will still be nursing the wounds inflicted by the disastrous losses in 1979.

Government regulations may have to be tightened up to monitor the security of smaller companies and agencies, to ensure that the security offered by the London market in general, will still command respect. The removal of exchange controls will help British companies to accumulate assets overseas, and if the pound continues to strengthen in relation to other currencies, reserves for claims will also benefit.


Turning now to Lloyd's itself, never in its history has it been subjected to the same degree of external criticism as has happened over the past two years. Scarcely a week has gone by without some comment in the English press relating either to the advent of Sir Henry Fisher's report, anticipated losses on computer leasing or one or other of the "causes celebres": such as the Savonita affair and the troubles of the Sasse syndicate. Much of this comment has been ill-informed, with yards of newsprint devoted to sensational gossip. It is significant that when Lloyd's published its profits on the 1977 account, second highest on record and over £130 million, this news item only received a few minor paragraphs.

The disputes, which never reached the dimensions of a scandal, are trivial in relation to Lloyd's as a whole. In the sense that they have been confined to members of the Lloyd's community, no member of the general public has suffered financial loss. Claims on computer leasing were to a large extent absorbed by the profits of the 1977 underwriting account, and this should be taken as a sign of the financial strength of Lloyd's rather than of weakness.

The international Lloyd's brokers

There are more than 300 firms of Lloyd's brokers, many of which are small specialist businesses, and it is the international brokers who have come in for criticism. It is suggested that they dominate the market through the volume of premium which passes through their hands, and through their control of the largest underwriting agencies. The total market capitalisation of the insurance broking sector, quoted on the London Stock Exchange, is more than £800 million of which half, at the time of the acquisition of C. T. Bowring by Marsh & McLennan, was accounted for by the two largest companies. I would strongly argue that the activities of the international brokers have been of benefit to the UK's balance of payments, and to the market as a whole, in generating new sources of earnings and in the development of insurance for the latest technologies.

On the other hand, many of the problems which have affected the Lloyd's community date from the early 1 960s when Lloyd's brokers first obtained quotations for their shares on the Stock Exchange. Before then Lloyd's broking was an activity well understood in the City of London but generally unknown to the public. There were no grand offices, fleets of motor cars, luncheon rooms, and we didn't commute to New York by Concorde. It even used to be said "never trust a man with a double-barrelled name or a Lloyd's broker with a newly painted office". All that changed when the brokers " went public". Large fortunes were made by those who held shares in these companies. The companies themselves developed into large corporations by acquisitions and mergers, and the appetite of employees was whetted for capital gains. This led to a number of undesirable consequences.

The comparative affluence of the brokers and the publicity given to their growth in profits, led industrialists in the UK to question the economics of using a broker. There is another story of J. P. Morgan which may be appropriate, about the visitor to New York harbour where Mr Morgan's gleaming white yacht and the gilded ships of other Wall Street tycoons were pointed out with admiration by the guide. The visitor asked with some hesitation where the yachts belonging to the clients could be found.

In reality, profit margins on " retail business" and direct industrial accounts are minimal and will come under even greater pressure in the future. Reinsurance and "wholesale business": or the placement of overseas risks into the London market, will continue to be the source from which brokers derive their best returns.

Throughout the 1 970s insurance brokers were the darlings of the financial sector and there is truth in the allegation that latterly some of them started to behave with the characteristics of spoilt children. With the annual publication of accounts there was a constant incentive each year to produce increased profits and a temptation to enter hazardous areas, such as aviation reinsurance broking, the results of which are seen today in "substantial write-offs" for balances which are irrecoverable through the use of ‘‘pools" and other doubtful security.

The brokers developed a reputation for business acumen which in fact was little more than the direct result of a combination of external factors— - insurance values increasing by inflation, the weakness of the £ sterling, statutory limitation of salaries and wages in the UK, and large increases in investment income, which provided an almost infallible recipe for success.

All of this went sharply into reverse in 1979 when sterling became a strong petrocurrency, wages and salaries were freed from government interference, premium rates were slashed throughout the world, and many industrial companies could no longer afford to increase their sums insured in line with inflation. We expected 1979 to be a bad year but in the event it was far worse than anticipated. Six out of eight quoted brokers in the UK have reported falls in pre-tax profits, the largest being almost 45%, and it is clear that these adverse factors are likely to continue. For this reason, as I said earlier we cannot expect an easy ride in the years ahead.

The emergence of the ‘‘mega-brokers" and North American links

This leads to the point which I have left to the last, but which may be the most important in predicting what is going to happen in the 1 980s. I refer to the emergence of the " mega-brokers", the links with North American insurance interests, and the acquisition of major Lloyd's brokers by their counterparts in the USA. There is little doubt that the mega-brokers represent formidable competition to the rest of the market. They will be able to provide technical services which the smaller companies will find unprofitable, and in bidding for the best staff they will be able to offer salaries which others could not afford.

Following the Fisher Report, there has been speculation in London as to which brokers will be taken over by one or other of the Americans. I find this discussion unrealistic. The experience of Marsh & McLennan with C. T. Bowring is not likely to encourage others, and less powerful companies would find it difficult to accept the departure of senior staff with their related business to the extent which is happening in that instance.

People who make a success at Lloyd's are inclined to be " prima donnas"; leading personalities in the market are unlikely to accept the disciplines of North American financial reporting, and the constraints of subsidiary company status. More acquisitions will be made in the London market by the Americans, but I still consider that it would be better for them to set up their own "shops", and to attract good staff by offering high remuneration, rather than to pay inflated prices for control of existing brokers with the risk of subsequent loss of business.

We may well see over the next few years, a state of affairs similar to Europe during the Thirty Years War. Bands of mercenaries will roam the countryside offering their services to the highest bidder and plundering the rich cities which gave them their original employment. Although the analogy may be exaggerated, I believe that the London market will eventually benefit from this trend, and that it will lead to fragmentation from the "mega-brokers". These firms may have some of the characteristics of the dinosaurs, which developed to such size and weight, that they were only able to nourish themselves by eating day and night, and eventuality expired through exhaustion.

The art of broking does not flourish in an institutionalised atmosphere, and if the mega-brokers are to prosper over the next ten years, they will have to break down their operation into smaller profit centres where individuals can identify with the results of their own enterprise. There is a law of diminishing efficiency in management which states that the number of effective people in any unit is never more than the square root of the total number employed, i.e. out of a unit of ten, there will be three effective people or 30% of the total number employed; out of a unit of a hundred there will be ten who are effective or only 10% of the total.

Lloyd's will continue to be a "people business", and in spite of the influence which the mega-brokers will be able to exert in the market, the real broking skills will lie in the hands of teams of individuals. Current events suggest that Ian Findlay, the former Chairman of Lloyd's, may have been mistaken in predicting that within a few years major international risks in Lloyd's would be placed by not more than six firms, formed as a result of a series of mergers and acquisitions. North American business will polarise to the London brokers with whom the producing brokers are associated, but it will follow market personalities of exceptional ability if they move elsewhere.


What then does all this add up to? Should we be advising investors to sell their shares and put their money elsewhere, or can the Lloyd's broking community expect a secure and prosperous future? I look forward to the next ten years with confidence and optimism, recognising that trading conditions are not going to be easy, but in the knowledge that the service we offer to our clients has never been better. Inevitably in a dynamic business it is the unexpected which happens and the unforeseen for which we have to be prepared. A British politician was asked recently on television whether he was surprised by certain changes which had taken place in Westminster. After a pause for thought, he replied that indeed he was surprised but that all change surprised him. We will have to be more alert than this to meet the challenges of the 1980s but I have little doubt that we will be able to do so.

In looking to the future, attention will have to be given by Lloyd's brokers to the right balance between conflicting priorities. These consist of duties to clients, to staff and to underwriters, as well as to share-holders. Exaggerated attention to profitability will result in bad service to clients, insufficient expenditure on long-term development, and poor staff relations. By the same token, preoccupation with technical service or extravagant use of people will lead to a fall in profits. It is easy to be the most efficient but the least profitable broker in the market. To attain its objectives management must ensure that undue emphasis is not given to any one of these factors at the expense of others.

Dec 80

WIR: ASSOCIATION OF EXTERNAL MEMBER'S OF LLOYD'S FORMED (AEML). An association of External Members of Lloyd's has now been formed, chaired by Lady Middleton, with David Cronin as secretary and Patrick Thompson treasurer. The association to represent the members who do not work at Lloyd's was suggested at the meeting on 4 November, at which the draft Bill based on the Fisher report recommendations received members' approval . The bill was lodged with Parliament on schedule at the end of November, for consideration in the current session.

4 Dec 80

Mendes & Mount letter to Underwriters at Interest, C/- Sedgwick Forbes Bland Payne (N.A.) Ltd.. Re: Johns-Manville Corp. We have just been advised by Marsh & McLennan, U.S. Brokers, that they have received notification from the Travelers reporting that the Travelers aggregate limits of liability for Products Bodily Injury for the years 1966, 1967, and 1972 have been exhausted. In addition, Travelers advises that its cumulative aggregate limits for the period 1 July 1946 to 1 July 1976 is US $16m and that they have already spent some $10m of this sum. Travelers goes on to indicate that their entire primary limits will probably be exhausted within the next eighteen months.

5 Dec 80

House of Commons: Letter from Peter Brook MP to N E Dangoor

Thank you so much for your letter, and I was sorry that I was not free at the time of the meeting on December 1st.

I imagine the group you are setting up will be professionally advised, since the process by which one changes a Private Bill is entirely different from that which is brought forward by the Government or by a private Member on his own behalf. At the risk of teaching my grandmother to suck eggs I will run over the process.

The Bill is initially brought to the House by the Chairman of Ways and Means and, if its introduction is not objected to by any Member, it then goes to a Committee upstairs for Unopposed Private Bills. I will not however explore that route, as I am absolutely certain this Bill will be opposed.

Assuming it is, it is then brought in between 7pm and 10pm on an evening set aside for Opposed Private Business. It is introduced by a backbench Member and then it has a Second Reading debate exactly like any other Bill. Normally there is a vote at the end of that debate and the Bill only proceeds if it secures a majority, though sometimes the earlier opposition has simply been in order to secure a debate.

There are a number of procedures under which the House can vote to take certain clauses out of the Bill for separate discussion on the floor of the House, but in normal course of events the Bill then goes to an Opposed Private Bill Committee which sits in a quasi-judicial capacity. It consists of four Members, two each taken from either side, and they have to demonstrate that they have no material interest whatsoever in the Bill.

Petitioners against the Bill, (i.e. those who would wish to amend the Bill or have certain provisions removed), then appear before the Committee, having earlier entered their petitions, and the Committee listens to their arguments which may well be presented by Counsel. The Committee then determines the fate of the petitions. Thereafter the Bill returns to the House for the usual remaining stages.

In practical terms the promoters of the Bill will frequently seek to accommodate the petitioners in what in legal terms would be described as out of court, and therefore practical horse-trading goes on. This is a very simplified account and professional advisers could amplify it for you. The firm of Parliamentary Agents/Solicitors with whom I have had most to do are Sherwood & Co of Queen Anne's Chambers, 41 Tothill Street, SW1, where I have dealt with Hugh Gaymer and Cohn Winser (spelling of both uncertain). I do not know which Parliamentary Agents Lloyd's are themselves using and of course it may be Sherwood's.

Lloyd's have very sensibly decided that the Bill should be introduced for Second Reading, assuming it is opposed, by Kenneth Baker. I was myself unable to do it partly because I am a member of the Government and thus precluded, but also because I am myself a member of Lloyd's and there was a feeling that the Bill should be introduced by someone who was not a member. I am taking the liberty of sending on a copy of your letter to Kenneth Baker for information, but I am sure that you and your group will appreciate, from the account I have given, that there is independent action which you need to take.

9 Dec 80

Johns Manville litigation

Johns-Manville ("J-M") were manufacturers of asbestos products and in 1980 when the litigation commenced faced over 1,000 lawsuits with more expected. There was no attempt in the pleadings to put a figure on the sum claimed, but it was said that in 1980 in San Francisco alone the liability was several million dollars and. that they had already paid out over $800,000 in excess of settlement by their current insurers. Lloyds had insured J-M from 1947 to 1963 and again in 1978 and 1979. There were two lists of affected Lloyds Syndicates, one of those which subscribed to the ‘exposure' theory, and one of those which subscribed to the ‘manifestation' theory.

Rokeby-Johnson was the Underwriter through whom the Lawyers of the ‘exposure' Syndicates obtained their instructions on behalf of the Lloyds market. Documents were filed by him on behalf of Underwriters on 9 December 1980, 22 December 1980 and 24 April 1981.

Dec 80

Letter from Attorneys to EE Nelson. Re: Asbestos claims

..... A review of the closed asbestos claims handled by our office reveals that the average case settlement price is $67,000, that sum being comprised of contributions from various defendants. Considering factors such as inflation, publicity given asbestos settlements and awards by the media ... one can expect future settlements to increase substantially to $100,000 ... While newly stated causes of action will add defendants to the litigation (i.e. United States government, former employers, tobacco industry etc.) and may serve to lessen the amount each asbestos manufacturer must pay toward a particular settlement, the average settlement package will quite likely continue to increase in size.

In this writers opinion it is likely that an average asbestos settlement will approach $100,000 per claim over the next few years, with an additional $10,000 allocated for expenses.... Asbestos claims are multiplying rapidly. We receive an average of 50 claims per month. As respects the advent of workers' suits against their employers, we note that in the case of Judith Ferriter -v- Daniel O'Connel Sons Inc. the Massachusetts Supreme Court held that the spouse and children of an injured worker have a right to sue the worker's employer based upon an allegation of negligence, even though the worker had accepted workmen's' compensation payments. The Supreme Court of California ... and Appellate Courts in Delaware and Texas ... have recently held that former employees, as well as their spouses may recover from former employers, based on theories of intentional or wilful misconduct. These decisions may substantially increase the number of asbestos related claims that will be brought, and, of course, raise some further coverage questions especially regarding the allegations of wilfulness. It is difficult to project the number of claims that will be filed in the years to come. Doctor Selikoff in a recent speech predicted that there could be as many as 20,000 asbestos related deaths in the United States before the year 2000. In the next 6 to 8 years, 1,000 new claims may be filed each year. To continually revise and update this figure, I would recommend the Committee review the trends in case law and new causes of action developed by Plaintiffs, on at least a semi-annual basis.

16 Dec 80

An Unlimited xs £100,000 run-off reinsurance placed for A F Jackson, Underwriter of Marine Syndicate 735 Incidental Non-Marine Syndicate 737 jointly managed by Joseph Hobbs and Alan Jackson Underwriting Agencies Ltd. to incept as at 1 January 1977 covering years 1958 and prior. Outhwaite wrote 64.52%. This policy protects syndicate 737 in respect of their 34.1% share in the run-off reinsurance of Syndicate 964.

Dec 80

The Sedgwick Group announced that following talks regarding the co-ordination of the world-wide business of the Sedgwick Group and Alexander & Alexander Inc., agreement in principle had been reached to merge the two companies. As announced at the time, significant fiscal and other regulatory matters still have to be resolved and no financial negotiations have yet commenced. Early in 1980, we agreed with Alexander & Alexander to form together, in advance of any overall co-ordination of interests, a reinsurance broking company in the United States. .... We are also discussing with Alexander & Alexander other possible joint ventures which could be implemented in advance of the proposed merger.

Dec 80

Mendes & Mount report to EE Nelson, K F Alder (Underwriting Agency) Limited., not in response to any particular assured, but perhaps in response to the November meeting of the Asbestos Working Party, for they state:

Report from Attorneys to Unquestionably, as with other areas of tort liability, the dollar amount of settlements has increased since the seminal case of Borel. The Borel jury returned a verdict of $79,000 in 1972.

Since that time there have been several multi-million dollar awards and for that matter, there also have been several defendants verdicts ... it is currently our best judgement that underwriters should increase reserves to $125,000 per claim, and we so recommend. This amount would include an item of defence expenses, then, barring drastic change in the liability posture, that sum could very well see us through to 1983-1984. We would hesitate to say that this figure should carry us into the peak years, which may very well be 6 or 7 years hence. With respect to claim frequency, it has been our observation that cases are being filed on the average at the rate of approximately 100 per month. or 1,200 per year ... We currently do not foresee any marked increase in this number, nor on the other hand do we anticipate a sharp reduction. The foregoing comments must be considered "guarded" because over the past 10 days, we have seen a sharp increase in filings. As an illustration, for GAF alone, some 286 cases have been filed since December 1st ... As to when these cases may peaks it certainly does not appear that that has occurred; it would be our "guestimate" that such will not occur until, at the earliest, mid 1985. Certainty by that time we would anticipate some resolution of the loss date issue for by that time. (all those cases will have reached some sort of finality).


The Water Carrier Act of 1980 (Public Law Order No. of the USA) passed by Congress.

The statutory liability for "public liability" to cover property damage and personal injury and "environmental restoration liability", has no limits to liability for trucks, up to $750,000 financial responsibility required for any vehicle, up to $1m for trucks carrying oil waste or hazardous substances and, up to $5m for trucks carrying designated extremely hazardous substances.

Dec 80

The Comprehensive Environmental Response, Compensation and Liability Act (Public Law Order No. 96-510 of the USA) passed by the U.S. Congress created a U.S. $1-6bn fund for cleaning up hazardous waste discharge. The Act, more commonly known as the "Superfund", created retrospective liability for compensation, clean up and emergency response for hazardous substances released into the environment and the clean up of inactive hazardous waste disposal sites, excluding oil spills. This was passed by the House of Representatives as the RCRA legislation of 1976 and other initiatives had failed to control the problem of hazardous waste and pollution. The primary purpose of the "Superfund" was to protect public health and the environment by clearing up sites releasing, or threatening to release, hazardous substances, and was enacted in response to the 1978/9 public outcry over the Jackson Township built over an old landfill chemical disposal site in the Love Canal section of Niagara Falls near Buffalo, New York. The early estimates of loss increased rapidly. An estimate in Business Insurance of 14 January 1981 estimated a potential liability to Hooker Chemical and Plastics Corp. of $10bn. On 28 April 1981, Victor B Levitt addressed the under 30's Lloyd's Non-Marine Claims Committee and advised that recently the Federal Government had sued Hooker Corp. for $124m, local residents had sued for more than $2bn for personal injury and property damage claims. CERCLA required the EPA to undertake action at sites on a National Priority List with two main options:


EPA can use the committed fund (Superfund) to perform clean-up operations and then recover the cost from those held responsible, or


EPA can require potentially responsible parties (PRP) to carry out remedial work..

19 Dec 80


Brazilian groups incurred losses of some US$ 70 million in 1979 and the first half of 1980 in their London market reinsurance business, WIR's Sao Paolo correspondent reports this week. Of this figure, the semi-state Instituto de Resseguros do Brazil (IRB) understandably accounted for the largest single amount, about 30%, the rest being shared between some 80 private insurers with reinsurance operations in the London market.

Ernesto Albrecht, president of IRB, said the losses are due in part to the volume of business done in London during the ‘initial phase of internationalisation' of Brazil's insurance business. The IRB itself has been active in external reinsurance for some years. But Brazil's market has been opened to private capital only since 1978, and 1979 was the first full underwriting year to reflect this change.

During this transitional phase, Sr. Albrecht continues, Brazilian companies were unlucky enough to be affected by a fall in interest rates, which led them to offer increased reinsurance capacity as a means of expanding their London portfolios. The year 1979 was also a particularly bad one for marine business - normally the bread-and-butter of reinsurance. Brazilian groups took on a larger volume of business ‘than would be advisable', and their share of marine losses was thus responsible for the bulk of the $ 70 million London account deficit.

The IRB is financing the losses of the private companies for a period of 36 months, with interest and adjustment for inflation. From now on, said Sr. Albrecht, ‘we will reduce our participation in marine business. But the results of this will emerge only in the medium- and long-term', as contracts made in this first year of Brazilian private sector operations through London would be run off only after three to five years.

19 Dec 80


Reed Stenhouse Companies Ltd. Toronto,

reports substantially improved results in its Canadian, French, Belgian and South East Asian operations in the financial year to 30 September, but continuing difficulties in the UK and US markets. UK broking has been affected by the recession, said Stenhouse Holdings chairman Herbert Houghton, with renewals now at lower levels as policyholder companies' turnover is reduced, and some refunds in premiums reflecting the lower value of business actually covered. Substantial spending on computerised systems has also affected UK results, while the strength of sterling has been reflected in the company's estimates that Reed Stenhouse profits would have been £1 million greater, if not for exchange rate movements over the year.

US results have been affectedly provision for an overdue premium ‘in excess of $1 million' - not yet written off as a bad debt - and increased spending on aviation business and on the development of risk management facilities in San Francisco. The company's confidence in the development of the US market is shown by its acquisition of a New York broker and a New York employee benefits company, while there are plans for a second syndicate to be set up on the New York Insurance Exchange next year, where the Stenhouse syndicate has attracted premium income of more than $2 million to date.

The South East Asian group operations have shown the greatest profitability in the latest financial year, while gains in Canada are largely attributed to activity in the prosperous oil regions in the west of the country, despite the general weakness of that market.

Although weak markets have resulted in less business being placed at Lloyd's, any reduction in Reed Stenhouse's Lloyd's broking activities has been offset by overseas companies placing business in domestic markets through Reed Stenhouse companies, Mr Houghton said.

With rising operating expenses and little sign of improvement in premiums (with exception of some hardening in marine hull and aviation rates), from investment income helped stabilise the group's 1980 results.

Year ended 30 September: £000



Net commissions and fees



Interest and dividends received



Operating expenses



Profit before tax



Attributable to Stenhouse Holdings(53.68%)



19 Dec 80


Lloyd's broker and underwriter C E Heath & Co Ltd. London, said on Monday that it had acquired and subscribed $20 million paid-up capital to Pinnacle Insurance Ltd. Hamilton, Bermuda. Pinnacle is being added to specialised reinsurance and direct insurance facilities provided by C E Heath Agencies (Bermuda) Ltd. These will include, in reinsurance, provision of means of client insurers using existing reserve assets as a premium for strengthened reserves; discounting existing reserves for income realisation; or a combined procedure of reserve strengthening and discounting.

Direct insurance facilities being offered by Pinnacle/Heath Agencies (Bermuda) comprise insurance of self-insured commercial companies so as to provide funding for future estimated claims; and insurance of existing self-insured reserves on the lines of the reserve strengthening and/or income realisation scheme offered through reinsurance.

Meanwhile it looks as though the parent company can expect pre-tax profit for the year ending 31 March 1981 at about £10.5-11.0 million compared with almost £13.0 million in 1979/80, after last month's report of half-year results which were better than expected but still heavily affected by inflated broking and other costs. Pre-tax profit at half-time was £5.07 million against £5.87 million. Dealing profits and share of income from the French underwriting subsidiary and the Bermuda activity noted above both contributed to a 92% increase in the relatively small but growing ‘other income', and there was a 13% increase in the half-year in fees and overriding commission in underwriting.

In general broking, Heaths note, the outlook is fairly grim, with rates under continuing pressure in the USA and elsewhere and the strength of sterling producing currency translation losses in the consolidated accounts. On the other hand the modest 10% increase in brokerage income at half time nonetheless served to hold profit above the £5 million mark. (The Pinnacle became a major player in the "Time & Distance" financial reinsurances involving Lloyd's syndicates' reserves.)

19 Dec 80


Reinsurance transactions by US carriers reached record levels in 1979, with foreign insurers paying US insurers $837 million in net premiums, the US Commerce Department reports. Net premiums for reinsurance purchased from foreign insurers amounted to $1,672 million and there was a recovery of $899 million of losses. Net US payments for reinsurance of US risks accepted abroad totalled $773.7 million.

19 Dec 80


Insurers who are creditors of the San Francisco computer leasing company Itel Corp. are being asked if they would accept Itel stock instead of cash settlement of claims, in order to permit the company to prevent filing for protection under US bankruptcy laws. Itel owes $1,200 million to creditors in the USA and Europe. The request follows revised estimates last month from the First National Bank of Boston that insured losses with Lloyd's on computer leasing amount to $400 million, nearly double the forecast two years ago. It is the largest ever claim on Lloyd's syndicates. The latest figures take losses into account up to 30 September this year and reflect a sharp decline in the potential re-leasing values of computer equipment, following the most recent introduction of a new series of IBM computers.

More than 14, 000 claims arising from computer leasing losses have been lodged with Lloyd's, with provision already made by many syndicates which wrote computer leasing policies, to reserve for the losses anticipated over the next two years. Most of the contracts covering leasing companies against loss in case of clients cancelling agreements early, and leaving companies unable to recover investments through sale or releasing, were made for seven years. Claims are therefore anticipated continuing for some time.

22 Dec 80

Johns Manville litigation

Johns-Manville ("J-M") were manufacturers of asbestos products and in 1980 when the litigation commenced faced over 1,000 lawsuits with more expected. There was no attempt in the pleadings to put a figure on the sum claimed, but it was said that in 1980 in San Francisco alone the liability was several million dollars and. that they had already paid out over $800,000 in excess of settlement by their current insurers. Lloyds had insured J-M from 1947 to 1963 and again in 1978 and 1979. There were two lists of affected Lloyds Syndicates, one of those which subscribed to the ‘exposure' theory, and one of those which subscribed to the ‘manifestation' theory.

Rokeby-Johnson was the Underwriter through whom the Lawyers of the ‘exposure' Syndicates obtained their instructions on behalf of the Lloyds market. Documents were filed by him on behalf of Underwriters on 9 December 1980, 22 December 1980 and 24 April 1981.

24 Dec 80

Peter Cameron-Webb writes to a PCW Name in relation to the AEML stating "one major danger as I see it lies in the possibility that the Associations' objects may interfere with, or even cross with, duties and responsibilities which properly belong to the Underwriting Agent. This position should be avoided, at all costs, for obvious reasons.

24 Dec 80

Wilson Elser reported to the Working Party and inter alia stated: "It is difficult to project the number of claims that will be filed in the years to come." They refer to Dr Selikoff's projections of 1,000 new claims in the next six to eight years: "To continually revise and update this figure, I would recommend the committee review the trends in case law and new causes of action developed by plaintiffs on at least a semi-annual basis." Understandably, the Attorneys concerned were not prepared to commit themselves very precisely as to the likely number of future claims.

31 Dec 80

Number of entries advised to underwriters:


Table of policies signed and endorsed etc. processed by the LPSO

Marine, Non-Marine & Aviation

Number of policies signed:


Number of syndicate reinsurance items:


Endorsements in respect of additional


Number of claims and recoveries items:


31 Dec 80

The Sedgwick Group Annual Report for 1979 discloses under:

1. About the Group: Sedgwick Group's principal activity is international insurance and reinsurance broking, placing business at Lloyd's and with insurance companies throughout the world.. In this field it is one of the largest groups in the world. .... Member companies of the group also prove underwriting agency services for a number of Lloyd's syndicates and insurance companies and on behalf of Members of Lloyd's.

2. Alexander & Alexander: In December, it was announced that following the talks regarding the co-ordination of the world-wide business of your company and Alexander & Alexander Services Inc., agreement in principle had been reached to merge the two companies. As announced at the time, significant fiscal and other regulatory matter still have to be resolved and no financial negotiations have yet commenced. .... Early in 1980, we agreed with Alexander & Alexander to form together, in advance of any overall co-ordination of interests, a reinsurance broking company in the United States. ... We are also discussing with Alexander & Alexander other possible joint ventures which could be implemented in advance of the proposed merger.

3. Lloyd's Underwriting Agencies: In November the group acquired the 60% of the share capital of Three Quays Underwriting Management Ltd which it did not already own. The consideration for this acquisition was £1.65m, satisfied partly in cash and partly by the issue of new ordinary shares in your company. Three Quays Underwriting Management Ltd is the management company for a number of syndicates at Lloyd's. Following the acquisition the company has operated, and will continue to operate, exactly as before. The contribution of our principal Lloyd's Underwriting Agencies to group revenue was larger than that of the previous year. In part this was due to the acquisition during the year of Three Quays Underwriting Management Ltd, to which I have already referred. It is worth reiterating that this company and our other Lloyd's underwriting agencies, Bland Welch Underwriting Ltd, Edwards & Payne (Underwriting Agencies) Ltd and Sedgwick Forbes (Lloyd's Underwriting Agents) Ltd, operate with a high degree of autonomy and as independent units. ...

4. Underwriting Services: Sedgwick Group Underwriting Services Ltd was formed at the beginning of 1980 to co-ordinate and monitor the various insurance company underwriting interests of the group both in the UK and in other parts of the world. In the second half of 1980 a well known non-marine company underwriter of long experience was appointed Managing Director and, more recently, the various units of the company were brought together in one location in the City of London. Principal Group Companies: Regis Underwriting Agencies Ltd (Underwriting Agents), River Thames Insurance Company Ltd (Insurance Company), both registered in the UK.

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