0 Jan 83
Lloyd's Log: As Lloyd's enters a new and challenging era the chairman of Lloyd's, Sir Peter Green, sets out the role of the Log as a means of keeping the membership advised
This is the first issue of Lloyd's Log in anew format. It comes at an historic moment for Lloyd's and publication of this edition has been delayed so as to be able to include information which I am sure you will wish to have about the new Council, the meeting which took place at Leeds Castle in December, and the very important decisions taken at the first Council meeting held on January 5.
Already over80% of the membership of Lloyd's receives the Log each month, in addition to a substantial number of copies which are requested by individuals and organisations all over the world by whom the Log is highly valued as giving an insight into the work of the Market and the personalities therein. As a result of initiatives by the Information Policy Board, supported by Members and managing agents, I very much hope within a short time that Lloyd's Log will reach every member and serve as one, but a very important, means of informing everyone involved on salient events on Lloyd's.
The layout has been constructed so as to ensure that there will beregular reports on the work of the Council and Committee, reviews of the work carried out by the Task Groups set up as a result of the Fisher Working Party Report, all in addition to the material the Log has traditionally published.
Inno way, of course, could the Log provide an adequate substitute for the close relationship between Member and Agent. Nevertheless, the Log is an effective method of communication and can ensure that much complex documentation reaches Names on a regular basis at considerable financial saving to both Agents and Names.
The Editor will ensure that the material is presented in as readable a form as possible and theCouncil and Committee are equally dedicated to the belief that a monthly review of this type can be of great value not only to the Names but to the many others who work in the market and to influential bodies at home and overseas for whom up-to-date knowledge of affairs at Lloyd's is of major importance to our business success.
We are not forgetting the lighter side of life. There are a large number of societies within the Lloyd's Community whose activities will be reported regularly. We also intend to increase the coverage of the work of the Lloyd's Agents around the world, of whom there are over 1,400, for all of whom Lloyd's Log is an essential document.
The changes initiated in this issue, and which will be enhanced as the months proceed, are in no small measure due to the requests I and other members of the Committee have had from Members all over the world that we add as much relevant information to Lloyd's Log as we can, particularly at this very important moment in Lloyd's history.
Finally, this gives me the opportunity to welcome on behalf of you all Mr.Ian Davison, who joins Lloyd's on February 1 next as a Deputy Chairman and Chief Executive. A biography of Mr. Davison appears elsewhere in this issue, together with photographs and brief biographical details of all the members of the Council for 1983.
Please do not hesitate to let me or the Editor know of any suggestions you may have for further improving the value of the Log. They will be most warmly received and carefully considered.
5 Jan 83
Times: First meeting for new Lloyd's council
A new chapter in the chequered history of Lloyd's o f London begins today with the first formal meeting of its new ruling council, established under the terms of the Lloyd's Act as supreme policy making body of the 300-year-old insurance market.
High on the agenda at today's meeting will be theestablishment of an appeals and disciplinary tribunal to eliminate the antiquated mechanism of an extraordinary meeting of all members and speed up consideration of any alleged misdemeanours by members.
Appointmentof a chief executive will also rank high in the list of priorities for consideration. A list of about half a dozen senior civil servants who are considered suitable for this arduous task will be whittled down to two or three names, a with a final choice expected before the end of this month.
Toimprove the image of Lloyd's in the light of last year's wave of scandal and controversy a sub-committee will be set up to consider improving public relations. Greater disclosure in the accounts of Lloyd's syndicates, bringing them into line with the requirements placed on a public company by the Companies Acts, is also certain to be endorsed by the council.
Today's meeting takes place against a background of apreliminary meeting last month at Leeds Castle in Kent when the eight council members chosen by the 16,000 non-working members on Lloyd's proved to the committee of Lloyd's that they were not the "yes-men" which critics had been quick to label them.
It came as something of a shock to both Sir Peter Green, chairman of Lloyd's, and the rest of the committee, to learn of thedissatisfaction and frustration felt by external members, and to realise that the eight would not be the silent minority the committee had apparently hoped for.
There was little doubt, for instance, that Sir Peter would be unanimously endorsed for election as chairman of the Council, but some of the external members had other ideas
For three centuries Lloyd's has held onto its guiding principle of self-regulation, but theextent to which reinsurance arrangements had been abused by certain sections of the market brought numerous calls for sweeping curbs to that principle during the past year.
There is little doubt thatlast year was the most damaging in the history of Lloyd's but the signal that widespread changes are on the way should mark today's meeting as an historic milestone on the road back to effective self-regulation.
5 Jan 83
First full meeting of the Council and established, by Byelaw, new disciplinary and appellate procedures for Lloyd's:-
6 Jan 83
Kenneth Grob in evidence to the DTI appointed Inspectors investigating the affairs of Alexander Howden, "And so we decided that we would do what we always did when we had a problem, that is to say, use the reinsurance route. We had been solving our own and other people's problems for years with reinsurance".
6 Jan 83
Daily Telegraph: Hay Davison accepts lead role at Lloyd's
IAN HAY DAVISON, chairman of the accounting standards committee and senior partner of accountancy firm Arthur Andersen, has been appointed to the controversial new post of Chief executive of Lloyd's. This was one of the first decisions at yesterday's inaugural meeting of the new ruling council of Lloyd's.
Mr Davison, 51, who isalready in charge of the revision of the outmoded accounting requirements at Lloyd's, takes over on Feb. 1 when he will also be a deputy chairman and a member of the council.
Sir Peter Green, chairman of Lloyd's, said the appointment had been discussed with both the Department of Trade and Lord Richardson, retiring Governor of the Bank of England. But it was Lord Richardson who had first approached Mr Davison on Dec 23 because "the Governor might be more effective in obtaining his services." And after further talks Mr Davison accepted yesterday.
It was not the Governor butthe council which had appointed him, and it was to Lloyd's and the council that he was responsible, Mr Davison said. He was convinced he would be given all the power and freedom to carry out the work needed to be done.
His salary is £120,000 plus a car, which is roughly what he has been getting at Andersen. He has resigned from the accounting firm which agreed to treat his appointment of three to five years as leave of absence, but Mr Davison is to stay on at the accounting standards setting body.
Details of Mr Davison's contract have still to be worked out. It isnot yet even clear how he will rank in comparison with the two existing deputy chairmen. But dismissing earlier Lloyd's comments that he would be "a" chief executive, Mr Davison said "It has been made quite clear to me that the council is most anxious I be given the full authority which is necessary for the job." "Some far reaching changes are needed at Lloyd's," he added, and he would be recruiting extra staff to cope with the broader regulatory and disciplinary functions. Having attended yesterday's council meeting Mr Davison found "great enthusiasm for clearing up" the problem areas.
Although hetravels to the United States this morning to discuss inflation accounting standards with the American accountancy bodies, Mr Davison will be back in time to present his proposals next Wednesday on improved accounting rules. Top priority for auditing the 1982 accounts will be disclosure of outside interests and of reinsurance arrangements.
After disclosure had been achieved, it was up to Lloyd's to decidewhether "certain conflicts should be forbidden". He had no plan or set of priorities for his new job and the council did not limit it either. It would have been a mistake, Mr Davison said, to plan the job in detail prior to installing someone.
He has resigned from almost all his other activities,reduced the accounting standards work to 25 p.c. of his time, will have no source of income other than Lloyd's and will not become an underwriting member of Lloyd's, he said.
MrDavison's appointment was approved by the Bank of England and widely welcomed in the City. He also impressed the council at yesterday's meeting.
The council started at 10.30 a.m. and went on meeting until late into the evening. Apart from Mr Davison's appointment itapproved a long list of new bye laws, including the setting-up of an investigation procedure and the ability to impose "administrative suspension " on a member. It also set up the disciplinary committee and the appeals tribunal.
It is to hold fortnightly meetings, butuntil the end of April most of the responsibility for administration and decisions has been delegated to the committee of working members which has run Lloyd's up to now. This is to give the newly elected members a chance to find their feet.
6 Jan 83
Daily Mail: Lloyd's find a man to make them A1 again
IT SEEMS harsh to make a headline of it, but Lloyd's of London have done something right.
They havechosen the chief executive who must restore their fortunes. They have moved fast, they have dug deep in their pockets. Cometh the hour, cometh the man: Ian Hay Davison
He comes across fromaccountants Arthur Anderson where he is senior partner, and Lloyd's will pay him £120,000 a year.
So Lloyd's respond to the call, made in this pagesix weeks ago: Lloyd's must go out and hire Mr. Clean. A strong and independent chief executive, as we were the first to argue, was Lloyd's brightest chance to run their own affairs and might be their last.
Last month, as Lloyd's formally agreed to set the search going, we drafted the Situation
"The successful candidate will possess marked financial skills, the hide of a brontosaurus, a nose for humbug, ceaseless energy, and, above all, the capacity to reach decisions and carry them into action."
Add the urbanity of a good committee chairman, and that is the man they have picked.
More precisely, the man picked by Lloyd's head-hunters, who happen to be theGovernor and Company of the Bank of England. The Governor, dismayed by successful scandals and by what they imply for the City's ability to run its own affairs, has taken Lloyd's in hand.
Mr.Davison was chosen, say Lloyd's, following discussions between the Governor and their chairman Sir Peter Green, and after an initial approach had been made to Mr., Davison by the Governor.
Did Lloyd'sconsider any candidate, other than the one whom the Governor suggested? No, says Sir Peter.
So much forself-serving talk in the Lloyd's bureaucracy that the chief executive would be some harmless placeman or amenable mandarin, his appointment a mere exercise in face-saving,
John Stonehouseknows better, and so do the survivors of the Grays Building Society - they met Mr. Davison as a Department of Trade inspector.
Auditorsaround Lloyd's know better - for the last six weeks Mr. Davison has been setting them new and overdue standards for their work.
More will be done in the daylight: "Mypriorities are the disclosure of the interests of all working members.... As chief executive, I must serve the interests of the members of Lloyd's, and also the public interest".
The two go together. What is atstake is the future of a national asset, the world's leader in its business. Britain's most successful exporter of services, and an insurance market; which in all its time and turmoils has never endangered a penny of its customers' money.
The future, in fact, of all the things that Lloyd's of London do right.
10 Jan 83
On 22 December 1982, theSecretary General of the Corporation of Lloyd's wrote to Peter Green, in his capacity as Chairman of Janson Green Ltd., referring to a suggestion that "funds had been transferred abroad and benefits accrued to members of Janson Green Ltd". The letter (to the terms of which reference will be made as necessary) requested the disclosure of various items of information. responded on
By letter dated10 January 1983 (to which reference will also be made as necessary), the Defendant wrote in reply to the above letter.
TheDefendant's letter of 10 January 1983 was incomplete and/or inaccurate and/or misleading and/or provided inadequate disclosure in the following respects, as the Defendant either knew or ought to have known:
In fact, as at thedate of the letter, the funds had not been returned and the board of Imperial Cayman had not approved the increase in the interest rate to 90%. Moreover, the passage quoted above gives the impression that there had been more than one variation in sharing arrangements.
The letter also
(The response was deemed to be incomplete, inaccurate, misleading and provided inadequate disclosure to the information sought. Sir Peter pleaded guilty to this charge.)
10 Jan 83
Daily Telegraph: Accounting at Lloyd's ‘not satisfactory'
The urgentneed for much tougher accounting regulations at Lloyd's is highlighted by a study of their current practice, which shows such huge differences between the methods that the figures are impossible to interpret and could hide major problems.
Ian Hay Davison, the newly nominated chief executive of Lloyd's, is today putting before asteering group the final draft of new rules, prior to submitting them to the Committee of Lloyd's on Wednesday. The main points of the tougher requirements are to be disclosure of personal interests and of reinsurance arrangements.
But a study of276 Lloyd's brokers show that this is likely to be quite insufficient. The accounting treatments of many important aspects of the companies are widely different.
For instance, a crucial calculation, likecredit of brokerage fees, is treated in dozens of varying ways, with the same auditing firm permitting six or eight different treatments in the companies it deals with.
Thestudy found that 28 of the companies did not disclose the treatment of this item at all, and this included all six clients of accountants Morrison Stoneham.
The report comments that accounting policy is "not satisfactory" for analysts, insurers or reinsurers.
As a result of treatments often used there is a "likely overstatement of revenue reserves." The report concludes that "prudent accounting for earned brokerage is not followed" because it would highlight "already strained balance sheets and solvency tests by an increase in insurance liabilities."
Brokersare supposed to be appraising the security of their reinsurers yet their own accounts are vulnerable problems. "Perhaps insurers and reinsurers should be appraising their broking "security," says the report.
Mr. Davison has said thatthis week's rules are an interim measure for auditing the 1982 accounts. For the 1983 figures extra regulations will be brought in.
Thereport makes clear Lloyd's has a very long way to go.
11 Jan 83
Press release agreed at meeting of Asbestos Claims Council.
(A press release agreed at a meeting of the Asbestos Claims Council referred to20,000 claims pending and tens of thousands more expected over 30 years. The press release added that the ultimate cost in insurance payments will be in billions of dollars and, if past experience is repeated, half the insurance payments will be spent on legal fees and related defence costs).
To co-ordinate processing the mounting number of asbestos related claims and then speed their disposition,11 major asbestos insurers and Lloyd's of London have formed the Asbestos Claims Council. "The insurance industry faces overwhelming litigation", said Ray Stahl, chairman of the Council, "with 20,000 claims pending and tens of thousands more expected over 30 years. The flood of asbestos litigation is adversely affecting not only asbestos claimants but others seeking civil resolutions". "The ultimate cost in insurance payments will be in billions of dollars," he added "and, if past experience is repeated, half the insurance payments will be spent on legal fees and related defence costs". The Council, comprising senior claims executives of the insurers, formalises the objectives they have been pursuing informally:
(I) Identification of the objectives as "We are prepared to move rapidly to help solve the
12 Jan 83
In November 1982, aLloyd's Working Party on accounting and disclosure, chaired by Ian Hay Davison, then senior partner of Arthur Andersen &Co, was established to review the Instructions for the Guidance of Lloyd's Auditors and, in particular, to consider what changes should be implemented for the audit at 31 December 1982.
Aninterim report was presented o the Committee of Lloyd's on 12 January 1983.
. TheWorking Party considered that certain matters required immediate action to emphasise the auditor's role and to improve the reporting of reinsurance arrangements both in syndicate accounts and to Lloyd's. In consequence, the interim report covered the following:- Disclosure of Insurance Interests, reinsurance and "Baby syndicates". Following Mr Davison's appointment as Deputy Chairman and Chief Executive, Ian Plaistowe FCA, also a partner of Arthur Andersen & Co, assumed the chairmanship of the working party. A number of other matters were thought to require further study and particularly concerned reinsurance, the auditing of syndicate accounts and the information which should be made available to Members and prospective Members. A report detailing initial requirements for reinsurance and disclosure was issued in April 1983. The working party's proposals on disclosure of reinsurance arrangements were approved by the Committee of Lloyd's. Following that approval, managing agents, member' agents and approved accountants were advised by letter of their responsibilities relating to reinsurance arrangements. The letter also outlined the Committee's requirement for disclosure of certain information relating to reinsurance in syndicate accounts, disclosure to Lloyd's of related party reinsurance contracts or arrangements and of certain other reinsurance contracts or arrangements
Theworking party has substantially completed its deliberations on proposed bye-law concerning disclosure of insurance and other interests by underwriting agents. The draft bye-law will be presented to the Council and circulated to the Market in due course for comment.
12 Jan 82
Daily Telegraph: Lloyd's out of line on Posgate suspension
LLOYD'S was wrong to suspend its largest and most successful underwriter Ian Posgate, it did not have the power to do so, and the way it went about the procedure was a breach of natural justice, said two judges at the High Court yesterday.
Mr Posgate not onlywon his protracted and expensive case against Lloyd's to prevent his dismissal, but he was awarded costs - reckoned to he some £75,000 for each side. As a result, Mr Posgate was voted back on the board of the underwriting company Posgate and Denby.
But although he would now have the right to return to the underwriting room at Lloyd's and resume business, his company will discuss the new situation with Sir Peter Green, chairman of Lloyd's. "I will behave with discretion," said Mr Posgate last night.
Lloyd's will consider its next move at the regular weekly committee meeting today. The judges ruled: "There was no power in the committee to require the suspension of Mr Posgate in such a manner as would amount to suspending him as a member of Lloyd's; this is in fact what it did."
Since the committee's action, the Lloyd's Act 1982 has granted it the right of "executive suspension." Even if it had the power last September, "Mr Posgate ought to have been told the nature of the-charges," and "asked if he had any grounds for saying that it would be wrong to suspend him."
"There was abreach of the rules of natural justice"
But Mr Posgate was probably wrong not to have the case reheard later by the committee - the judges did not think that his fears of prejudice against him were "well-founded."
Mr Posgate said after the case: "I am obviously very pleased." He intends to pursue his litigation against Alexander Howden Group for wrongful dismissal but does not intend to seek compensation from Lloyd's.
12 Jan 83
Daily Mail: ‘Goldfinger' wins a cast-iron case
INSURANCE chiefIan ‘Goldfinger' Posgate yesterday won a legal battle over his suspension from Lloyd's.
The High Court ruled thatLloyds had no power for such action and awarded him the estimate £75,000 cost of his appeal.
Mr Posgate, who claims he can earn up to £100,000 a year, said afterwards that he plans toclaim at least £2 million damages from the firm which sacked him.
The millionaire insurance chief was suspended afterallegations of bogus deals were made by the American company Alexander and Alexander after they took over a firm run by Mr Posgate.
Four directorsresigned and Mr Posgate, who denied misconduct, was fired.
Yesterday he said he was delighted at the verdict and, legally,could probably resume business immediately. But he planned to wait until directors of his own company had talked to the underwriters.
"I would like to go back to Lloyds in a nice gentlemanly way," he said. "It is not my desire to sue them. My argument is with Alexander and Alexander who have damaged my reputation and deprived me of my livelihood.
"I feel I have beenframed over matters about which I have no knowledge whatsoever. I am going to fight with all vigour for substantial damages. My contract alone is worth £1 million.
In the High Court, Lord Justice O'Connor said thatLloyds had acted in good faith when they felt they had to protect their reputation for integrity.
Theunderwriters sent letters about Mr Posgate to broking firms which the judge said amounted to suspension - a power not granted by the Lloyds Acts of 1871 and 1951.
The Lloyds Committee claimed that directives given in the letters were no more than "firm requests" to brokers not to trade with him while investigations into the alleged £31 million irregularities were continuing.
But the judge said "theletters did constitute suspension. That is the reality of the situation and, where a man's livelihood is concerned, the court should look at the reality of what has been done," he said.
The judge added: "We are sure that the Committee were acting in good faith. They were faced with what they regarded as a grave emergency."
17 Jan 83
Quorums and Appointments of Committees and Sub-committees Byelaw(No. 11 of 1983).
17 Jan 83
Direct Motor Business Byelaw(No. 12 of 1983, 17 January 1983).
18 Jan 83
Daily Telegraph: Beginning of end of Lloyd's humiliation
At last the Lloyd's insurance market is within sight of a resolution of its difficulties. Aftera most dreadful 1982, when Lloyd's became synonymous with corruption rather than good faith, a series of radical reforms are now being carried out:-
Thus Lloyd's has turned to all the well-tried remedies -strengthening the ruling body by statute and by personnel, admitting distinguished outsiders to a supervisory role and insisting on disclosure of possible conflicts of interest, buttressed by increased powers for Lloyd's auditors.
It is safe to say that thiscure will work, provided that the treatment is carried out in full. That means, for instance, that a full separation between insurance broking firms and managing agents of syndicates must be achieved. There should be no exceptions or fudging. And although the market doesn't like it, the same breach should be made between ownership of insurance brokers and members' agents.
As fordisclosure, it must be complete. The proposed rules published last night are exceedingly complicated only because they seek to make a series of distinctions between who should disclose what to whom.
Had the recent history of the market been more honourable, there might have been some sympathy for gentle application of the principle. But Lloyd's can afford nothing less than the rule thatall potential conflicts of interest must be exposed to public scrutiny.
18 Jan 83
Daily Telegraph: Posgate decision delayed
THE COUNCIL of Lloyd's has delayed its decision on whether to order a fresh suspension from underwriting of Ian Posgate in the light oflast week's court ruling that its original suspension had been outside the committee's powers.
At a meeting yesterday the ruling committee considered the allegations against Mr Posgate and "heard at length" his own rebuttal of the charges together with anapplication from Posgate and Denby Agencies to permit Mr Posgate to return to underwriting.
The Council stated that "by the unanimous vote of those present apart from Mr Posgate," the allegations needed further investigation before a final decision was made under the new powers of the Lloyd's Act. A subcommittee has been formed to look into the matter and, in the meantime, Mr Posgate has agreed not to recommence underwriting.
18 Jan 83
Times: Davison calls for more disclosure
Members of Lloyd's, many of whom risk their entire wealth as underwriters in the 300-year-old insurance market, will in future be given a muchclearer picture of both the workings of their respective syndicates and the financial interests of the underwriting members who run the syndicates.
Proposalsdrawn up by Mr Ian Hay Davison, newly appointed chief executive of Lloyd's, call for the establishment of a central register requiring underwriting agents and those connected with them to disclose insurance interests. Recommendations on the disclosure of reinsurance contracts have also been presented by Mr Davison's working party in a second consultation documents.
This move towards tougher disclosure comes in the wake of the recent controversy at Lloyd's in which prominent members were alleged to have benefited from interests insecret offshore reinsurance companies. The two consultative documents have been approved by the Committee of Lloyd's and members have until the middle of next month to make their comments.
"Self-regulation means consultation and rules being made by the people on whom they are going to apply", Mr Davison said yesterday. While the disclosure requirement is confined to insurance interests, Mr Davison pointed out that related interests would be included: "If someone owns interests in a towel company and that company supplies towels to his underwriting agency, then it would have to be disclosed."
Anumber of specific additions to the existing instructions to Lloyd's auditors have already been made by the working party, but it is now also calling for comprehensive syndicate accounts to be prepared for the "names" (non-working members) on each syndicate. "Names should be treated like shareholders in a public company", Mr Davison said.
The working party proposes that under a new by-law disclosure will be required of all related-party reinsurance transactions. Lloyd's will require details of a syndicate's reinsurance arrangements, including concentration with any major reinsurer, although it isnot intended to draw up a list of "approved reinsurers".
These recommendations form the interim report of the working party but are by no means the full extent of reforms which the newly elected ruling Council of Lloyd's will be called upon to endorse in its attempt to restore Lloyd's tarnished reputation.
The working party considered that these weretwo areas where immediate action was required in order to emphasise the auditor's role and to improve the reporting of reinsurance arrangements both in the syndicate accounts and to Lloyd's. Further requirements concerning reinsurance are likely to be proposed to take effect later.
Another area of concern for both theDavison working party and the Higgins committee which is looking at the thorny issue of divestment by Lloyd's brokers of their underwriting agencies, has been the existence of so-called "baby" syndicates - small syndicates and which take the best (or lowest) risks.
On the recommendation of both working groups, theCommittee of Lloyd's has agreed to establish a task force to investigate the nature and extent of "baby syndicates".
In its proposals for the establishment of a register of member's interests, theworking party suggests a two-tier register. In one, underwriting agents would maintain financial details of their disposable interests and access to that part of the register would be restricted to members of the Council, the Committee and auditors.
The underwriting agent would have to give a sufficient description to allow those inspectors to make a fair assessment of the financial value of the disposable interests.
Thesecond, public part of the register would include all details of interests with the exception of the financial quantifications. Disclosure will cover the period after December 31, 1979.
Theby-law would regulate the disclosures required in syndicate accounts and the audit of those accounts. A directors report would be required giving a fair presentation of all material interests at any time during the period of the account of those managing the syndicate. This is aimed at giving a clear picture of any relationship between an agent, a broker and an insurance company.
"Disclosure may reveal certain classes of relationship which may eventually be deemed unsatisfactory," Mr Davison said.
18 Jan 83
Daily Telegraph: Insurance reforms at Lloyd's
THE Lloyd's of London insurance market which has been riddled with scandals over the past few years, is tointroduce a series of major r reforms aimed at preventing future abuses of the underwriting system.
Mr Ian Hay Davison, who is to take up the new position of dependent chief executive of Lloyd's next month, announced yesterdayplans for setting up a register of all insurance interests, and related matters of underwriting agents.
It will be followed by asimilar scheme for insurance brokers.
Theregisters, to be partly open to the public, are designed to show up potential conflicts of interest.
The committee of Lloyd's also met yesterday toconsider last week's court verdict that it had been wrong to suspend Ian "Goldfinger" Posgate, its most successful underwriter, from underwriting. In spite of the verdict Mr Posgate has still not been allowed to return to underwriting.
The committee decided last night to set up anew investigating sub-committee to examine the case.
Mr C M Burton FCA appointed a director of Alexander Howden Underwriting Ltd
Following a report to Lloyd's by Adrian Hamilton QC, on the AHUL associated stop loss policy, the stop loss policy was cancelled as was the DMTA entered into between Marine Syndicate 127 and Non-Marine Syndicate 947.
Letter from attorneys to the AWP: Re.Working Party activities past 12 months in asbestos related problems and which referred to the continuing increase in suits arising from asbestos-related claims and added the following.
(While certain coverage issues have yet to be considered by the courts, some have reached a final determination which have most emphatically demonstrated the courts desire to maximise coverage. Suits continue to be reported at approximately 500 per month. Some indications exist to suggest that the severity of injury and/or disease suffered by plaintiffs is less serious than had formerly been the case, although it is much too early to draw any firm conclusions. It is likely that considerable activity will develop in regard to damage allegedly existing in buildings which incorporated asbestos).
RAG Jacksonis now deputy chairman. General developments. The continuing increase in Suits arising from asbestos related claims and the closer involvement of the London Market to the participation in settlements has required the claims committee to have a daily involvement and the working party to meet at frequent intervals. While certain coverage issues have yet to be considered by the Courts, some have reached a final determination which have most emphatically demonstrated the Courts desire to maximise coverage. This was patently evident in the decision of the US Court of Appeals' district of Columbia in October 1981, which expanded the lower Court finding in Keene -v- INA ....
Suits continue to be reported at approximately 500 per month.... some indications exist to suggest that the severity of injury and/or disease suffered by Plaintiffs is less serious than had formerly been the case, although it is much too early to draw any firm conclusions. All suits are being recorded in the databank, which is proving of considerable assistance to Underwriters' attorneys in developing statistical information vitally essential to the London Market.
Asbestos claims information office:
As the Market is aware, theWorking Party has established an information office at Bankside House, Leadenhall Street. That office has up-to-date computer printouts from the databank relating to all claims against the insureds who are of most significance to the London market. These printouts give details of individual claims and the reserves established. Any participant wishing to inspect any of the printouts is invited to do so by appointment. The reserves set out in the attorneys' year-end reports relating to these insureds, which are currently being circulated to the Market, are based upon data-bank printouts.
The Information Office holds an index of all known Market involvements in the direct insurance of these insureds. Any Underwriter wishing to confirm his involvement may inspect the index by appointment. ...In addition there is available the fortnightly publication "Asbestos Litigation Reporter" which records all major developments. Property damage:
Underwriters should be aware that as a result of anorder issued by the Environmental Protection Agency in May last year, it is likely that considerable activity will develop in regard to damage allegedly existing in buildings which incorporated asbestos. The EPA order has mandated that all schools and similar public buildings constructed prior to January 1979, must be tested within 12 months to determine the presence of friable asbestos.
Substantial questions arise regarding both the extent to which any coverage is afforded by wordings issued to insureds, and in the event that coverage is found to exist, the occurrence date for the purpose of attachment. The Working Party will continue to monitor this development, and should remind the Market thatmany London coverages provide separate limits in respect of property damage.
31 Jan 83
Daily Telegraph: Minet $17.5m claim on Howden hits snags
Minet Holdings is havingproblems recovering $17 5 million worth of reinsurance from Alexander Howden Group, which acted as its insurance broker.
The accounting investigations at Minet, following allegations that senior executives had benefited privately from reinsurance of syndicates, have thrown up major claims by the group's Lloyd's agency, PCW.
For some monthsMinet has been trying to agree the figures with Howden for years going back to 1976. Howden had placed the policies with three Companies, including its own Bermuda subsidiary, Sphere Drake, which was also involved in allegedly similar deals for Howden directors.
For Minet,Sphere Drake forwarded the reinsurance to a number of offshore Companies such as Europa Insurance of Gibraltar, in which senior Minet people had a stake. There is currently some disagreement how much Minet can claim and from whom.
TheDepartment of Trade and the police fraud squad are investigating Sphere Drake and the Minet offshore companies which has made Howden careful about clearing the business.
It is thought Minet may even have asked for access to the ultimate reinsurers even though it is Sphere Drake that is liable.
In addition to the$17.5 million to the end of 1979, Minet is currently formulating a claim of some $5 million for the 1980 underwriting year. The delicate situation is made even more of a problem by the need to reach an agreement in time for the annual audit at the end of March.
Both companies are trying toavoid an outright conflict but some Minet people are getting impatient at the Howden policy of referring difficult questions to Alexander and Alexander of New York, which bought the company last year,
Also at issue is the basis on which the claim is to be made, so that even by the tortuous standards of Lloyd's reinsurance theclaim on behalf of the syndicates is taking a very long time. Some portions of the claim are almost certain to go to arbitration.
31 Jan 83
Bellew Parry & Raven (Holdings) Ltd, an investment and holding company, purchased Archer & Massie (Underwriting Agencies) Ltd, the managing agent of Marine Syndicate 505, which had commenced underwriting for the 1981 account, for in excess of £1.3m. It is believed that some of the shareholders include A J Archer, I R Posgate, K Grob, and C L R Hart.
0 Feb 83
The Auditors' responsibility in relation to the assessment of the reinsurance to close was not fully defined until February 1983, when Lloyd's issued the annual "Instructions for the Guidance of Lloyd's Auditors as approved by the Secretary of State under the Insurance Companies Act 1982, Section 85(b)(2), which was applicable to the 1982 audit as at 31 December 1981 and which stated:-
"it is the responsibility of the managing agent to establish reserves in respect of both the open and closed years in order to ensure that adequate funds are maintained to discharge all liabilities. The Auditor must ensure that the agent has discharged his responsibility in this regard in a reasonable manner consistent with available information on outstanding losses, statistics of underwriting performance, market experience and any relevant information and explanations."
Partly because of the difficulty of an auditor giving a judgement on the reinsurance to close - effectively the underwriting decision which in large measure determines the declared profitability or otherwise of the syndicate - no ‘true and fair' opinion was given on syndicate accounts. The report to members of a syndicate typically stated that:
"We have examined the Balance Sheet and Underwriting Accounts or Pages a to b and confirm that they agree with the books which in our opinion have been properly kept.
We have verified the investments and cash balances and have received the information and explanations that we have required."
From evidence to us by panel auditors it appears that, in the main, syndicate auditors interpreted their responsibilities narrowly and confined themselves to the solvency work (and specified audit testing geared to that) and discussion of the reinsurance to close with underwriters as set out in the audit guidance notes. It is also evident to us that panel auditors did not generally consider it part of their duty to enquire into the legitimacy or otherwise of reinsurances or their security, this being instead wholly the province the underwriter. Only from the 1982 audit was there any requirement to "examine ceded reinsurance arrangements entered into by the syndicate … and … in particular … consider:
a the procedures employed by the Underwriting Agent and by the Active and other Underwriters to assess the security of reinsurers,
b the extent to which it is prudent to take credit for reinsurance recoveries in respect of both paid and outstanding claims, and
c the underwriting Agent's compliance with any requirements issued by Lloyd's in connection with reinsurance contracts and arrangements."
Measures have recently been taken by Lloyd's to overhaul many of these procedures and to establish new ground rules for accounting and audit. However, despite the fact that much of what we describe is now history, it is clear to us that what we describe here represented normal audit practice in Lloyd's up to the middle of 1982. (The DTI report is dated 30 December 1985, but not published until August 1990..)
2 Feb 83
Letter from James Purbrick, Lloyd's Underwriting Agency and Auditor Department to M Bolger of Ernst & Whinney.
Further to the meeting of panel auditors held on 30 November 1982, I have now arranged for a "follow up" meeting on asbestosis. On 24 February 1983 at 2.30pm.... Mr Ian Davison and his working party will meet with the panel auditors thereafter at 3.30
.[Reply - 7 February 1983 from M. A. Bolger] - that Ernst & Whinney would be represented at the meetings by either himself or Nigel Holland. [On the following day Bolger wrote to confirm that it would be Holland].
3 Feb 83
The Association of Lloyd's Members (ALM) formed, being an amalgamation of the AEML and AML
7 Feb 83
The Council and Committee Byelaw(No. 13 of 1983, 7 February 1983).
7 Feb 83
Maintenance of Byelaws and Regulations Byelaw(No. 14 of 1983, 7 February 1983).
7 Feb 83
Miscellaneous Matters Byelaw(No 15 of 1983, 7 February 1983).
7 Feb 83
Suspension from Membership of the Council, the Committee, and Any Sub-committee Byelaw(No. 16 of 1983, 7 February 1983).
7 Feb 83
Deputy Chairman and Chief Executive of the Society Byelaw(No. 17 of 1983, 7 February 1983).
8 Feb 83
The Times: Wilberforce for Lloyd's tribunal
The ruling council of Lloyd's of London yesterday appointedLord Wilberforce as the first president of its newly-established appeals tribunal. His appointment is for an initial term of three years.
Lord Wilberforce, aged 75, retired early last year after a 17-year term as a Lord of Appeal. In addition to a number of legal appointments, he wrote The Law of Restrictive Trade Practices, published in 1956, and numerous articles and pamphlets.
The appointment comes after the setting-up of the Council of Lloyd's at the beginning of the year, under the terms of the new Lloyd's Act. The council passed a number of by-laws at its first meeting aimed at improving disciplinary procedures.
Mr.David Calcutt QC has been appointed deputy president of the appeals tribunal.
Mr.Peter Foden-Pattison, a former chairman of Lloyd's, becomes chairman of the disciplinary committees, with Mr. Jeremy Langton deputy chairman.
A number of new by-laws are to be published today, after the council meeting. They include one whichwill prevent any member who is under disciplinary suspension from sitting as a member of the council. This will prevent Mr. Ian Postage sitting on the council during his six-month suspension.
8 Feb 83
Daily Telegraph: Lord Wilberforce to preside over Lloyd's tribunal
THE Council of Lloyd's has appointed Lord Wilberforce, an appeal judge in the House of Lords, as the president of its new appeals tribunal, formed under the Lloyd's Act 1982. Lord Wilberforce is to take the office for three years, on a renewable basis, while his deputy president David Calcutt QC, an appeal court judge in Jersey, takes his appointment for five years on the same basis.
The Council last night also decided, after a lengthy meeting, to pass a new by-law designed to exclude from its meetings any Council member who has been suspended from membership of Lloyd's. That change is clearly aimed at underwriter Ian Posgate, the only Council member under such suspension
Mr Posgate was one of the 16 Council members at the meeting yesterday, but left before it was finished when the new by-law had been discussed. He did not speak against it. "I didn't see the point," he said.
10 Feb 83
Hearing held in Washington D.C. before theSubcommittee of the Committee on Education and Labor, House of Representatives: "The Effect of Bankruptcy Cases of Several Asbestos Companies on the Compensation of Asbestos Victims"
Manville has over 17,000 casesagainst it now. They project that there could be as many as over 30,000 in the next 30 years. There are several other asbestos companies that are faced with the same potential problem - perhaps not on the same level as Manville, but certainly of significance.
It is likely, then, that from50,000 to 100,000 lawsuits will be commenced over a period of the next several years. If you litigated all of those, you would very likely bankrupt not just Manville but many other companies as well and bury the courts in the process.
Most of the cases are similar in nature, I would assume. Attorneys would end up getting perhaps as much or more money as would be awarded to the victims.
The Council of Lloyd's has appointed Lord Wilberforce aspresident of the Appeal Tribunal of Lloyd's. The appointment, by mutual agreement, is for a period of three years and is thereafter renewable. Mr David Calcutt QC has been appointed as Deputy President. His appointment is for a period of five years and thereafter renewable. The tribunal will sit as and when required.
Mr P L Foden-Pattinson, an ex-Deputy Chairman of Lloyd's, has been appointedChairman of the Disciplinary Committees. Mr M J Langton, an ex-Chairman of Lloyd's Underwriting Agents' Association, has been appointed Deputy Chairman. Twelve other persons were appointed to the Disciplinary Committees.
14 Feb 83
I Hay Davisontook up his appointment as Deputy Chairman and Chief Executive of Lloyd's. His salary will be £120,000, which will make him one of the highest paid administrators in the City. He has been granted leave of absence from Arthur Andersen & Co for three to five years. Mr Davison's appointment comes after an initial personal approach to him by the Governor of the Bank of England, Lord Richardson, on 23 December 1982.
14 Feb 83
Daily Telegraph: Lloyd's agents ‘advantage' over members
PEOPLE workingwith the Lloyd's organisation are making money at the expense of the 17,000 external members who put up the money and bear the risks according to a report on the underwriting agencies at the insurance organisation.
Low-risk business areas like themanagement of syndicates can make participants more money than by the risk-taking in the syndicates, says the 255- page document which has analysed the accounts of 274 agencies at Lloyd's. It adds that there are still unregulated potentials for conflicts of interest.
"Aninvestment of £5,000 in an agency can produce a very substantially greater investment percentage return than an investment in the underlying syndicates," it says.
In fact the£5,000 in the agency can produce more profit than £250,000 in the syndicate, yet it is " clear where most of the risk lies."
The report also notes that agencies have"one of the most extraordinary capital structures in the United Kingdom "with a variety of unusual types of share. These would be required only if "the intention is to share profit over different groups of person with different interests."
It also notes thatunderwriters have shares in the management of syndicates other than their own, and adds: "Whether reinsurances effected between such syndicates and whether the relationship itself is in the interests of Names or not is a matter for the market itself to judge."
But the report suggestsmore immediate causes of concern in the decision by a Lloyd's committee not to tell members about " binding authorities," as they wound then be "burdened with too much potentially confusing information." The report dubs that as of "either a remarkably Victorian mentality or a remarkably low level of legal advice."
Binding authorities permit overseas brokersto write insurance on behalf of a syndicate. "Names would be well advised not to give hostage to fortune by allowing any diminution in their rights to disclosure" about contracts entered into on their behalf.
The report warns thatundisclosed reinsurance policies led to the scandals disclosed over the past year. Conflicts of interest and breach of trust "are more likely to occur in any commercial environment where undisclosed transactions are permitted."
It alsowants disclosure of investment managers, since management of the premiums through Lloyd's represents collectively one of the largest investment management responsibilities in the City of London. This would include disclosure of connection between underwriter-agent, and investment manager.
Lloyd's "will have to live with the fact that full disclosure of conflict of interest is an inherent part of principal and agency law." Unless the regulations are equitable to all parties "with balance in favour of non-working names" there will be a blood-letting session at periodic intervals.
Then Lloyd's will either be regulated from outsideor the members will "cease their forbearance and realise that although they need the good will of agencies and underwriters, Lloyd's needs them more."
Lloyd's Underwriting Agencies, Financial Intelligence & Research, £145.
22 Feb 83
Daily Telegraph: Lloyd's chairman to declare interest
SIR PETER GREEN, chairman of Lloyd's, will reveal to members of the syndicates managed by his company Hogg Robinson his personal business interests whether or not Lloyd's passes a bye law requiring members of the Council to make public their relevant interests.
This will be part of aseries of regulations requiring greater disclosure, but Sir Peter yesterday made clear he would expect other members of the Lloyd's ruling committee of full-timers to follow his lead.
Thebye law will require only the same data as the Companies Act, details of interests' (direct and indirect) in the company's contracts, but it may not be ready for some months.
Ian Hay Davison, the chief executive of Lloyd's who started work there just a week ago, said yesterday that "an awful lot is going on" and Lloyd's is not being "sluggardly" in tightening self-regulation.
Anotherrule currently being drafted will require underwriting agents to disclose other insurance related interests.
Lloyd's will examine the register, said Mr. Davison, to see whether any of the relationships are "improper." If so, his new job will include banning undesirable links. The register will not be ready for the current audit, but will still have to date back to 1979 Mr. Davison added.
At yesterday's meeting the Council was also debating whetherinsurance or overseas interests should be able to own Lloyd's brokers. One of the options being discussed is the reimposition of the 20 p.c. ceiling for external ownership of brokers.
Lloyd's is also concerned at the extent of itsjurisdiction, and is examining what it can do with the overseas subsidiaries or parent companies. Current view is that regulation will extend overseas as well.
"If any organisation describes itself as aLloyd's broker it should be expected to conform to our requirements m respect of ethics," Mr. Davison said, "This will be a high priority".
22 Feb 83
Daily Mail: Bermuda troubles are Lloyd's opportunity
THEY are far too nice at Lloyd's of London to laugh at other people's misfortunes, and besides, they have lately been too busy with their own.
Hair shirts orfull exposure are rig of the day. Lloyd's ruling Council has now decreed that each of its members must declare all his business interests, with chairman Sir Peter Green setting the example.
So, if now at Lloyd's a few faint smiles creep out like the first green shoots of spring, that can have nothing to do with troubles elsewhere . .. for instance, inBermuda, where a major company is to be sold or shut, having provided against losses which appear to run into tens of millions of pounds.
The name isWalton. They belong to Phillips Petroleum of the U.S., one of the world's biggest oil companies.
Like many others inBermuda, Walton were originally set up as a captive insurance company - the idea being that the parent can pay its insurance premiums to its captive and charge them against its tax at home, while the captive flourishes in the tax-free air of the mid-Atlantic.
TheU.S. taxmen became tougher on companies with captives, insisting that the captive should insure other people and not just serve as a letter-box for its parent. Some parents, like Phillips, replied by building their captives up to play in the international league.
Waltonhave played and lost. Phillips are looking for someone to buy the business or, failing that, will over a period of years run Walton down and close them.
InBermuda, Walton's John Kemp blames the general state of the insurance market. "The appraisal we carried out showed the opportunities for underwriting profit, which have not existed in recent years, will not exist In the foreseeable future."
The figure now current, for thereserves which Walton have provided against losses, is $65 million (£42 million). Mr. Kemp calls that figure "somewhat misleading" and adds: "We believe that we have an asset base more than sufficient to cover the operations of Waltons."
The word from Bermuda is thatanother company may follow Walton out. It was bound to happen somewhere. World recession has left too many insurers chasing too little good business.
To some, that did not matter while the price of money was high - they couldearn enough interest on the premiums to make up for what they lost on underwriting.
That was no way to a healthy insurance market and now thegame is over. Other reinsurers will pull out of the market, supply and demand for insurance will come back into balance, margins will widen and the survivors - Lloyd's chief among them - will look for better days
If only all the insurers who drop out can, like Walton,leave no legacy of bad debts to the survivors. That would put the humour back on Lloyd's face.
24 Feb 83
Minutes ofPanel Auditors Meeting. H R Rokeby-Johnson, Chairman of AWP (The minutes recorded the following.
In June 1982 the US Labour Department gave the following statistics: 21 million workers have been significantly exposed to asbestos in the last 40 years. 8,200 - 9,700 deaths from cancer attributed to asbestosis per annum for the next 20 years. 3,000 products in daily use contain asbestos. $38 billion total claims for deaths expected. At present there are 25,000 plus claims on the data base for direct asbestosis claims. There are on file: 19 major companies assured, 39 lesser companies assured and 200 minor companies assured. Johns-Manville went into bankruptcy on 26 August 1982 with 4,000 closed cases plus 17,000 cases outstanding. They are expected to get 52,000 cases by the end of the century. Other points made included the following. In US "double dip" can occur: a plaintiff can sue the employer as well as the holding company. "Downwind" claims are by those who have got asbestosis by wind borne dust. Friable asbestos has been used in buildings that must now be removed).
b) Alexander Grant of New York are to manage a data bank for direct Asbestosis claims. The input will come from claims attorneys. At present there are25,000 + claims on the data base. Information is available on 1st floor Bankside House. To inspect it one should go with an underwriter.
d) Owens Corning have 10% of the US market.
e) The basis of settlement of claims is varied. The following theories are followed: Exposure, manifestation, in the District of Columbia only at present the state Courts have said that the plaintiff may claim in any year - this has worried insurers.
f) Other points
:i) In US "Double Dip" can occur: a plaintiff can sue the employer as well as the holding company.
v) Two reports are available to auditors underwriters Mendes and Mount year end report and the Asbestosis Working Party report.
The meeting commenced at 2.30pm. .... Mr Ian Davison and his working party will meet with the panel auditorsthereafter at 3.30.
23 Feb 83
Financial Times: Lloyd's underwriter under investigation
OFFICIALS of Lloyd's of London, the insurance market are investigating a possiblebreach of trust over the management of money of Lloyd's underwriting syndicate funds.
An underwriter, Mr. Peter Coucher, has ceased his employment withsyndicate 691, which is managed by Bellew and Raven (Underwriting Agency) at Lloyd's and wholly owned by the Bellew Parry and Raven Group, said Lloyd's yesterday.
"Mr. Coucher has at the same timesevered all connections with syndicate 889 and Coucher Underwriting Agency and has resigned as an underwriting member of Lloyd's," continued the Lloyd's statement.
The statement added: "It is understood that Mr. Coucher may have been guilty of a breach of trust in connection with syndicate trust funds, the sums under investigation are said to total about £6,500 and relate to transactions which occurred over a number of years. Lloyd's has been advised that thetrust funds will be made good. The matters are being inquired into by officials of the corporation. Mr. Coucher is co-operating fully with the inquiries.
Lloyd's said that Mr. I F Bell, who was Mr Coucher's, deputy, has full responsibility for underwriting matters.
The syndicates affected by the latest move are both marine insurance syndicates, with about 400 members
TheCommittee of Lloyd's has approved the appointment of Mr Ian Plaistowe as chairman of the Working Party which is currently reviewing the Instructions for the Guidance of Lloyd's Auditors. Mr Plaistowe replaced Mr Ian Hay Davison when the latter took up his appointment as Chief Executive and a Deputy Chairman of Lloyd's.
Mr Plaistowe, is the senior partner and a partner in the Accountancy and Auditing Division ofArthur Andersen & Co. He has held a number of appointments with the Institute of Chartered Accountants in England and Wales and is currently a member of the Institute's Investigation Committee. In 1981/82 he was chairman of the London Society of Chartered Accountants. In 1975/76 he was secretary of a Sub-Committee of the Institute's Auditing Practices Committee. He was educated at Marlborough College and Queen's College Cambridge.
0 Mar 83
TheCouncil of Lloyd's has appointed Lord Wilberforce as President of the Appeal Tribunal of Lloyd's. The appointment, by mutual agreement, is for a period of three years and is thereafter renewable. Mr David Calcutt QC has been appointed as Deputy President. His appointment is for a period of five years and thereafter renewable. The tribunal will sit as and when required.
MrP L Foden-Pattinson, an Ex-Deputy Chairman of Lloyd's, has been appointed Chairman of the Disciplinary Committees. Mr M J Langton, an Ex-Chairman of Lloyd's Underwriting Agents' Association, has been appointed to the Disciplinary Committees.
2 Mar 83
Daily Telegraph: Lloyd's must disclose more
Lloyd's will have to provideextensive extra information to the Department of Trade as a result of a new set of regulations laid before Parliament yesterday. These will bring Lloyd's into line with the insurance companies and enable the department to compare their businesses.
Theadditional information is the outcome of very protracted negotiations between the department and Lloyd's and will require details of Lloyd's reserves and trust funds. It
will also entail syndicates disclosing their provisions for expected loss.
3 Mar 83
Daily Telegraph: Appeal Court rejects Moran
CHRISTOPHER MORAN, the insurance brokerexpelled from Lloyd's insurance market last October, cannot challenge a Lloyd's arbitrator's finding that he had acted "discreditably" in operating an aviation underwriting syndicate, the Appeal Court ruled yesterday.
Three judges, headed by Sir John Donaldson, Master of the Rolls, unanimously refused his
application for leave to appeal.
7 Mar 83
Eagle-Picher Industries, Inc. -v- Liberty Mutual Ins. Co., 682 F.2d 12 (1st Cir. June 30, 1982), cert. denied, 460 U.S. 1028: Court of Appeals for the Fist Circuit applied the manifestation theory to trigger coverage for asbestos bodily injury claims.
8 Mar 83
Daily Telegraph: Posgate to fight Lloyd's over membership ban
IAN POSGATE has been given notice by the Council of Lloyd's that it will remove him from membership of the Council at its next meeting on March 21, the committee and all sub-committees. The move follows the recent introduction of a new by-law specifically providing this power.
It ispart of a process gradually removing Mr Posgate from all connection with Lloyd's. He was suspended from underwriting, but he sued and the High Court overturned the Lloyd's decision. Lloyd's duly passed a new by-law permitting administrative suspension and used it.
Mr Posgate will be given the chance of making oral or written presentations arguing against his removal and he is expected to use the opportunity. His argument is expected to be two-pronged.
He is also expected to argue that nothing has been proved against him, and a man is innocent until proved guilty.
To ensure that thePCW Underwriting Agencies enquiry, which is being conducted by Mr Peter Millett QC and Mr Nigel Holland FCA, is completed as speedily as possible, Mr Simon Tuckey QC has been appointed by the Special Committee of Lloyd's to join the enquiry. It is intended that Mr Tuckey should have particular responsibility for that part of the enquiry relating to all reinsurance and purported reinsurance business transacted by Lloyd's syndicates through the agencies of PCW Underwriting Agencies Ltd, WMD Underwriting Agencies Ltd and T E Sampson & Co Ltd, including syndicates through the agency of Gardner Mountain & Capel Cure Agencies Ltd for which PCW Underwriting Agencies provide the underwriters.
11 Mar 83
Daily Telegraph: Lloyd's notice of suspension
LLOYD'S has warned under writersRaymond Brooks and Terence Dooley that it intends to suspend them from Lloyd's under the new bye-laws brought in this year. The action! follows four months of investigation into Fidentia Marine Insurance Company of Bermuda owned by Brookgate Investments, which was in turn controlled by Mr Brooks and Mr Dooley.
Fidentia is thought to have taken reinsurance from syndicates run by the two men. At a meeting ofthe ruling committee of Lloyd's yesterday Mr Brooks and Mr Dooley wore given 24 hours to write to members of their syndicate outlining the position.
But they were given a fortnight to prepare their case for a hearing before the committee at which they may submit oral or written evidence both about the fact of suspension and the reasons driving Lloyd's to taking such action. To cover that two week periodLloyd's has taken "certain interim measures."
This will entail supervision of finances though the syndicates have not been stopped from underwriting. The bye-law being used is administrative suspension which has already been used to oust Ian Posgate from all his work at Lloyd's.
It stops people from doing business at Lloyd's and is to be used only "to prevent, minimise or reduce the risk of serious damage" being caused to policy holders or to fellow Lloyd's people. Mr Brooks and Mr Dooley have now been told why the committee plans to suspend them, to enable them. to formulate an answer.
12 Mar 83
Daily Telegraph: Brooks & Dooley in Fidentia link
RAYMOND BROOKSand Terence Dooley who are threatened with suspension by Lloyd's have told members of their syndicate that they are still beneficiaries of Fidentia Marine Insurance of Bermuda.
The company had takenreinsurance from syndicates for which they are underwriters but previously they had claimed it had been sold.
Thecommittee has served notice on Mr. Brooks and Mr. Dooley that they have a fortnight to prepare a case for a hearing to show why Lloyd's should not use its new power of administrative suspension to stop them doing any more business there.
13 Mar 83
Mail on Sunday: Now, a Minet secret comes to light
WITHOUT commentI offer extracts from a confidential statement now in my hands made to Department of Trade inspectors looking into the affairs of Minet Holdings and the PCW and WMD underwriting agencies.
Thedocument was signed by a Lloyd's underwriter in the Minet case. Peter Cameron-Webb and Peter Dixon, formerly of Minet, are mentioned.
"Iwas told that there was a premium excess problem in the group. By premium excess problem they meant that the premium income had been overwritten on certain names."
"Mr. Cameron-Webb stated there wasoverwriting within the group and that he proposed to effect a five per cent quota reinsurance, the implication being that it would be five per cent of the premium income of the names as a whole, so WMD would be just as affected as PCW."
"Mr.Cameron-Webb said he knew of a company with whom it could be placed. He went on to say that if a profit was made it would be divided between myself, himself and Peter Dixon in the proportions of 50 per cent to me and the other 50 per cent to them."
"It might beuseful for me, he said, as they knew I would need it to buy a house."
"Afterassuring me that what they proposed to do was legal, Peter Cameron-Webb went on to say that it was common market practice and that Toby Green had done it for years."
The lateToby Green was the father of Sir Peter Green, chairman of Lloyd's.
Later in the statement thisunderwriter recalls receiving £1,000 in notes in an envelope about three times in three months as he was short of money at the time.
21 Mar 83
The Council of Lloyd s suspendedIan Posgate from sitting on the ruling Council and its Sub-Committees until 25 July, when the Council will review the decision. Mr Ian Hay Davison said that the decision to suspend Mr Posgate was quite logic in view of the fact that he had already been suspended from underwriting insurance business at Lloyd s after allegations that he was involved in fraudulent reinsurance transactions.
21 Mar 83
The Council of Lloyd's ratified the formation of a committee to be known as the Investigations Steering Committee ‘ISC'. The committee succeeded the ad hoc committees previously set up to oversee certain inquiries. The ISC comprises:-
and will direct andcontrol all inquiries and investigations conducted in accordance with Lloyd's self-regulatory responsibilities. It reports to the Committee of Lloyd's.
22 Mar 83
TheInsurance (Lloyd's) Regulations 1983 (1983 No. 224) (which came into force on 22 March 1983) revoked the Lloyd's (Audit Certificate) Regulations 1982. Regulation 4/Schedule 2 of the 1983 Regulations set out the new required form of Audit Certificate to be provided by the Auditor appointed by the Members' Agent under Section 83 ICA 1982. The new certificate was identical to the previous certificate save that "underwriters" became "underwriting members" and "the Committee of Lloyd's" became "the Council of Lloyd's".
22 Mar 83
Daily Telegraph: Posgate removed from Lloyd's ruling council
IAN POSGATE, the most successful underwriter at Lloyd's was yesterday removed from the ruling council of Lloyd's after g secret ballot. No reason was given either to Mr Posgate or the membership for the suspension.
Ian Hay Davison, chief executive of Lloyd's, said the move was "appropriate, logical and right," following the decision tosuspend Mr. Posgate from his £700,000 a year job as underwriter. Lloyd's does not have to give a reason for its decision, he added
Mr Posgate had argued that allegations made against him concerned only his reinsurance activities, and this did not affect his work as an underwriter, much less as council member Yesterday he said his suspension was "a pity - I could have made a contribution."
He is devoting his energies to building up his business and is about to buy a motor underwriting syndicate. He has also been approached by a number of American insurance companies to work for them and is contemplating other directorships, including some unconnected with insurance.
Lloyd's has brought together all itsinvestigations under one steering committee – including around a dozen informal inquiries. One of the more formal investigations is into the Brooks & Dooley underwriting agency at Lloyd's, where the control of funds has been placed in "safe hands."
The agency has also given an undertaking "not to enter into any transaction other than in the ordinary course of business," both in its Lloyd's operations and the Bermudan reinsurance company owned by the directors.
At its meeting yesterday the council also decided to keep a register of its own members' business interests. The external members will disclose all their connection and acode of practice is being drawn up by Mr. Davison to guide members on what interests are considered acceptable.
28 Mar 83
BPRwere informed on 28 March 1983 that Lloyd's were to undertake an internal investigation into BPR's affairs. The inquiry was established formally on 3 February 1984, some eleven months later.
28 Mar 83
The Lloyd's Working Party, chaired by A W Higgins, set up on 17 March 1982 to enquire into all aspects of the Underwriting Agency System at Lloyd's issues Part 1 of its 50-page Report on ownership and control of Underwriting Agencies.
The proposals for divestment were developed by the Higgins Working Party Report and became the subject of much controversy.
Chapter 10 details matters for further Reports
Among the matters w will be covering in our next report to theCouncil are the following:
(b) application of character and suitability criteria to Active Underwriters and directors and partners of Agencies
Amongst the matters we shall be covering in later reports will be:
(a) Reviews of the reports of the following Task Groups:-
Rules for Members
Agency and sub-agency Agreements
Control over individuals
Power to suspend
Premium Trust Deed
Jointly managed Agents
Joint Managing Agents
Other matters affecting Agents including:-
We areco-ordinating with the Plaistowe Working Party on the recommendations for the regulation of information, accounts, audit and reinsurance. (Part 11 was issued in September 1983 and recommended that preferred and parallel underwriting be banned)
The Special Committee of Lloyd'sappointed Mr Simon Tuckey QC to assist the PCW Enquiry being conducted by Mr Peter Millett QC and Mr Nigel Holland FCA.
28 Mar 83
Section 83 of the Insurance Companies Act 1982 (which came into force on 28.3.83) replaced section 73 ICA 1974, though the relevant provisions are in similar terms. In particular, sub-sections (4) and (5) provided that:
(4) The accounts of every underwriter shall be audited annually by an accountant approved by the Committee of Lloyd's and the auditor shall furnish a certificate in the prescribed form to the Committee and the Secretary of State.
Again, the reference to "auditor" in sub-section (4) is a reference to the Auditor appointed by the Members' Agent.
29 Mar 83
Financial Times: Green to quit board of Hogg Robinson
SIR PETER GREEN, chairman of Lloyd's insurance market, is to resign from the hoard of Hogg Robinson Group, the insurance broker with extensive Lloyd's underwriting interests. Sir Peter is the largest private shareholder in Hogg Robinson, owning more than 2.5 per cent of the equity.
The move, announced yesterday, has come ahead of any negotiations which Hogg Robinson will have to enter into about thefuture sale of its Lloyd's underwriting agency company, Janson Green, which Sir Peter chairs.
Hogg Robinson said yesterday thatSir Peter will step down from the board at the end of the group's financial year on March 31 " to avoid any conflict of interest over the future of Hogg Robinson's Lloyd's underwriting interests."
Under new private legislation,designed to improve Lloyd's self-regulatory mechanisms, all Lloyd's brokers must sell their shareholding links with the agency companies, which manage the affairs of Lloyd's members, in just over four years. Janson Green, which manages the .affairs of hundreds of members of Lloyd's one of the agencies affected.
There were worries that Sir Peter might, in any forthcoming negotiations, face a conflict as aboard member of Hogg Robinson, chairman of Janson Green and the holder of the largest number of voting shares in Janson Green.
Mr.Ian Hay Davison, Lloyd's chief executive, said yesterday: "I think Sir Peter has set a commendable example."
In addition to his Hogg Robinson shareholding,Sir Peter is also a director of Cresvale Securities, which carries out investments and provides services for Lloyd's syndicates, including those under the management of Janson Green. Janson Green holds 49 per cent of Cresvale and Cresvale is listed as an associate in Hogg Robinson's accounts.
SirPeter also has an interest with the Imperial Insurance Company (Grand Cayman) where Hogg Robinson holds 20 per cent of the equity.
29 Mar 83
Daily Telegraph: Peter Green leaves Hogg Robinson
SIR PETER GREEN, chairman of Lloyd's, is resigning from the board of Hogg Robinson, one of the major insurance brokers at Lloyd's. He will leave at the end of the company's financial year on Thursday" to avoid any conflict of interest over the future of Hogg Robinson's Lloyd's underwriting interests."
As a result of the Lloyd's Act passed by Parliament last year, all Lloyd's brokers must sell off their underwriting businesses. Sir Peter Green joined the Hogg Robinson board when his family underwriting business Janson Green, was taken over.
Brokers have five years to sell their syndicates, which are often very profitable.
29 Mar 83
Daily Telegraph: A nice juicy scandal
NOTHING like a nice juicy scandal to titillate viewer interest.Panorama (BBC-1 ) last night cashed in on the widespread allegations of corruption currently disturbing one of our oldest and most respectable institutions, Lloyd's of London.
Moving between stately homes in the Shires, millionaires' mansions in the Home Counties andtax havens in Bermuda, Switzerland and Gibraltar, David Lomax uncovered a tale of intricate upmarket skulduggery which would have done credit to a writer of superior adventure fiction.
You could tell he was working in asensitive area from the alacrity with which a couple of reluctant interviewees summoned the police. Most of the others returned smoothly evasive or at best, elliptical answers. Like Lloyd's newly appointed Chief Executive, Ian Davison, who assured Lomax: "If we let the sunshine in, the mists will go away."
The Lloyd'sinsurance scandal centres on the practice of re-insurance - perfectly legal in itself, providing it is done legally. What is actually happening, according to "Panorama," is that some Lloyd's directors are secretly hiving off premium income to "tax haven" companies which they themselves own, thus depriving the not very clued-up lay underwriters (names, as they are known in the trade ) of their proper dues.
One "name" interviewed by Lomax was a stately home owner in Yorkshire who had suddenly been presented with a bill for £46,000. "You don't expect to make that amount of money, but you don't expect to lose it either," she said bemusedly. Christopher Moran self-made insurance millionaire, seen on his private Scottish ski run, talked of "morally and legally unacceptable practices."
Some extremely well-placed eminences, includingLord Cromer, former Governor of the Bank of England, and Sir Peter Green, chairman of Lloyd's, conceded that there might be "conflicts of interest" at work in the international insurance field. "The whole of life is a conflict of interest," remarked Sir Peter hopefully. Mr Davison promised that his two-year investigation would "empty all the rotten apples out of the barrel."
30 Mar 83
Toplis & Harding (Asbestos Services) Ltdincorporated with the principal purpose of providing services relating to the incidence of asbestos related claims. Certain of the directors are derived from leading Non-Marine Underwriters and Claim Directors of main player Lloyd's Underwriting Agencies.
Asbestos Working PartyChairman D Tayler (Pulbrook/Stewart Wrightson) replaced by H R Rokeby-Johnson (Sturge).
UK Mini Names Means £50,000 increased to £100,000 for new Names joining for 1984 year.
Costs of Asbestos litigation.Study published by the Rand Institute for Civil Justice.
It was mentioned by Mr Roscow in the lecture he gave on 31 October 1983, which lecture was discussed in the Ernst & Whinney INSIGHT of December 1983.
TheRand Corporation published details of transaction costs up to 1982. Almost all of the 25,000 claims which have been made became the subject of law suits. Up to the end of 1982, 3,800 claims had been settled by asbestos producers or their liability insurers: 18% without payment, 78% by compromise before commencement of trial, and 4% after admission to trial. 70% of the law suits took place in the coastal States (ship-building industry) of California, Massachusetts, New Jersey and Texas, and in the inland state of Pennsylvania. The State of New York has hardly been affected by asbestos suits because its limitation period for claims in tort ends ten years after the latest illegal exposure, i.e. normally at a date when the asbestos victim has not yet discovered the disease
.By theend of 1982, a total of approximately U.S. $1,000m had been spent on the partial and complete disposal of claims, lawyers and court costs, and in respect of internal administration expenses by asbestos producers and liability insurers. For the 3,800 claims for damages which were disposed of, it is said that the average payment for damages was U.S.$64,000, whilst the average total for a claimant's lawyer's fees were U.S.$37,000, and for producers' and insurers' lawyer's fees U.S.$55,000. Consequently each dollar by way of compensation involved expenses of $1.59. It is true that the average award of damages is estimated to be higher by one source: The Asbestos Litigation Group, consisting of 150 lawyers acting for plaintiffs with asbestos claims, calculates the figure as $90,000. In any case this does not affect the disproportion between the damages paid and "technical costs". For lung cancer and mesothelioma average damages were higher: $119,000 and $319,000 respectively. In 198 out of the 170 suits decided by the courts, punitive damages averaging $219,000 were awarded. Of the total of approximately $400m which had to be paid in settlement of the 3,800 claims to victims and their lawyers, $275m had to be met by the liability insurers of asbestos suppliers, mainly under a reservation of rights. The answer to the question of who is finally to bear this cost burden and the costs to be expected in future will determine the economic existence of many suppliers as well as many liability insurers. In this connection the interpretation of the term "occurrence" used in liability insurance policies is very important.
3 Apr 83
Sunday Times: New rumpus set to hit Lloyd's
A new series of revelations involvingreinsurance payments of £70m and centring on Lloyd's broker Bellew, Parry & Raven is set to shatter the relative calm in the insurance market.
An investigation of the brokers and the closely connectedMidland Reinsurance Company in Bermuda has now been added to the remit of lawyer Anthony Coleman and his committee investigating on behalf of Lloyd's. They have already spent three months looking into the tangled affairs of Lloyd's underwriters Raymond Brooks and Terence Dooley and their links with Fidentia, the Bermuda reinsurer at the heart of a series of alleged risk-free reinsurance contracts. Now the inquiry will probe:
Colemanhas already forced Brooks and Dooley to backtrack on a letter sent to syndicate members in December which stated they had severed all connections with Fidentia in 1978. The underwriters have now admitted that they were among the beneficiaries of Coral Holding, a discretionary trust set up to purchase Fidentia.
Colemanhas now been told that Midland Re is controlled in the same way with the ultimate beneficiaries including Bellew Parry & Raven. Both Midland Re and Fidentia share the same Bermuda legal firm - Conyers Dill & Pearman.
Midland's Re'smost public activity has been as a staging for the large sums sent as reinsurance premiums to Bermuda by Brooks and Dooley via various brokers including Bellew & Parry. In all, cash transferred in this way totalled $20m - with as much as $2m often changing hands at one time.
At no time were members of the Brooks and Dooley syndicates made aware of these arrangements.
But althoughBrooks and Dooley accounted for a substantial proportion of Midland Re's business, the Lloyd's investigators do not believe it was set up solely for their use.
In all some$100m - equal to £70m - found its way through the Midland Re books and the Coleman committee will check the business of any other Lloyd's syndicate that had major dealings with Midland Re.
Coleman will also probe the topsecret deal, finalised in February, between Bertie Grattan-Bellew, a near neighbour and shooting partner of Lloyd's chairman Sir Peter Green, and James Archer, the underwriter brought out of semi-retirement b Alexander & Alexander to head the former Posgate marine Syndicate 127.
This involved the sale ofArcher & Massie Underwriting Agencies to Bellew, Parry & Raven for just over £1.5m, a surprisingly high sum given that the agency's short life - it was set up two years ago - has precluded any trading figures being published.
A major function of Archer & Massie is to underwrite forSyndicate 505 - a "baby" syndicate consisting largely of working members of Lloyd's including Ken Grob, Ian Posgate, Ron Comery and Grattan-Bellew.
Archerwas the majority shareholder in Archer & Massie. He collected around £1m for his shares. Posgate and Grob were also shareholders.
Coleman will probe why Bellew, Parry & Raven was happy to offer so much for an agency with no track record and why Alexander & Alexander - Archer's employer - showed no interest.
But theColeman committee's biggest immediate hurdle - and one that is shared by Lloyd's solicitors Linklaters - is to overcome its recent rebuff after its joint recommendation that Brooks and Dooley be suspended was turned down by the Lloyd's committee with Stephen Merrett the only committee voice favouring a hard line. Fellow hawk Ted Nelson was excluded from the meeting because his close links with Bellew, Parry & Raven.
StephensonHarwood, solicitors for Posgate (who was suspended late last summer) are alleging bias in a letter to Linklaters. Posgate said yesterday he was "disappointed that the committee seemed to have agreed on a whitewash a week before it sat".
4 Apr 83
Business Insurance: The asbestos crisis
Some say the insurance industry could be ultimate victim when the dust settles: Will the insurance industry survive the avalanche of asbestos claims hitting it or will it become the controversial mineral's last and largest victim? No-one is sure, but itis clear the industry has never before faced the potential liability brought by asbestos litigation, experts agree. Asbestos companies - and their insurers - already face more than 20,000 claims from workers who say they were injured by exposure to asbestos.... it is estimated that another 30,000 to 200,000 claims may still be filed. These claims could cost billions of dollars, some estimate, imperilling many primary and excess insurers and reinsurance companies... "Asbestos is the single biggest problem we find in the industry," says Floyd Knowlton, at the Travelers Corp. "But the numbers aren't anywhere near the numbers that the Chicken Littles are saying." "It would be premature to say the industry would go bankrupt," adds Dennis Connolly, counsel to the American Insurance Assn. Only under the worst possible scenarios - settlements and jury awards skyrocket and courts adopt policy interpretations that give policyholders the maximum amount of coverage would the industry be imperilled, he says. But others, who cite studies that predict tens of thousands will die from asbestos diseases in the next few decades, are not as certain. Insurers like Commercial Union Insurance Co. have long argued that, under certain coverage theories, they won't be able to handle an unprecedented number of claims caused by asbestos and other toxic substances. "Insurance companies are not capable of handling these (claims) on a direct basis" says William E. Bailey, CU's Senior VP and claims counsel, and even those who don't believe the insurance industry as a whole will fail agree that some individual insurers, especially less-capitalised excess insurers and reinsurers, may fall a major problem almost all agree, is that no-one has a good handle on what the industries' ultimate liability will be. "The variables are just unbelievable" says Kent Wilson, a defence attorney with the Chicago law firm of Peterson Ross Schloerb & Sidel. Before any real determination can be made, the industry must know the number of future claims, how much they will cost and how the risk will spread out between primary and excess insurers and reinsurers....
At least2 major studies have tried to assess the potential impact of asbestos claims on the insurance industry. Although they reached far different conclusions, both said the impact will be enormous. One by a Professor at the Yale University School of Organisation and Management says the estimated indemnity cost will be $38-2bn computed with a net worth of $11-5bn for the major insurance companies involved. "The large payments that will result from asbestos product liability suits are likely to go beyond the financial capacity of the insurance industry to meet them as well as their other obligations" Professor MacAvoy concludes. "Unless public policy action is adopted, some future claimants will remain uncompensated while certain asbestos and insurance firms will go bankrupt." A study by insurance industry analysts Conning & Co published late last year estimates the potential impact at a much smaller $4bn to $10bn. Conning does not foresee the entire industry going under, but says some insurers could possibly fold. "Generally, the impact on the insurance industry is not expected to be catastrophic because of the long period over which the claims will be experienced", it says. "However, the impact upon individual companies could well be severe since there appears to be significant concentrations of coverage in a limited number of insurance companies and their reinsurers."
5 Apr 83
Lloyd'scircular letter to the Members of Lloyd's in respect of the Underwriting Agency System at Lloyd's. The Chairman of Lloyd's, Peter Green, states
The Committee of Lloyd's decided, following the undertakings given to Parliament during the passage of the Lloyd's Bill, to set up a Working Party under the Chairmanship of Mr A W Higgins to review the Underwriting Agency System at Lloyd's.
InSeptember 1982, a consultative paper was issued by the Working Party, dealing with Ownership and Control of Underwriting Agencies. That part of the Working Party's work is now complete and I enclose a copy of the Report which will be considered by the Council in the near future.
Chapter 10 lists the matters still to be considered by the Working Party. I understand that although it isnot planned to issue any further consultative documents, views will nevertheless be welcomed by the Working Party on these subjects. This letter has been sent to all Members of Lloyd's".
(The final version of Part 1 of the Report is dated28 March 1983)
6 Apr 83
Daily Telegraph: Lloyd's divestment rules strengthened
NEW RULESto strengthen the controls over those who own and manage Lloyd's underwriting agencies are proposed in the first part of a Lloyd's working party report on the agency system. Part of the report puts forward the details proposed for enforcing the divestment by insurance brokers of their managing agency interests, adding provisions to the effect that no less than two-thirds of the voting power in a managing agents must be held by Lloyd's members. A new recommendation, that no more than 40 p.c. of the voting power in a syndicate can be owned by any one person, could lead to further divestment if it is accepted.
The ownership recommendations look likely toencourage the introduction of several classes of shares in an agency, including non-voting shares. David Stebbings, deputy Chairman of the committee, commented yesterday that "there is nothing precluding non-voting shares by law, and it is not for the Council to ban them if people want to use them in non-listed companies."
Therestrictions on ownership will cause considerable controversy, particularly from working members of Lloyd's who favoured the idea allowing Market forces free rein. But the committee rejected this on the ground that "those who manage agencies should be within the jurisdiction of the Council."
The report suggests new controls on the stamp capacity of any one syndicate which can be allowed for a member's agency and that the Council should be required to give its consent for a holding of more than I0 p.c. of any class of share in an agency.
It also underlines theneed for directors of agencies to give satisfactory details of "character and suitability."
An analysis of the comments from various bodies and persons forwarded by the Committee to the Lloyd's Working Party onAccountancy and Disclosure, now chaired by Ian Plaistowe, senior partner of Arthur Anderson .& Co, prior to finalisation of the accountancy manual setting out the rules for annual financial reporting to Names.
TheLloyd's Working Party set up to review the Instructions for the Guidance of Lloyd's Auditors and, in particular, to consider to consider what changes should be implemented for the audit at 31 December 1982 submit a report to the Committee detailing initial requirements for reinsurance and disclosure. The Working Party's proposals on disclosure of reinsurance arrangements were approved by the Committee of Lloyd's. Following that approval managing agents, members' agents and approved accountants were advised by letter of their responsibilities relating to reinsurance arrangements. This letter also outlined the Committee's requirement for disclosure of certain information relating to reinsurance in syndicate accounts, disclosure to Lloyd's of related party reinsurance contracts or arrangements and of certain other reinsurance contracts or arrangements. Shortly afterwards, the Working Party completed its deliberations on a proposed Byelaw concerning disclosure of insurance and other interests by underwriting agents. The draft Byelaw will be presented to the Council and circulated to the Market in due course for comment.
(The eventual Byelaw appears to be "The Disclosure of Interests Byelaw (No. 3 of 1984, 9 April 1984) which relates to the 1981 year of account made up in mid 1984 as at 31 December 1983. Had the Byelaw been issued in April 1993, the role of the offshore rollovers would have been partially disclosed).
11 Apr 83
Business Insurance: Some collecting awards though they are not ill
A former worker at a Mississippi shipyard recentlywon more than $1,000,000 in compensatory and punitive damages for his exposure to asbestos between 1953 and 1971. But the victim, who was diagnosed as having asbestosis had missed 30 fewer days of work in the last 5 years and was currently managing a warehouse in Alabama.
To assist with the work of implementing those aspects of the Lloyd's Act dealing with self-regulation the Council of Lloyd's appointed three advisers to Lloyd's on self-regulation.The appointments, which are on a half-time basis, are for three years, and those who have agreed to serve are:-
Philip Brown was appointed head of External Relations. With a £65,000 - plus salary, his salary has nearly quadrupled since leaving the civil service.
21 Apr 83
Daily Telegraph: Howden may be sued to recover $8m
THEindependent new management of the Alexander Howden Group's Lloyd's syndicates has already recovered £2.4 million from the company run by sacked underwriter Ian Posgate over some of his reinsurance arrangements, and may have to sue Howden itself to recover another $8 million.
In a letter to syndicate membersJeremy Hardie, chairman of Alexander Syndicate Management brought in to sort out the mess, warns that he is still in the middle of secret "discussions and negotiations" and may take legal action to get information or recover money."
Forfour years the Howden syndicate had been accumulating credit in a reinsurance contract. In 1977 Mr Posgate's own company Posgate & Denby added its syndicates to the contract, and in return for one premium of £30,000 claimed the whole fund of £2.65 million, says Mr Hardie's letter.
As a result, whenHowden syndicates wanted to make a claim in 1980, no cash was left. The new syndicate management says that this shows the conflicts of interest when an underwriter works for two syndicates, let alone two agencies.
Mr Hardie says the recovery is "very satisfactory" but thecase is still being investigated for the committee of Lloyd's by Peter Millett, Q C and Nigel Holland, of Ernst & Whinney. Almost as peculiar is another reinsurance ‘("roll-over") fund which accumulated $8 million in a Howden subsidiary, Sphere Drake.
Mr Hardie's boardrefuses to accept the "purported" change in the terms in 1979 and want to know what happened to the money. Though the change in the terms was "with Mr Posgate's knowledge and approval," it is unique and the new board wants the money returned.
The board is alsounhappy at the terms of a reinsurance contract which was transferred to Sphere Drake when it came to light that four former director of Howden had been funnelling the cash into a privately-held company. If market rates had been followed the syndicates would have been £1.1 million better off.
A final problem with reinsurance is that Mr Posgate placed it withunreliable companies and omitted to collect some £27 million owed to the syndicates. So far £9. 1 million has been collected, "but it will be a long time before we can be certain what the final recoveries may be," especially as "the security of some reinsurers is questionable" and they may never be able to pay.
It has been "a slow and laborious task," says Mr Hardie, to clarify the history of the syndicates. But he expects a full audit to be completed by end-May in line with the tougher new rules.
21 Apr 83
Daily Telegraph: Minet recovers extra PCW funds
MINET HOLDINGShas managed to recover additional funds for the members of its PCW Underwriting Agencies Syndicates where the underwriter was removed for privately benefiting from reinsurance arrangements, but it is costing £1 million in legal fees according to Minet's accounts published yesterday.
The members will be told about progress to sort out the problems, within the next two weeks.
Thegroup made a pre-tax profit during last year of £17. 8 million, a 21 p.c. increase on 1981, on turnover of £55. 5 million, 20 p.c. up. Underwriting accounted for a £3. 6 million profit.
St Paul Companies Inc. of the United States yesterday announced it had increased its stake in the group from 19. 97 p.c. to 24. 96 p.c.
23 Apr 83
Daily Telegraph: St. Paul seeks Minet ruling
St. Paul Companies, the American insurance Group which this week increased its stake in Lloyd's broker Minet Holdings to 24 .96 p.c. is planning to discuss this holding with Lloyd's and what implications it has for Minet.
Sir Peter Green, chairman of Lloyd's, this week confirmed thatthe insurance organisation is persisting with a long-established rule that insurance companies should not own more than some 20 to 25 p.c. of Lloyd's brokers. The full council is to consider the matter at its next meeting.
The United States company has made it clear it wants to maintain a minority stake and does not want to bid, but it might want toincrease its holding to 29 p.c. If necessary it will want to discuss with Lloyd's whether such an investment would be acceptable if St. Paul gave undertakings about the way it would exercise its holding.
27 Apr 83
Letter from the AWP to all insurers at interest.
The broad discovery ordered by Judge Era Brownhas caused the Working Party to give further consideration on how the Market's interest may best be protected in the continued handling of claims arising from asbestos related products. As a result of consultation with various attorneys who represent London interests, it has been recommended that in order to preserve privilege it will be necessary to remove from the control of brokers all reports on these matters submitted by legal advisers appointed by insurers. Discussions have already taken place with some brokers, and also with the Lloyd's Insurance Brokers Committee, who have advised brokers that they should extract from their claims files all attorney reports produced for insurers and deposit them at the Asbestos Claims Information Office on the 1st floor, Bankside House, Leadenhall Street.
Arrangements are now in handto enable the Working Party to deal directly with reporting Counsels, and also to ensure that all participants are kept fully advised by direct circulation of reports. Brokers have undertaken to provide assistance in identifying all subscribers to the various accounts involved, and will of course be processing collections of fees and indemnity in the normal manner.
The procedure outlined above will apply toboth direct and reinsurance claims, and this letter is being written with the support of the Chairman of the NMA Reinsurance Sub-Committee. In order to serve all interests it will be necessary for there to be close co-ordination in the future handling of direct and reinsurance matters. To this end, all files on asbestos related claims will be maintained at the Asbestos Claims Office, and will be available for review by insurers on the accounts in which they participate.
The need for direct handling of these matters will not only be time consuming to the Working Party, but will also require thatinsurers take on the role formerly assumed by the holding broker in handling advices on facultative reinsurance. No doubt you will make the necessary arrangements in this regard.
28 Apr 83
Declaration of C J Ayliffefiled in the Superior Court of the State of California in the Co-ordinated Proceedings Special Title (Rule 1550 (b) ) in re Asbestos Insurance Coverage Cases Included Actions:
In the delayed impact cases of the 50's and 60's the delay between exposure and the resulting disease or deformity ranged from a few weeks to three or four years. During the 1970's, claims arising from D.E.S. presented delays between exposure and impact of twenty years andasbestos is produced delays between exposure and impact of up to forty years. In the face of these extended delays, a dispute arose in the North American Insurance Market and in the London Insurance Market over whether to use a data of loss relative to the exposure date or dates or to the impact date of diagnosis or onset of disease. Some Leaders chose one practice and other Leaders chose another practice. By 1978, positions of the various syndicates at Lloyd's and of the various companies in the London Market were fixed. The Underwriters at Lloyd's have been involved in defending Declaratory Relief actions over the proper date of loss for asbestos Claims since December l978.
Increase in Delayed Impact Claims
8. Since 1978, the quantity of delayed impact claims has grown enormously. Also, additional products have been identified as causes of a. delayed impact. From a few hundred such claims prior to 1979, there now exist many thousands of such claims. Typically, each syndicate or company having a percentage of a policy issued to a delayed impact defendant will maintain a brief claim record identifying the assured, the coverage details of limit and year and reference to reserve and reinsurance advices. Thus, hundreds of records may in fact be created for each of the many thousands of delayed impact claims.
9. Thebasic records for underwriting and claims on policies obtained in the London Market are kept by brokers. Each policy involves many autonomous entities none of which would continually keep a record of the entire policy. Absent special circumstances, one syndicate would have no record of others participating in the same policy. Because the broker has the full history of a policy placement, it is the basic repository of all placement information. When a claim is generated on a particular policy, the broker separately advises the various entities participating in underwriting that policy. Thus, records maintained by the underwriters are usually in the nature of secondary advices, that is, a report by the broker, rather than original information in placement or claims.
I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct.
30 Apr 83
Daily Telegraph: Howden loses £14m but A & A ‘is benefiting'
Alexander Howden, the Lloyd's insurance broker at the centre of the re-insurance scandals which have caused turmoil at Lloyd's of London for the past nine months, lost £ 14m last year.
Howden was taken over by Alexander & Alexander, the American insurance broker, early last year.
In its just publishedannual report for 1982, A & A gives a financial breakdown of the performance of its new subsidiary Howden which gives the total loss as $21.8m or £14m at yesterday's closing exchange rate.
Howden'sturnover was $128.4m and expenses were $121m, the report reveals, leaving income from operations of $7.38m But losses of subsidiaries and affiliates were $17m; there were additional and unexplained expenses of $6.2m; and a provision for tax of $5.4m to raise the total deficit to $21m.
Thetotal loss on Howden, in fact, is greater still, for the report confirms that the American company has also made an additional provision of $20m to cover the cost of the acquisition.
Despite these difficulties, Mr John Bogardus, chairman of Alexander & Alexander, says that the company is now benefiting from the purchase of Howden. "The business purposes which led to the acquisition - most notably thegaining of direct access as a broker to the Lloyd's market and the expansion of the company's brokerage operations on an international level - are being realised," he said.
30 Apr 83
Daily Telegraph: Sasse settles out of court
THElitigation surrounding the Sasse debacle at Lloyd's, was settled yesterday just ahead of the case which was due next Tuesday. It was a complex web of cases between Tim Sasse, his partner Mr Turnbull, the brokers Brentnal Bea rd, Lloyd's itself and the members of the syndicate.
Theproblem first came to public notice in 1978 and on a previous occasion Lloyd's settled out of court at the last moment. That was when the members of the syndicate sued it for inadequate policing of the market. Lloyd's paid some £15 million of the syndicate's £21 million losses and as s result picked up the other litigation the members had started.
MrSasse had in turn sued the corporation of Lloyd's as well. But yesterday Lloyd's said "all litigation between the parties has been terminated."
3 May 83
Daily Telegraph: Brokers' conduct ‘unacceptable'
There have been attempts to distort the disciplinary procedures bythe British Insurance Brokers Registration Council, Sir Denis Marchall, one of its members, revealed to the British Insurance Broker Registration Council conference in Bristol.
Members of the council, many of whom are brokers themselves, have been approached by people"interceding" on behalf of a broker accused. Sir Denis told the meeting such conduct was "unacceptable."
Registered insurance brokers are also concerned thatdespite the law some people continue to call themselves broker though they have not been registered. But there seems little chance of much legal action to enforce the law, they were told.
3 May 83
Daily Telegraph: Posgate ‘grave exception' to Hardie letter
Ian Posgate, the star underwriter at Lloyd's until he was removed from his post at Alexander Howden Group, has warned the chairman of Lloyd's that he iscontemplating suing Jeremy Hardie, the man brought in to reorganise the Howden underwriting syndicate.
Mr Posgate takes "grave exception " to the letter written by Mr Hardie to members of the syndicates. He has written to Sir Peter Green, chairman of Lloyds, Ian Hay Davison, chief executive, and also to the committee of Lloyd's to explain that he has taken legal advice on his position as former underwriter.
Price Waterhouse, the accountancy firm, has already been commissioned by Mr Posgate to
investigate the Howden account tocheck the figures released by Mr Hardie.
Now MrPosgate has consulted solicitors and Robert Alexander QC, one of the highest paid barristers in Britain.
MrHardie told syndicate members that he has had problems disentangling the reinsurance arrangements made for the syndicates. He is also said to be having difficulty locating some of the premiums paid by the syndicates for reinsurance.
Some of MrHardie's figures are disputed by Mr Posgate especially the amount said to be uncollected on reinsurance arrangements.
5 May 83
Daily Telegraph: Lloyd's revives charges over Sasse debacle
LLOYD'S is taking up again, its disciplinary proceeding against underwriter Tim Sasse
andformer broker John Newman over the debacle, which produced a £21 million loss for Mr Sasse's syndicate. The procedure was set in motion in July 1979 but a web of litigation woven by several participants, forced suspension of the Lloyd's activity.
All the lawsuits around Sasse were settled out of court last Friday, just ahead of the scheduled court appearance on Tuesday this week. As a resultLloyd's has re-examined the case and has "discontinued" two actions.
Brentall Beard, the broker involved in the Sasse problems, no longer has any of the people then involved still working for it so Lloyd's has stopped proceeding. Thomas Turnbull, the underwriter working with Mr Sasse, was being arraigned under a Lloyd's bye-law which had a two year suspension as maximum penalty.
Since he has been effectively suspended for three years - not having done any underwriting since the procedure started - Lloyd's decided it would be unfair to take any further action.
5 May 83
United States Aviex Co. - v- Travelers Insurance Co., 125 Mich. App. 579, 336 N.W. 2d 838, 5 May 1983. Michigan Court of Appeals held "[the insurer] must defend and indemnify [the insured]" in suits seeking indemnification for costs incurred by the insured in complying with governmental orders to perform clean-up operations. Court rejected the insurer's "owned property" exclusion and "as damages" defences. Insurer's "owned property" argument failed because under Michigan interpretation of "percolating water", percolating water is not owned by the owner of land under which it flows and so does not fit within the policy's exclusion.
5 May 83
Corporation of Lloyd's Annual Report and Accountsat 31 December 1982
Statement bySir Peter Green, Chairman of Lloyd's
1983 will undoubtedly prove to be a new landmark in Lloyd's long history. The creation of the Council of Lloyd's, following the Royal Assent to Lloyd's Act 1982, marked the culmination of our struggles over the last five years since the decision was taken to appoint Sir Henry Fisher to review the structure and disciplinary powers of Lloyd's.
Since that historic moment on23rd July Lloyd's has not wasted a minute. In a determined and resolute manner the Council has rapidly started to put in place the new Constitution it was given by the Act and to use the powers for which Lloyd's had asked Parliament.
I believe it will be helpful if, exceptionally on this occasion, I give Members some additional information of our stewardship of Lloyd's Act to that which will be found in this very detailed Annual Report.
Thefirst full meeting of the Council with its three categories of Members was convened on the 5th January 1983. Since then the Council has met twice a month, each meeting lasting on average seven hours. I know I am speaking for all those involved when I say that we have been encouraged by the way in which in a very short space of time, the Council has welded together to form a harmonious, resolute and constructive decision-making body. We have achieved an enormous amount in our first four months.
We now have aChief Executive and third Deputy Chairman. I believe that we were particularly fortunate that Ian Davison agreed to take on this very demanding job. The introduction of a man of his stature from outside to guide and assist Lloyd's as it establishes its new self-regulatory structure is both encouraging for those of us at Lloyd's who look forward to a dynamic future and also to those who in the past have expressed the fear that self-regulation at Lloyd's has been too inward looking and self-serving. I hope and believe that this is a criticism which will no longer be sustainable.
A further area of activity relates to redeeming anUndertaking to review the entire underwriting agency system given to Parliament in the Committee Stage of the Lloyd's Bill. The Higgins Working Party set up for this purpose produced a consultative document last September and early this year published Part One of its Report. The Council will be considering this Report at a Special Meeting on 9th May and at subsequent regular meetings. The agency system lies at the heart of Lloyd's. Whilst we must comply with the Statutory requirements of Divestment, the Council must be certain that all decisions in this most sensitive area, whether for change, or maintenance, of existing practices, are in the best interest of the long-term future of Lloyd's, its Members and its policyholders.
TheWorking Party reviewing the Instructions for the Guidance of Lloyd's Auditors has also produced the first part of its Report. The recommendations which relate to the disclosure by syndicates of their reinsurance arrangements and by Working Members of their insurance interests have been accepted by the Committee of Lloyd's and promulgated in a letter to underwriting agents. The detailed bye-laws are being drafted and will soon be presented to the Council for adoption.
I hope this brief account together with the further details in the Annual Report will demonstrate to you the Council's determination to build, as rapidly as proper and due consideration allows, a new self regulatory system of government for Lloyd's - a system which is respected and acknowledged to be effective by Members of Lloyd's, by those who work in the Market and by the outside world.
We must recognise that Lloyd's greatreputation for probity and fair dealing has suffered as a result of the allegations - as yet mostly unproved - of wrongdoing by a small minority. However, no one has ever doubted the unequalled security that lies behind every Lloyd's policy. It is encouraging that enquiries of overseas sources, especially of the major producers of US business to Lloyd's, show no diminution in the flow of business. The changes when they occur are the result of normal commercial underwriting decisions. Nevertheless we all must continue to strive unceasingly to ensure in the future, as in the past, that whenever the world of industry and commerce is faced with problems that can be solved by insurance protection, they look first to the world's greatest concentration of insurance expertise, the underwriters and brokers at Lloyd's.
Council of Lloyd's
Following the passing of the new Act, in 1982, Lloyd's proceeded to an election unique in its history-the election of the firstExternal members of the Council by postal ballot of the External Members of the Society.
Nominationswere required to be submitted to Lloyd's by 22nd September to facilitate the start of the ballot which closed on 17th November and coincided with the General Meeting of Members. The General Meeting was deemed an Extraordinary meeting on this occasion under the terms of the transitional arrangements of the new Lloyd's Act. Out of a possible electorate, over 60 per cent of External Members voted. The eight External Members elected were: C C Baillieu, Dr A C Copisarow, C G V Davidge, R E M Elborne, D Fredjohn, Sir Marcus Kimball, E G Kulukundis and J G Marks.
November 17th was also the occasion for the ballot to elect four Working Members of the Society to theCouncil (and Committee). The Working Members elected were: D E Coleridge, Sir Peter Green, C K Murray and The Hon Robin Warrender.
With the elections thus disposed of, Lloyd's moved to a preliminary meeting of Working and External members of the Council at which, under the terms of the Act, the Society was required to appoint three Nominated members to the Council. Thismeeting was held at Leeds Castle, in Kent, during the weekend of 10/12th December; Sir Kenneth Berrill, C B Gough and E I Walker-Arnott were unanimously appointed Nominated members of the Council. The appointments were subsequently confirmed, as required by the Act, by the Governor of the Bank of England. At Leeds Castle a number of other important matters were discussed and the meeting provided a unique opportunity for Council members to meet each other in an informal setting whilst paving the way for the first formal meetings of the Council.
Thefirst full meeting of the Council was held on 5th January this year and established, by bye-law, new disciplinary and appellate procedures for Lloyd's. In this connection the Council has been fortunate in securing the services of Lord Wilberforce and David Calcutt QC as President and Deputy President of the Appeal Tribunal. P L Foden-Pattinson and M J Langton have been appointed Chairman and Deputy Chairman of the Disciplinary Committees and the following will also serve as members of those committees:
J G Alston, I H F Findlay, V V Hudson, J A Oliver, MB Rumsey, C H A Skey, Richard Southwell QC, A R Taylor, H N Towers, JR S Wace, and E 0 Walklin.
Mindful of the very thorough requirements placed on Lloyd's by the self-regulatory aspects of the new Act, the Council also decided at its first meeting toappoint a Deputy Chairman and Chief Executive. An invitation was extended to Ian Hay Davison, senior partner of Arthur Andersen & Co who formally took up the appointment on Monday, 14th February. New bye-laws creating an additional Deputy Chairman and Nominated member of the Council were passed by the Council at its meeting on 7th February.
As a Deputy Chairman, Mr Davison will be particularly concerned withsupporting the Chairman in connection with the external relations of the Society. As the senior member of the Society the Chairman will, of course, continue to discharge his ambassadorial role and to lead negotiations at the highest level. The Deputy Chairman and Chief Executive will assist with negotiations with regulatory and tax authorities both in the UK and overseas at official level. Mr Davison will also be particularly concerned with relations between the Society and the Press.
Mr Davison's responsibilities as Chief Executive also includeoverseeing the establishment of the new self-regulatory regime at Lloyd's. He will recommend proposed bye-laws to the Council; the setting up and monitoring of progress of task groups; consultation with the Market and outside regulatory authorities on proposed rules; and the setting up of the necessary machinery to implement new bye-laws. He will also be responsible to the Council for the quality of the new self-regulatory arrangements, both as to the rules and as to their application; and will exercise general supervision over the disciplinary arrangements.
Additionally, Mr Davison will beresponsible for the management of and accountability for the resources of the Society, the overall direction of the Corporation staff, overseeing the implementation of policy decisions of the Council and the Committee, maintaining proper channels of communication and responsibility within the Society, co-ordinating the work of the Society's various sub-committees, policy boards and other investigatory and advisory bodies, and laying the foundations for the future management of the Society and the development of the Corporation of Lloyd's.
At the second and subsequent meetings of the Council further bye-laws were passed dealing with a wide variety of subjects. All members of the Society are to receive copies of all bye-laws and regulations.
To assist with the work of implementing those aspects of the Lloyd's Act dealing with self-regulation the Council appointed inApril of this year, three advisers to Lloyd's on self-regulation. The appointments, which are on a half-time basis, are for three years, and those who have agreed to serve are: Philip Brown, Deputy Secretary, Department of Trade, David Stebbings, recently retired senior partner of Freshfields, Solicitors and Richard Wilkes, a senior member of Price Waterhouse & Co.
The work of thetwenty-one task groups, which were set up following the publication of the Fisher Report, has continued throughout the year and the first of the consultative documents has been published.
Annual Financial Reporting
Thereport of the task group examining Annual Financial Reporting to Members of Lloyd's was approved in December by the Committee of Lloyd's as a consultative document together with a draft Accounting Manual. The Report and Manual are the result of two years' exhaustive research into the information which should be included in syndicate accounts to Names. Until the present time there have been no comprehensive disclosure requirements for underwriting agents although broad guidelines have been provided for guidance.
The recommendations of the task group included:
(4) thesyndicate accounts to show a true and fair view of the result of the closed year.
(5) theactive underwriter, managing agent and members' agent must each prepare a report to accompany the accounts.
(6) aseven year summary of results (showing trends) shall form part of the syndicate accounts.
(7) anyrelated party transactions which involve the syndicate must be disclosed.
Thedraft accounting manual embraces these recommendations and it is envisaged that it will form part of a comprehensive auditing and accounting manual which will be adopted by byelaw in due course.
Instructions for the Guidance of Lloyd's Auditors
InNovember a working party on accounting and disclosure, chaired by Ian Davison, then senior partner of Arthur Andersen & Co, was established by the Committee of Lloyd's to review the Instructions for the Guidance of Lloyd's Auditors and make recommendations to the Committee and, in particular, to consider what changes should be implemented for the audit at 31st December 1982. An interim report was presented to the Committee on 12th January 1983.
Theworking party considered that certain matters required immediate action to emphasise the auditor's role and to improve the reporting of reinsurance arrangements both in syndicate accounts and to Lloyd's. In consequence, the interim report covered the following: disclosure of insurance interests, reinsurance and ‘baby syndicates'. Following Mr Davison's appointment as Deputy Chairman and Chief Executive, Ian Plaistowe FCA, also a partner of Arthur Andersen & Co, assumed the chairmanship of the working party. A number of other matters were thought to require further study and particularly concerned reinsurance, the auditing of syndicate accounts and the information which should be made available to Members and prospective Members. A report detailing initial requirements for reinsurance and disclosure was issued in April 1983. The working party's proposals on disclosure of reinsurance arrangements were approved by the Committee of Lloyd's. Following that approval managing agents, members' agents and approved accountants were advised by letter of their responsibilities relating to reinsurance arrangements. The letter also outlined the Committee's requirement for disclosure of certain information relating to reinsurance in syndicate accounts, disclosure to Lloyd's of related party reinsurance contracts or arrangements and of certain other reinsurance contracts or arrangements.
The working party has substantially completed its deliberations on aproposed bye-law concerning disclosure of insurance and other interests by underwriting agents. The draft bye-law will be presented to the Council and circulated to the Market in due course for comment.
Higgins Working Party
Following theundertakings given to Parliament during the passage of Lloyd's Act the working party continues with its work of reviewing the underwriting agency system at Lloyd's.
Areport has been submitted to the Council on ownership and control of underwriting agents which, following its receipt, was made available to the Membership, the Press and the public.
Further reportsare expected on the remaining terms of reference which cover all aspects of the underwriting agency system.
Regulatory Investigations Unit
During thesecond half of 1982 the Committee of Lloyd's agreed to the formation of a Regulatory Investigations Unit to control and co-ordinate various inquiries into alleged ‘irregularities' in the Market.
TheUnit comprises Corporation staff, drawn from several departments, who are working in conjunction with leading members of the accountancy and legal professions. The unit reports to Frank Barber, Deputy Chairman, who is acting as the co-ordinator of the inquiries.
Thesetting-up of the unit and its welding together as a team indicates that the basis of a determined but flexible response to the alleged irregularities has been laid. Much of the work is concentrated on research and inquiry into background information surrounding certain reinsurance transactions. In this, the skills of the Corporation staff involved have been drawn from Management Services, Brokers, Advisory, Membership, Finance, Internal Audit, LPSO and Legal departments.
Manyof the areas under investigation are of a sensitive nature. This, however, has not proved a deterrent to the resolve of the unit. As the inquiries have proceeded the unit's ability to carry out its tasks has been strengthened by the enactment of bye-laws by the Council under the 1982 Act.
On21st March the Council of Lloyd's ratified the formation of a committee to be known as the Investigations Steering Committee ‘ISC'. The committee succeeded the ad hoc committees previously set up to oversee certain inquiries. The ISC comprises Frank Barber, chairman and W N M Lawrence, A H Chester and I F H Davison and will direct and control all inquiries and investigations conducted in accordance with Lloyd's self-regulatory responsibilities. It reports to the Committee of Lloyd's.
Theinsurance sector's contribution to invisible earnings was, for the first time in 1981, superseded in its premier position by the banking sector. Whilst both Lloyd's and the insurance companies' earnings increased during the year, net earnings in the banking sector were influenced by the high interest rates which prevailed. Nevertheless Lloyd's position as the City's single largest earner of ‘invisibles ' remains unchallenged. Lloyd's underwriters and brokers' contribution during the last five year period has averaged over £630 million per annum.
Throughout the year steady progress has been made on the construction of the new building and work has become more apparent with the casting of the support columns, the floor of the Room and a number of galleries.
Work on the substructure wasdelayed by unforeseen difficulties, largely because the foundations of the 1928 building were far more complex than those shown on the original drawings. By the adoption of special measures, however, delays on other areas have been kept to a minimum.
Major sub-contracts have been placed with Express Lift Co Ltd for the external lifts, Balfour Kilpatrick for electrical work, Jordan Engineering (Bristol) Ltd for the interiors of the toilet capsules, Haden Young & Co Ltd for the mechanical services and Stephens & Carter Ltd for the cleaning equipment. Other sub-contracts have been let to Henry Hargreaves & Sons Ltd for ductwork, How Fire Protection Ltd for the sprinkler installation, Vogue Development Co Ltd for block work and South Coast Welders Ltd for services supports.
TheRoom Users' Group, comprising representatives from the Market, has continued to meet regularly throughout the year, whilst the Box Redesign Working Party has submitted an interim report setting out the concept of the proposed new underwriting box. A prototype is under construction and will be evaluated by the Users' Group and the Associations' committees. A second prototype will be produced for general comments from the Market.
At theGeneral Meeting of Members in November 1982 the Chairman reported that the cost of the new building project had risen from £75 million to £90 million at February 1981 values. The increase had been mainly brought about by additional requirements by Lloyd's, extra requirements by the authorities, the excavation problems, and a number of tenders being above the cost plan allowance. The Council is determined that the total cost should be contained within the new figure. As was also reported to the General Meeting the total cost of the project including the cost of demolition, fees, costs of furnishing (including new boxes) and allowing for inflation in the building industry up to completion is estimated to be £157 million.
On the 1st January 1983, 1,754 new Members of Lloyd's started underwriting.
Citizens of Other Countries
The following table shows the number of Members at the 1st January in each of the last three years.
Increase over previous years
160 Members died and 137 resigned.
At theNovember 1982 General Meeting, the Chairman announced that common deposit ratios would apply to all Members resident or domiciled overseas, regardless of nationality. Such Members will now provide deposits of 35 percent of their premium limits compared with 25 per cent for Members in the UK. A basic minimum means test of £100,000 has been introduced and will apply to Members regardless of nationality, residence or domicile.
There has been ahealthy increase in the value of both the Special Reserve Fund and the Members' Lloyd's Deposits. The combined value of these funds at 31st December 1982, exceeded £1,000 million.
Thepractice of providing Bank Guarantees, Insurance Company Guarantees or Letters of Credit as security in the Lloyd's Deposit is becoming increasingly popular with Members. This year, 72 per cent of new Names provided their deposit in this form.
During 1982eleven new Lloyd's brokers were admitted and five companies withdrew. The number of Lloyd's brokers at the 31st December 1981 was 266 and at the 31st December 1982, the figure was 272.
Table of Annual Subscribers and Associates 1982/83
*This figure includes 105 Annual Subscribers who were elected as underwriting members.
Brokers' ‘C' Account
Since1939 Lloyd's brokers have been required to undertake that all premiums and balances payable by clients in US dollars and due to Lloyd's underwriters will be paid direct into an account at Citibank known as the ‘C' Account or transferred there as soon as they are received. Following the introduction of the IBA system (the Insurance Broking Account System - which requires the segregation of insurance funds from brokers' own funds) in the late 1970s the ‘C' Account system was reviewed and, in January 1981, the Committee of Lloyd's decided that it should be discontinued provided that all aspects of conducting US business were safeguarded.
A system has now been devised which will require, that in future,all funds relating to US dollar business shall be held in trust accounts (within the IBA system) in accordance with the terms of a standard trust deed. Under these new arrangements Lloyd's brokers will be required to arrange for US dollar premiums and balances received from all clients to be paid into a trust account with the Corporation of Lloyd's acting as trustee. These trust accounts may be opened with any bank approved by the Committee of Lloyd's for IBA purposes.
Co-ordination, Research and Development
As a result of the need for co-ordinating planning by Corporation departments and groups the Co-ordination, Research and Development Department was set up in December 1982 and is directly responsible to the Secretary General. The main objective of the department is to co-ordinate and assist with the planning undertaken by the Corporation groups and departments who will, however, continue to be responsible for the production of individual plans.
Negotiations, at government level, regarding freedom of insurance services in the EEC remain at deadlock, a situation which has persisted for eighteen months. Lloyd's has recently taken part in discussions with German insurers who have indicated a possible way forward: serious obstacles still, however, remain to be overcome.
In Malta, Lloyd's underwriters have been granted a licence to become authorised insurers under the Maltese Insurance Business Act 1981. An application for Lloyd's underwriters to become authorised for non-marine business has been lodged with the Italian supervisory authorities and negotiations regarding the terms and conditions of the licence continue. Legislation in Europe affecting insurers continues to increase in complexity and needs constant vigilance to protect the interests of Lloyd's underwriters to ensure compliance, where necessary.
Developmentsin Kenya, Malaysia and the Seychelles have had an impact on Lloyd's underwriters' position, during the year, as licensed insurers. The position of inward reinsurance business to Lloyd's remains unaffected but the Lloyd's Market will cease to have the opportunity to contribute directly to the development of the local insurance market in each of the countries.
In the USA, theState of New York promulgated a new Regulation in October, known as Regulation 98. A second amendment to Regulation 20, which governs credit for reinsurance with unauthorised reinsurers, such as Lloyd's underwriters, was also promulgated to conform to the requirements of Regulation 98.
Thepractical implications of Regulation 98 are the responsibility of reinsurance intermediaries. These include Lloyd's brokers placing outward reinsurance business on behalf of New York licensed insurers with or without the involvement of a New York intermediary. A public hearing was held in New York prior to the promulgation of Regulation 98 and the second amendment to Regulation 20 at which representations were made in an effort to minimise the impact on the Lloyd's Market.
At its meeting held inDallas in December, the National Association of Insurance Commissioners finally approved a new ‘Model' Surplus Lines Law ‘Act'. The Act is favourable to Lloyd's underwriters' trading position in the United States and there are already signs that some States, currently undertaking a revision of their insurance laws, are adopting the Model Act.
O F Gollcher & Sons Ltd, Malta, this year celebrate their centenary as Lloyd's Agents, joining the select group of 43 current Agents who have achieved this distinction.
Following the meeting of Agents from Italy, Malta and Yugoslavia at Leghorn in May 1982 the meeting of North European Agents was chaired by J R K Beckett, chairman of the Lloyd's Agency Committee. In November and during February 1983 meetings of Australian and New Zealand Agents at Sydney and Wellington were chaired by J A Kooyman, Controller of Agencies. A meeting of South American Agents in Rio de Janeiro is planned for October 1984.
During 1982 a total of 43 Agencies was inspected in Scandinavia and the West Indies, whilst in the first half of 1983 a further 31 Agents in the Far East and West Africa are scheduled for inspections. Visitors from some 120 Agencies were received in London. Additionally 15 Agency staff participated in longer visits and received training to help maintain the standard of Agency services. Another nine such visits are scheduled for the first half of 1983.
Lloyd's Open Form of Salvage Agreement, 1980, continues to be widely employed by salvors and the working party under the chairmanship of Gerald Darling QC, held its annual meeting in September 1982 to review the operation of the Form.
Following thecompletion of the work of the Committee of Lloyd's working party on Lloyd's Certificates of Insurance, a Joint Standing Committee on Lloyd's and Institute of London Underwriters' Certificates has been established under the chairmanship of B Jenkinson to monitor the control, production and use of Lloyd's and Institute of London Underwriters' certificates.
Lloyd's Aviation Department
In1982 Lloyd's Aviation Department handled 1,200 hull surveys world-wide and assignments included both general aviation and major airline accidents in 50 countries. The department's aircraft salvage disposal system, which has evolved over many years, reflected substantial returns to underwriters.
Accident prevention studies on various aircraft operators as far afield as Mexico and Turkey have also been carried out by Lloyd's Aviation Department surveyors, the aim being to help improve safety standards for the operator and so minimise claims.
In Singapore continued demand for surveying and loss adjusting facilities resulted in the Lloyd's Aviation Department local office being strengthened by the recruitment of an assistant surveyor who is a citizen of that country. Field surveys were carried out in Singapore, Australia, Bangladesh, Hong Kong, Indonesia, Japan, Malaysia, Philippines, Taiwan and Thailand.
The Lloyd's Aviation Department surveyor based in Johannesburg continued to work in successful association with V. Lewis & Co. (Pty), Ltd. This has proved to be mutually beneficial for London and South African Insurance Markets. Field survey work has included visits to Zaire, Zambia, Zimbabwe, Malawi and Mozambique.
During the year theAviation Intelligence Section has improved the standard of a number of its publications to subscribers. Information from this service reflected 26 major losses in 1982 to western built commercial jet airliners compared with 12 for 1981 at a cost to insurers estimated at $240 million compared with $121 million in the previous year.
Lloyd's Policy Signing Office
Theoverall number of documents processed through LPSO and its Central Accounting System has continued to increase this year (see table) although the number of policies and endorsements signed has decreased. The administration requirements for handling the business have also increased with, for example, the introduction of certain requirements for the provision of statistics for the States of New Hampshire and Georgia in the USA.
Implementation of further classes of business through theredesigned Central Accounting System has continued with the inclusion of Syndicate Reinsurances and business processed through the LPSO Contract Scheme. The final part of the Scheme's stage - Treaties - will be completed by mid 1983.
Aworking party which included representatives from LIBC has been working on the restructuring of the Lloyd's Policy Signing and Central Accounting Manual. The completed revised edition will be available for distribution in July 1983 - 1,500 copies have currently been made available to the Lloyd's Market.
Table of Policies Signed and Endorsed
Systems and Communications
The Systems and Communications Policy Board, chaired by B J Brennan, has devoted much of its time to considering the strategic direction for the development of Lloyd's systems and communications in the future. Several studies have been carried out to consider ways in which support can be provided to the key activities of insurance business processing in the Lloyd's Market and the processing of membership information by underwriting agents and the Corporation. During 1983, some possibilities for future systems will be examined in more detail to establish their business advantages and technical feasibility.
In September a successful exhibition was organised, as part of the national Information Technology Year, to display developments in information technology in the Lloyd's Market. Theexhibition, which was opened by Kenneth Baker, Minister for Information Technology, demonstrated some of the systems which are available today, and also looked ahead to the facilities which may be used in the Lloyd's of the future.
Several more parts of theredesigned Central Accounting System were implemented during 1982. Further developments in the coming year will permit the introduction of a wider range of syndicate numbers and the use of magnetic tape as an alternative to the underwriters' advice cards.
Work hasbegun on a pilot scheme to transfer data from a major broker to LPSO by magnetic tape instead of by the large volumes of paper necessary at present. If the scheme is successful this method could be extended and lead to a considerable improvement in efficiency and lower running costs.
In the area ofMembership computer systems the Central Solvency System was completed in 1982 in time to assist in carrying out the Members' Solvency Test as at 31st December 1981. The development of the Underwriting Arrangements stage of the Membership system is proceeding to plan and will be implemented later this year.
Modern telecommunications are being increasingly demanded to assist the smooth operation and administration of the Market. The telephone, telex and document facsimile arrangements are all being improved and their facilities made more readily available. Whenever possible advantage is being taken of the latest technology.
The liberalisation of telecommunications in the United Kingdom, whilst introducing an element of uncertainty at this early stage, should ultimately remove many of the restrictions which at present affect the provision of services across the Market. Planning to take advantage of this has already been initiated.
The Office Services Department was formed on 1st October 1982 to co-ordinate the use and introduction of office systems into Corporation departments. In addition, the opportunity was taken to merge the procurement of computers and related items into the existing purchasing function.
Considerable expansion of office systems is taking place and by the end of 1983, approximately 100 terminals providing word processing facilities and small administrative systems will be installed in Corporation departments.
Further facilities are planned to improve the effectiveness of Corporation departments.
Information and Press
In an unparalleled year of Lloyd's events, theInformation Policy Board has concentrated public relations activities on the issues arising from the passing of the Lloyd's Bill through Parliament to the formation of the new Lloyd's Council and the appointment of the additional Deputy Chairman and Chief Executive.
Press interesthas been intense and Council and Market topics have been widely reported during the course of the year. Every effort has been made to keep Lloyd's Members and the community, as a whole, fully informed of current issues and developments as soon as news becomes available for publication. Whenever possible Press conferences are arranged following Lloyd's Council Meetings at which the Chief Executive briefs the media on progress.
At the end ofMarch, the BBC devoted an entire ‘Panorama' programme to Lloyd's and largely limited its attention to recent Market problems, despite an assurance from the BBC that its aim was to produce a fair and honest portrayal of Lloyd's with particular reference to the future following the creation of the Council. Scant reference was made to the implications of the new Lloyd's Act, the underwriting expertise of the Market nor to the valuable contribution Lloyd's makes to the UK balance of payments and Lloyd's leading role in the development of international insurance.
Lloyd's Loghas been redesigned and will include reports on Council affairs. The magazine's circulation continues to grow and it is now received by more than 95 per cent of Lloyd's Members.
There is sustained pressure from home and overseas parties to visit Lloyd's. A separate public viewing gallery is planned for the new building to meet anticipated future demand.
Preparations are in hand to produce a new prestige brochure which will encompass the constitutional and structural changes at Lloyd's.
TheInformation Department has also recently produced a briefing document explaining the security underlying policies issued at Lloyd's for distribution among Lloyd's Market Associations, brokers and underwriting agents, Overseas General Representatives and the EEC.
Lloyd's of London Press Limited
The primary markets, shipping and insurance, which are served by this wholly owned subsidiary of the Corporation of Lloyd's, have been under extensive pressure, the former depressed to a level comparable with the 1930s.
Despite this, the Company'sprofit before tax in 1982 was £595,000, a record since its formation in 1973. The Company publishes, two daily and four weekly and some 30 other publications. It is responsible for Lloyd's maritime intelligence services and also publishes books and news letters and promotes seminars and conferences at home and overseas. Much of the information held on the data-base at Colchester, the head office of the Company, is now being marketed through electronic publishing systems, a development which will undoubtedly accelerate in the coming years.
Some40 per cent of the Company's products are exported. The potential growth overseas is substantial. As a matter of policy, the Board believes it right to seek publishing partners overseas rather than to establish direct operating subsidiaries. The first fruits of this policy have been the establishment of a joint venture with Business Research Publications Inc. and LLP Maritime and Business Publishing Inc. in the USA which has launched an aviation law newsletter. In Singapore the Company has entered into a joint venture with the Straits Times and will publish the first Singapore Port Directory in July of this year.
During 1982 the Captains' Room Department served approximately 750,000 customers, Turnover for the Catering Department was over £1 million. The trading account continued to show an improvement and the deficit, as a percentage of sales is 0.03 per cent (1981 10.2%).
Lloyd's Training Centre has been involved in producing a series of audio-visual programmes. The first of these, ‘Lloyd's in Illinois', was made available to the Market in the spring and will be followed by productions relating to syndicate reinsurance, terms of credit, non-marine claims and the passage of a policy through Lloyd's Policy Signing Office.
With the assistance of theNational Association of Professional Surplus Lines office, the Society of Chartered Property and Casualty Underwriters and Lloyd's US Attorneys, LeBoeuf, Lamb, Leiby & MacRae, a series of seminars relating to American insurance law and practice was held during 1982 on claims, surplus lines legislation, solvency and Regulation 98 (concerning the regulation of intermediates in the US).
During 1982, 2,188 people attended Lloyd's Training Centre courses and spent a total of 2,921 ‘students days' at the Centre. This is a 20 per cent increase over 1981. Four further Saval Sabbatical Awards, donated by Maurice H Saval, an American Name, were made during the year, each involving four-week study periods at the College of Insurance, New York.
Lloyd's Charities Trust
For the year 1982, the General Fund made donations totalling £266,100 and its income amounted to £226,656, leaving a shortfall of £39,444. The accumulated fund amounted to £88,312 at 31st December 1982 compared with the previous year's balance of £114,121.
The accumulated fund of the Cuthbert Heath Centenary Fund stood at £351,136 at 31st December 1982 (1981 £283,723) after bursaries totalling £21,000 were awarded to seven schools. A copy of the Trust's accounts is sent to each underwriting agent. Additional copies are available from the Secretary of the Trust, J Gawler, Secretarial Department, Lloyd's.
Thenumber of permanent and contract staff at 31st December 1982 was 1,871 compared with 1,794 at the end of the previous year. The four per cent increase in staff numbers was mainly concentrated in Management Services and LPSO departments and reflected increased work loads.
Theproblems which arose at Lloyd's during the latter part of last year had the effect of increasing the Corporation staff, and the impact of the new self-regulatory responsibilities of the Corporation necessitated some restructuring of responsibilities between departments.
The ever increasing use of electronic technology in the office created a need to co-ordinate the introduction and use of such equipment within Corporation departments.
During the year a number of senior managers of the Corporation of Lloyd's have retired, E W Bethell, Deputy Principal Aviation Surveyor, T V Hill, Manager Supply and Communications and F E Merrett, Manager Lloyd's Insurance Services. The Council of Lloyd's would like to record its appreciation of their services to Lloyd's and wishes them a long and happy retirement.
The Council record with great regret the death in November of Mr F F Phillips OBE who was principal Clerk from 1962-1967.
The accounts for 1982 are set out on pages 19 to 35.
Incomefor the year increased by 18.9 per cent to £49.7 million mainly related to charges to the Market for subscriptions and for recoveries of expenditure in respect of insurance services. Expenditure rose by 20.7 per cent to £40.4 million due to general increases in the operating costs of the Corporation. The items with the largest percentage increases are legal and professional fees, foreign legislation costs and computer software which reflect the areas where there has been the greatest change in demand on Corporation resources.
Entrance feestotalled £2.9 million compared with £2.3 million in 1981 and are directly related to the number of Members elected to commence underwriting on the following 1st January.
At the end of the year the accumulated fund increased by £12.8 million to£94.7 million -this is represented by the net assets of the Corporation as shown on the balance sheet.
The most significant change in the balance sheet is the increase in fixed assets arising mainly from the expenditure of £15.3 million on the building redevelopment project. The total expenditure to 31st December 1982 capitalised on the project is £27.9 million in respect of demolition, professional fees and construction costs.
In a year which has been both historic and at the same time trying the Council of Lloyd's wishes to pay tribute to the work of the Corporation staff and in particular to those members of the staff who have devoted many long hours in the interests of self regulation and the continued integrity of the Market.
1982 - 83 EVENTS
InJune the Chairman was honoured by Her Majesty The Queen in the Birthday Honours List as a Knight Bachelor. The Chairman, accompanied by Lady Green and Mrs Green, Sir Peter's mother, attended the investiture at Buckingham Palace on 13th July 1982.
On his tour of the United States, in May of this year, the Chairman will be accompanied by Lady Green, Mr and Mrs David Coleridge, R T P Ellington, Head of Systems and Communications, Miss Tessa Jorda, the Chairman's Personal Assistant, and D H Lamer, Chief Press Officer. Thetour will centre on New York, San Francisco and Los Angeles where the Chairman is scheduled to meet with a number of US brokers, representatives of the Reinsurance Association of America, the executive committee of the Surplus Lines Association, respective State Insurance Commissioners and will also host a reception for members of the Risk and Insurance Management Society.
For the third year in succession Lloyd's have been invited to provide aspeaker at the annual convention of the American Association of Managing General Agents. The venue for this year's convention is Maui in Hawaii. The Chairman will take the opportunity to attend the convention during his two week tour of the United States and plans to address the Association delegates of the changes likely to result from the new Act and the implementation of the Fisher Report
Visit to Washington
In September, the Chairman accompanied by Mrs Liliana Archibald, Lloyd's International Affairs Adviser, attended a meeting at theUS Department of Commerce in Washington where they met with Lionel Olner, Under Secretary for International Trade Administration, and Brant W Free, Acting Director, Office of Service Industries, for a discussion on Lloyd's expectations relating to the then forthcoming GATT Ministerial Meeting. Particular reference was made during the discussion to progress by the GATT Secretariat in relation to liberalisation of trade and services.
Members may recall that following the June General Meeting a sum of £10,000 was approved to provide HMS Illustrious, Lloyd's adopted ship, with a closed circuit television system and other recreational facilities. A donation of £25,000 was also made on behalf of Lloyd's to the South Atlantic Fund for the relief of servicemen and their families affected by the action in the South Atlantic. Because of the need for continued vigilance in the Falkland Islands it was not possible for HMS Illustrious to be commissioned in the normal manner due to the vessel's urgent despatch to the South Atlantic in September. A service of re-dedication was therefore arranged for 30th March in Portsmouth and C D D Gilmour attended on behalf of the Chairman and Council.
During the past year, the Committee has entertained many distinguished visitors including: Sir Anthony Jolliffe GBF, The Rt. Hon The Lord Mayor of London (1982-1983); Sir Christopher Leaver GBE, The Rt. Hon The Lord Mayor of London (1981-1982); The Rt. HonSir Geoffrey Howe PC, MP, Chancellor of the Exchequer; Peter Rees QC, MP, Minister of State for Trade; The Hon Nicholas Ridley MP, Financial Secretary to the Treasury; Dr Gerard Vaughan MP, Minister for Consumer Affairs, Department of Trade; Christopher Tugendhat, Vice President, Commission of the European Communities; and Rear Admiral J H Carlill OBE, Admiral President and the officers from Royal Naval College, Greenwich.
The Committee's visitors from overseas have included; Jozsef Marjai, First Deputy Prime Minister, Hungary; His Excellency Ibrahim Abdul Karim, Minister of Finance, Bahrain; His Excellency Mohamed Zubair, Minister of Commerce and Industry, Oman; The Hon G F Gair, Minister of Transport, Civil Aviation and Meteorological Services, New Zealand; His Royal Highness Prince Saud bin Abdullab al Faisal, Chief Executive, Arabian Establishment for Trade; Shaharuddin bin Haji Haron, Director General of Insurance for Malaysia; Josef Kurten, Lord Mayor of Dusseldorf; Commissioner Bruce W Foudree, Insurance Commissioner for Iowa; Engineer Mashour Ahemed Mashour, Chairman, Suez Canal Authority, Egypt; Svend Andersen, Chairman, Copenhagen Stock Exchange; Vincent T Learson, Chairman, New York Insurance Exchange; Lord Bridges, British Ambassador to Italy; and the Ambassadors of Belgium, Luxembourg, the Netherlands, Portugal, Rumania, Turkey, the United States and Venezuela.
On histour of the United States, the Chairman, Sir Peter Green will be accompanied by:-
The tour will centre onNew York, San Francisco, and Los Angeles where the Chairman is scheduled to meet with a number of US brokers, representatives of the Reinsurance Association of America, the Executive Committee of the Surplus Lines association, and respective State Insurance Commissioners.
20 May 83
Allsyndicates, where appropriate, were required to file details of reinsurance "roll over" Policies with the Corporation of Lloyd's by the 20 May 1983.
23 May 83
United Pacific Insurance Co. -v- Van's Westlake Union, Inc.,34 Wash. App. 708, 664 P. 2d 1262, 23 May 1983. Washington Court of Appeals held pollution exclusion does not bar coverage for loss of use of property by third persons caused by gasoline leaking from the insured's underground pipes over several months. Pollution exclusion is merely a restatement of the "occurrence" definition.
23 May 83
Daily Telegraph: Posgate dispute with Rhone bank
IANPOSGATE, the star underwriter at Lloyd's until dismissed by the new management of Alexander Howden Group, is in a major dispute with the Banque du Rhone et la Tamise about a loan he took to buy some shares.
He hasstopped repayment of the capital until the interest due is agreed. The Banque du Rhone, which bas been bought by former directors of Howden from the company, is claiming some £600,000 from Mr. Posgate in interest.
The matter has not yet reached the point of litigation.
26 May 83
The 1980 year of accounts of the PCW managed syndicates left open. This relates either to part of the account or the entire account involving Non-Marine Syndicates 918, 940, 157, Marine Syndicates 869, 174. The Auditor's are Arthur Anderson.
27 May 83
Daily Telegraph: Body of Director on Beach
The body of a Lloyd's underwriter, who went missing afterpolice began investigating a multi-million pound company which arranged extended warranties on domestic appliances, was yesterday found on a beach at Ct Margaret's Bay, Kent.
Mr Ian MacQueen, a director ofCharles Howard underwriters went missing last week days before the company Multi Guarantee, went into liquidation as a result of problems caused by a flood of alleged bogus policies and claims being registered.
Scotland Yard's Fraud Squadhad already begun its own independent inquiry after an accountants report commissioned by Lloyd's of London on Multi Guarantee, Britain's biggest dealers in cover for home appliances such as TVs, videos and freezers, was handed to the police.
Mr MacQueen's own company was one ofseveral underwriting firms which acted on behalf of Multi Guarantee, although none of these firms are subject to the police investigation.
He left a letter to his wife when he disappeared from his home in Duchy Road, Hadley Wood, near Barnet. His body was spotted on a beach early yesterday by an RAF
The Asbestos Working Party established as a Government bodyby the Construction Industry Advisory Committee of the Health and Safety Commission.
The purpose of this working party was to advise the Health and Safety Commission how best to improve health and safety standards in relation toprocesses involving contact with asbestos products in the building, civil engineering and engineering construction industry (including the allied processes of stripping asbestos materials from buildings and plant).
The Working Party was chaired by a representative of theHealth and Safety Executive, and its members included representatives of the CBI and the TUC as well as the Health and Safety Executive.
0 Jun 83
In theannual letter dated June 1983 to the Names on the syndicates the Defendant, Peter Green, made certain disclosures in relation to the policies placed with Imperial Nassau and Imperial Cayman.
The saiddisclosure was, in breach of the duties set out in paragraph 2.4 below, inaccurate and/or misleading and/or inadequate in the following respects, as the Defendant either knew or ought to have known:
In fact, the crediting of investment earnings was a common feature of funding policies. Moreover, the expression "large part" was inadequate and failed to convey the fact that only 50% of the investment earnings had been credited to the policy.
(4) The letter also stated:
In fact, only about 15% of the increase in the reinsurance to close was derived from funds recovered under the policies.
In the premises, the Defendant owed to the members of the syndicate:
(The response was deemed to be incomplete, inaccurate, misleading and provided inadequate disclosure to the information sought. Sir Peter pleaded guilty to this charge.)
Further letter to the Names is dated 7 January 1986.
6 Jun 83
Issue of Proceedings by Council Byelaw(N0. 18 of 1983, 6 June 1983).
8 Jun 83
Lloyd's admits 40 years' irregularities
Lloyds of London acknowledged yesterday thatconflicts of interest stretching back 40 years had been identified by the first enquiry under its new disclosure drive - but denied that its failure to take disciplinary action heralded an easy time for members who own up to irregularities.
Mr.Ian Hay Davison - who arrived on February 14 as deputy chairman and chief executive, with a formidable image and a brief to clean up Lloyd's much-tarnished image revealed that "between 10 and 90" other cases were now being investigated.
Hisfirst report disclosed salaries to certain directors of Edward Williams Coutts & Partners and their wives had not been paid as a management fee for its handling of Syndicate.
Instead, they werepaid by associate companies - as were loans to EWC directors at less than commercial rates, mortgages to 20 staff at 4 per cent, and the provision of an underwriting deposit for a director.
The600 principals of the syndicate had not been told even though this arrangement had persisted "inadvertently", Mr. Hay Davison, said for 40 years. Future cases and possible disciplinary action, he stressed would be judged on individual circumstances.
Mr. Donald Robertson, EWC chairman, yesterday told The Times that he was "extremely satisfied" with the Council's final Judgment, but its seven point statement did not give a fair picture. He was drafting a letter to be posted on Friday to syndicate members, giving EWC's view of the case
Nicholas Reinsurances, he added, had been set up to broaden the syndicate's base by providing additional capacity to underwrite part of its activities.
No moneyhad been paid because it "has to run off its liabilities".
The mortgages, he said, had never exceeded £25,000. Arrangements had been made for these to be taken over by EWC's bank, withsalary rises being given to staff to allow for the increase in interest rates.
Salariesto three directors had been £1,500 per annum, while wives had received £5,000 a year in total. Loans had been "very short term and were fully repaid", although one had taken the form of bridging loan on a mortgage and had been interest free.
23 Jun 83
General Meeting of Members of Lloyd's.
Letter from Attorneys to CJ Ayliffe, Merrett's syndicates. Assured: ...
An attorney's report (referred to asecond school district class action filed in Pennsylvania naming a total of 50 defendants. The report added that the allegations in the national complaint, which state that approximately 110,000 public and private schools are involved, are similar to the allegations made in the Pennsylvania class action).
We are aware of asecond School District Class Action, which has also been filed in the US District Court for the Eastern District of Pennsylvania. Said action which names a total of 50 defendants, purports to be a class action on behalf of all entities which own or operate on whole or in part any public educational facilities, including religious and non-profit schools as well as public schools throughout the United States....
The allegations in the national complaint, which state that approximately110,000 public and private schools are involved are similar to the allegations made in the Pennsylvania Class Action described above.
Letter from [A] to the Chairman,Asbestos Working Party. Re Asbestos Claims Council: Referred to the ACF and reported as follows.
(The benefits most certainly will be spelled out in significant economies attainable in both indemnity and defence as well as general claims handling. We are reminded almost daily by the press that upwards of 20,000 asbestos cases have been filed to date (the Lloyd's CIS indicates 27,548 as of 22 May 1983). While overall numbers may differ depending whose predictions you read, unquestionably, with increasing surveillance an improvement in diagnostic techniques, we can reasonably anticipate that by the end of the day upwards of 50,000 will have been filed. With the average indemnity now exceeding $100,000 per case, at the current rate that will equate to a total loss of over $5 billion. Defence expenditures at a 1 to 1 ratio (which is not the current experience) will equal that number. More realistically they will at least double, and more probably quadruple. It is, therefore, our view that the Facility, with certain modifications currently being addressed by Working Party members, is essential to the London market to assist the market to see the thousands of asbestos products liability claims to their final conclusion).
Contains text of following news release issued by the Centre for Public Resources. Refers to regular meetings as those involved inasbestos litigation problems to formulate new methods to reduce the enormous complexity and overwhelming costs involved in providing compensation to the thousands of individuals with asbestos related diseases.
(28) The London Market as it relates to the [asbestos claims] facility. Having had the opportunity of observing events at first hand, we can state that London's Interests have been fully, completely and untiringly represented during these formative stages by Messrs Jim Ayliffe and Keith Rayment who have been participating in claims council meeting since their inception...Conclusion. Althoughsome of the members of the Market may be leaning of the Facility to the extent set forth herein for the first time, we will be presumptuous enough to conclude that none will have any serious objection to its acceptance for its acceptance affords the Market benefits not otherwise achievable. The benefits most certainly will be spelled out in significant economies attainable both in indemnity and defence as well as general claims handling. We are reminded almost daily by the press that upwards of 20,000 asbestos cases have been filed to date, (the Lloyd's CIS indicates 27,548 as of May 22, 1983). While overall numbers may differ depending upon whose projections you read, unquestionably, with increasing surveillance and improvement in diagnostic techniques, we can reasonably anticipate that by the end of the day upwards of 50,000 cases will have been filed.... With the average indemnity now exceeding $100,000 per case, at the current rate that will equate to a total loss of over 5 billion dollars. Defence expenditures at a one-to-one ratio (which is not the current experience) will equal that number. More realistically they will at least double, and more probably quadruple. It is, therefore, our view that The Facility with certain modifications currently being addressed by Working Party members, is essential to the London Market to assist the Market to see the thousands of asbestos products liability claims to their final conclusion. For the Market's benefit we urge its acceptance.
26 Jun 83
Observer: Lloyd's: Green to step down?
SIR PETER Green, Chairman of Lloyd's, may not be chairman much longer.
Members of Lloyd's Councilexpect Sir Peter to announce, in the autumn, his intention to step down as Lloyd's leader at the end of the year. Speculation over his successor is under way.
Green gave no hint at Wednesday's annual meeting that be plans to pass over the chair, butseveral prominent council members are convinced Lloyd's will enter 1984 with a new chairman.
Lloyd's has beenpresided over since 1980 by Green, who spoke on Wednesday of a new chapter in its history Lloyd's new Act and the arrival - with not a little encouragement from the Bank of England - of chief executive Ian Hay Davison guarantees that new chapter. Time too, so the theory goes, for a new man.
Green's reign as chairman has proved acontroversial one, rocked as it was last year by a series of scandals.
First came the$55 million can of worms ruptured at Alexander Howden by American take-over bidder Alexander & Alexander. The suspension of star underwriter Ian Posgate followed.
Next came the discovery of a$40 million question mark over Minet's underwriting operations. The Department of Trade, already perusing the Howden affair, moved in on Minet. Brookgate Investments, which controls underwriters Brooks & Dooley, hit the headlines. Interest focused on the company's former offshoot, Fidentia Marine Insurance of Bermuda set up with an authorised capital of £50,000 in 1971 and sold for close on £900,000 in 1978.
The possibility of aRoyal Commission being appointed to inquire into the business practices of Lloyd's underwriters was mooted. But Lloyd's is a major earner of invisibles and the appointment of a Royal Commission would hardly have aided the invisible cause. Enter, instead, Davison
Theirony of Davison's appointment is that Lord Cromer had advised Lloyd's to appoint a chief executive as long ago as 1969.
The major milestone over the past three years was clearly the Lloyd's Act - the first major reform of the institution in more than 100 years.
Green(unsuccessfully) opposed divestment by insurance brokers of their underwriting syndicates but (successfully) fought for council immunity from legal action from its members ; a privilege previously enjoyed only by Members of Parliament in the Chamber.
Asscandals mushroomed last year Green came under fire from his critics. Why had he closed an investigation into the reinsurance arrangements of Minet Holdings' PCW underwriting agency - before 1982's $40 million explosion ? In the wake of the Howden affair, offshore insurance companies fell distinctly out of favour. Green's personal links with Imperial Insurance, based in the Cayman Islands, attracted not a few uncharitable comments.
The past two years have, therefore,proved distinctly gruelling for Green. The likelihood of him wishing to take on a fifth year in office would appear to be strong odds against. Green held the post of deputy chairman before he took over the chair, but neither of Lloyd's deputy chairmen, Brian Brennan and Frank Barber, are expected to succeed him.
Davison, incidentally. is also a deputy chairman.
Privatecanvassing is under way, but no firm favourite to succeed Green has emerged. Names mentioned include council members Peter Miller, Stephen Merrett and David Coleridge but, at this stage, there is no guarantee that a new entrant to the council might not make the running.
Senior council membersare resolute on two counts. They want Lloyd's next chairman to be a great deal more at ease with the media than Green was - image building is now all-important - and they want someone strong enough to counter-balance the influence of Davison. Surprise, surprise.
28 Jun 83
In the course of his inquiry into PCW, Mr Simon Tuckey QC interviewed Mr D'Ambrumenil and, in the course of this interview, Mr D'Ambrumenil deliberately misled Mr Simon Tuckey QC. This involvesUnimar.
30 Jun 83
Summaries of the1983 Balance Sheets of certain of the BPR Offshore Reinsurance Companies made up to 30 June 1983:-
The net earnings exclude dividends or earnings of BPR Group companies taken into the published results of the individual companies.
Paid as follows:-
0 Jul 83
This isManville's first third-party action against the U S Government. The first action, filed in July 1983, sought contribution for damages Manville paid to asbestos victims who suffered shipyard exposure during World War II. In the second action, filed in November 1983, Manville sought contribution for damages it paid to government shipyard workers exposed to asbestos after 1964.
The 1980 year of account of Alexander Howden Non-Marine Syndicate 126 left open. The joint auditors being Futcher, Head & Gilberts and Littlejohn & Co.
12 Jul 83
In the course of his inquiry, Mr Simon Tuckey QC interviewed Mr D'Ambrumenil in relation to the "Unimar Affair", and was deliberately misled.
15 July 83
Toplis & Harding (Asbestos Services) Ltdincorporated on 30 March 1983, with the principal purpose of providing services relating to the incidence of asbestos related claims, now active.
Certain of the directors appointed on 15 July 1983 are derived fromleading Non-Marine Underwriters and Claim Directors of leading Lloyd's Underwriting Agencies
Denton Hall & Burgin
18 Jul 83
Suspension: Supplementary and Consequential Matters Byelaw(N0. 19 of 1983, 18 July 1983).
18 Jul 83
Substitute Agents Byelaw(No. 20 of 1983, 18 July 1983).
18 Jul 83
Disclosure by Direction Byelaw(No. 21 of 1983, 18 July 1983).
29 Jul 83
Daily Telegraph: Alexander sues Howden auditors
ALEXANDER & Alexander Serviceshas sued the auditors involved with Alexander Howden Group, the UK insurance broker it took over last year.
The action follows the United States company'sfailure to get a negotiated settlement over its claim that it had lost $167 million as a result of acquiring the scandal-ridden company.
Among thefour firms against whom writs have been taken out are Howden auditors Arthur Young McClelland Moores, and the Bermuda partnership of Peat, Marwick Mitchell.
29 Jul 83
The DTI Inspectors, Mr Stephen Boyd QC and Mr Peter Dubuisson FCA appointed toinvestigate the affairs of Minet and WMD provided the Secretary of State with information under Section 41 of the Companies Act 1967. (This became Section 433(2) of the Companies Act 1985. It has since been superseded by Section 437(1A) of the Companies Act 1985, a new section introduced by the Financial Services Act 1986. Section 41 states that:
Inspectors ...... may at any time in the course of their investigation, without the necessity of making an interim report, inform the Secretary of State of matters coming to their knowledge as a result of the investigation tending to show that an offence has been committed.
Later in 1983, the Secretary of State forwarded this information to the Director of Public Prosecutions. In addition to providing this information, the DTI Inspectors have provided the Secretary of State with various other documents and information. These have in turn been passed by the Secretary of State to the Director of Public Prosecutions. The documents include copies of all transcripts of evidence given to the DTI Inspectors. The DTI Inspectors also provided by this route all other documents and information in their possession requested by the Director of Public Prosecutions.
0 Aug 83
Lloyd's Global Accounts 1982:
Statement bySir Peter Green, chairman of Lloyd's (1980 Year of Account)
I am pleased to say that this year we arepresenting Lloyd's Global figures in a much improved and more comprehensive form.
Theinformation in this presentation is based on the Statutory Statements of Business made in accordance with the Statutory Instrument which was approved by Parliament earlier this year. It will be seen that among the changes is an increase in the number of classes of insurance for which an individual account is rendered. In the past, there were only five such categories whereas now there are nine. In addition a five year summary of the main operating highlights is given and for the first time a full description of the accounting policies used at Lloyd's.
Another important innovation is the inclusion in the underwriting accounts of separatefigures for the reinsurance provision made to close the 1980 and previous accounts. At £2,113 million, this is the underwriting agents' best assessment of the outstanding liabilities of the syndicates under their management.
There arethree significant factors in viewing Lloyd's operations; overall profit, level of activity and, of course, security.
Global profit - closed year
The figures show that for the1980 year of account Lloyd's made a profit of £264 million. This figure is struck after taking on the credit side net premiums of £1,862 million, reinsurance premium received to close 1979 and earlier years of £1,791 million, and investment and other earnings of £398 million and on the debit side claims paid £1,518 million, reinsurance paid to close £2,113 million and expenses £156 million.
Level of activity - current year
Theoverall activity at Lloyd's during 1982 is shown by the table opposite which analyses premiums received during that year regardless of the year of account to which they relate.
As will be seen, our total activity during 1982, as measured by premium income received, grossed£2,839 million which represents an increase of £442 million on the previous year.
Security underlying Lloyd's policies
It will be noted from the section of this document which deals specifically with security that the known assets of Lloyd's at present exceed the statutory requirement by more than five times.
To those whose business is insurance these figures are something of a paradox. While satisfactory enough as a return on capital they are, from a professional point of view, a cause for some concern. It is a sobering thought thatpure underwriting profit in 1980 accounted for only £22 million or 8.25% of the overall profit and did not cover the management expenses. These figures clearly demonstrate what market leaders have been saying in the last few years, namely that rates are far too low and that we should not be conducting a business which is so dependent on the investment department to produce a bottom line profit. Interest rates fluctuate more rapidly than insurance rates and a prolonged fall in interest rates would undoubtedly produce a most unwelcome result for our business, salutary though the long term effects might be.
One aspect of the Lloyd's figures which is indicative of confidence in Lloyd's is theratio of membership to premium income. In 1970, 6,000 members earned premiums worth just over £786 million. Ten years later, although the membership had tripled, Lloyd's premium income had gone up by nearly five times. Since then that trend has continued with a further 2,200 new Names expected to start underwriting on 1st January 1984. Fortunately business seems likely to keep pace and with an up-turn in the American economy as well as stirrings in our own, the additional capacity can only consolidate Lloyd's already strong position.
In aperiod of unprecedented competition the market has extended its premium income, increased its profitability and expanded its capital base. In short, Lloyd's is a very successful institution which seems well placed to serve the cause of international insurance for many years to come.
Pollution claimswere recognised to be the next major problem for the market. The EPA list as at August 1983 obtained by Mr. Ayliffe identified 406 sites. Some of the site names on this list identified companies that were insured at Lloyd's.
In an article in "The Brief" in August 1983, Mr. Floyd Knowlton of theTravelers Insurance Company, Inc. wrote:-
"The growth in asbestos claims that began in the late 1970's has become an explosion. The 1,100 claims that the Travelers Companies had in 1977 has grown to more than 60,000, which represent some 20,000 persons claiming some kind of injury due to exposure to asbestos fibre or an asbestos product. And 500 new claimants are being added monthly, a rate that is expected to continue through the end of the twentieth century, and perhaps longer... What makes asbestos different? There are several reasons: First, there is generally a long latent period between exposure to asbestos and any discernible injury; with related substances such as Agent Orange and DES, second generation claimants are even involved. It isn't like an automobile accident involving an instant, identifiable injury clearly involving individuals... Second, there is no experience pattern with asbestos claims. We know only that hundreds of thousands of people have been exposed to asbestos and some will manifest a disease. Third, many of these claims arise out of an occupational exposure. Thus, both the tort system and the workers' compensation system are involved. Neither wants to shoulder the burden of the other. Fourth, if insurance policies are involved, it isn't clear which apply or what role the policy holder plays if he was uninsured or his coverage exhausted... There is one common denominator in these decisions: coverage has been applied liberally and broadly and in favour of policy holders. This is not unusual in this type of case, but it can hardly be viewed as the guiding principle of law in these cases... Various reports have sought to quantify future claims. Among the diverse ones are a report done by Epidemiology Resources, Inc., ... August 1982...; "Disability Compensation for Asbestos-Associated Diseases in the U.S.,"... by Dr.... Selikoff... under a contract with the Department of Labor and released on June 18, 1982; and "The Potential Impact of Asbestos on the Insurance Industry," published by Conning & Co., a Hartford brokerage firm, in September 1982".
1 Aug 83
Letter to "The Chairman from Peter Green" on Lloyd's headed notepaper addressed to Dear Chairman
The Council at its meeting on July 18th considered the following byelaws and general undertaking and agreed that they should now be circulated as a consultative document which is attached to this letter.
This undertaking replaces the existing General Undertaking.
It is intended that, in addition to the proposed new General Undertaking, members will be required to sign a "forum agreement" providing essentially that legal proceedings between the Society and any member shall be submitted for determination by the Courts of England and Wales in accordance with English law. The drafting of this agreement is currently being finalised and will be sent to you as soon as is available.
It is recommended that Underwriting Agents advise all candidates for membership of the proposedbyelaws.
This letter has been sent to all underwriting agents andchairmen of market associations.
Blue et al. v. Johns-Manville Corp.,et al., 10 Phila. 23, 1983. Pennsylvania trial court commented that litigating against asbestos claimants was like gambling at the local casinos, with juries compensating "minimal [asbestos] injuries" with in excess of a million dollars. This case describes the inappropriateness of the various asbestos litigation doctrines as applied to latent injury asbestos cases. It talks about how the doctrines adopted provide incentives for attorneys to file asbestos claims for claimants who show no signs of injury. Court concluded that asbestos litigation resembled the casinos in Atlantic City. Like the casinos, the Court concluded, the only winners in asbestos litigation were the attorneys.
28 Aug 83
Sunday Telegraph: Green to go at booming Lloyd's
THEannouncement this week of Lloyd's of London profits for the 1980 underwriting year will provide the 22,000 members of London's £2 billion insurance market with a focus for renewed speculation over the future of Lloyd's chairman Sir Peter Green.
The figures in themselves will not bother him overmuch. Far from it,1980 profits of more than £300 million are on the cards, against the previous year's £173 million (there is always a three-year delay to allow insurance claims to be settled). Overall losses were made on underwriting (Lloyd's basic function), but profit, from investing policyholder's premiums more than made up for them.
The pressure on Green, at 59 now in his fourth year as chairman, comes from critics of his performance as presenter of Lloyd's to the outside world in a period of unprecedented scandal and controversy. His supporters argue that he has been a tough defender of Lloyd's vital interests.
Apowerful number among the Council members want him to go and will let him know it before he stands for re-election at the end of the year. But he will not announce his retirement until he has told his colleagues on Lloyd's Council first - and they meet formally tomorrow week.
31 Aug 83
The DTI Inspectors,Sir Robert Gatehouse Kt. and Ian G Watt FCA, appointed to investigate the Alexander Howden Group Plc advise the Secretary of State for Trade & Industry "that it became evident to us at an early stage that there were matters tending to show that offences had been committed" and a report under the provisions of Section 41 Companies ACT 1967 was submitted to the Secretary of State on 31 August. Additional information was provided on 16 December 1983; in large measures, this merely updated certain of the material presented in the earlier submission as a result of further evidence.
31 Aug 83
Daily Telegraph: Lloyd's still riding high
AMID the scandals and the tales of insurance woe,Lloyd's still manages to prosper. Tomorrow it will announce its latest results showing record profits. The figures are always three years in arrears to allow claims and payments to be completed, so this week we will get the results for 1980, which overall are expected to show a marked improvement on the previous year.
With the ponderous bureaucracy at Lloyd's thefigures are not announced until September, though most of the figures have been available for months. So the Association of Members of Lloyd's has done is calculations on results it acquires through members, and reckons to get pretty close to the full totals it takes so long to assemble.
Theassociation (in the process of merging with the other Lloyd's members' group) reckons the underwriting loss will be £67 million after syndicate expenses. This compares with a loss of £17 million for the 1979 underwriting year and gives some indication of the cut-throat competition that has been afflicting insurance for the past three years, and is still not over.
Butinvestment income also soared to produce an overall profit of up to £360 million. This compares with the £173 million profit recorded for 1979, and that was already a record. Out of that figure will have to come a series of costs, including syndicate expenses and salaries, which could be up to £150 million for the 1980 year.
But this will still leavemembers on average with a stunning 9 p.c. return on their involvement - that is a cheque of £900 on the standard £10,000 ‘line'. For the 1979 year a premium limit of £10,000 brought £600. This is extra profit for the members since the securities used to back their underwriting are already earning them dividends and capital gains, and the underwriting loss can often be offset against income for tax.
The association has not yet had time to monitor all the syndicates but reckons it hasword from 75 p.c. of the Lloyd's capacity and the 9 p.c. return looks a fair average. It was feared at one stage that the four years of scandals pouring out of Lloyd's might have started deterring members from joining. But so far the applications are flowing unabated, and these results may explain why.
What makes theperformance even more startling is that Lloyd's is only running in third gear. It is estimated that the underwriting capacity of the insurance organisation is £2.3 billion, but only £1.85 billion of insurance was written, although these figures are distorted by the Lloyd's practice of reinsuring one year's unclosed business into the subsequent year.
The1981 and 1982 years will be tough for underwriting, but if Lloyd's can continue to produce such soaring figures it should ride out its long bout of criticism, assuming its current clean-up continues.
1 Sep 83
Lloyd's Global Accounts 1982: - 1980 Year of Account
Statement bySir Peter Green, Chairman of Lloyd's
I am pleased to say that this year we arepresenting Lloyd's Global figures in a much improved and more comprehensive form.
The information in this presentation isbased on the Statutory Statements of Business made in accordance with the Statutory Instrument which was approved by Parliament earlier this year. It will be seen that among the changes is an increase in the number of classes of insurance for which an individual account is rendered. In the past, there were only five such categories whereas now there are nine. In addition a five year summary of the main operating highlights is given and for the first time a full description of the accounting policies used at Lloyd's.
Anotherimportant innovation is the inclusion in the underwriting accounts of separate figures for the reinsurance provision made to close the 1980 and previous accounts. At £2,113 million, this is the underwriting agents' best assessment of the outstanding liabilities of the syndicates under their management.
There arethree significant factors in viewing Lloyd's operations; overall profit, level of activity and, of course, security.
Global profit-closed year
The figures show that for the 1980 year of account Lloyd's made aprofit of £264 million. This figure is struck after taking on the credit side net premiums of £1,862 million, reinsurance premium received to close 1979 and earlier years of £1,791 million, and investment and other earnings of £398 million and on the debit side claims paid £1,518 million, reinsurance paid to close £2,113 million and expenses £156 million.
Level of activity-current year
The overall activity at Lloyd's during 1982 is shown by the table opposite which analyses premiums received during that year regardless of the year of account to which they relate.
As will be seen, our total activity during 1982, as measured by premium income received, grossed £2,839 million which represents an increase of £442 million on the previous year.
Security underlying Lloyd's policies
It will be noted from the section of this document which deals specifically with security that theknown assets of Lloyd's at present exceed the statutory requirement by more than five times.
To those whose business is insurance these figures are something of a paradox. While satisfactory enough as a return on capital they are, from a professional point of view, a cause for some concern. It is a sobering thought thatpure underwriting profit in 1980 accounted for only £22 million or 8.25% of the overall profit and did not cover the management expenses. These figures clearly demonstrate what market leaders have been saying in the last few years, namely that rates are far too low and that we should not be conducting a business which is so dependent on the investment department to produce a bottom line profit. Interest rates fluctuate more rapidly than insurance rates and a prolonged fall in interest rates would undoubtedly produce a most unwelcome result for our business, salutary though the long term effects might be.
One aspect of the Lloyd's figures which is indicative of confidence in Lloyd's is theratio of membership to premium income. In 1970, 6,000 members earned premiums worth just over £786 million. Ten years later, although the membership had tripled, Lloyd's premium income had gone up by nearly five times. Since then that trend has continued with a further 2,200 new Names expected to start underwriting on 1st January 1984. Fortunately business seems likely to keep pace and with an up-turn in the American economy as well as stirrings in our own, the additional capacity can only consolidate Lloyd's already strong position.
In aperiod of unprecedented competition the market has extended its premium income, increased its profitability and expanded its capital base. In short, Lloyd's is a very successful institution which seems well placed to serve the cause of international insurance for many years to come.
Statement by MrDerek Pollock, Chairman, Lloyd's Underwriters' Association
Last year, when commenting upon the outcome of the1979 account, my predecessor reported a pure underwriting loss for the first time in ten years. However, the 1980 marine account shows a return to profitability on an overall market basis with expenses once again kept down to about 4%. At the same time the accounts of some marine underwriters will show a trading loss on their actual underwriting, although the returns from high interest rates, appreciation of the investment of unearned premiums and loss reserves, as well as a declining pound, enabled most of those underwriters to show an overall profit to their Names. Nevertheless, it should be remembered that we are here to make a profit from insurance and high interest rates only serve to restrict the international trade upon which the market depends.
In1980 the gross registered tonnage of ships totally lost from marine perils was 1,804,027, a reduction on the peacetime record figure of 2,210,259 reached in 1979. However, it is also worth noting that the hull results for 1982 show that insured values of vessels totally lost are greater than those for 1979 and the annual figure seems to have risen to a level well above that of ten years ago. Underwriters recognise that the economic situation and the difficult times with which shipowners are having to contend must be taken into account, but the loss figures are set against a background where tonnage laid up is now more than six times the figure of two years ago. There has been an increase of more than fourfold in terms of numbers of ships, from 400 to 1700 vessels, a total of 52,000,000 gross registered tons representing about 12% of the world fleet, including about 25% of the tanker fleet.
In the drilling account there has been little, if any, profit in spite of the absence of significant major casualties.Difficult operating areas like the North Sea have produced quite expensive claims as a result of incidents which seemed at the time to be comparatively minor whilst the strong competition generated by the large premiums involved in such high risk ventures has served to reduce profit margins.
Over the years the cargo account has always shown a modest but consistent profit, but it is now a section of the market which is suffering fromsevere pressures which some might describe as competitive but which others might well regard as being irresponsible and applied by persons around the world whose knowledge and experience of marine insurance is not extensive. Underwriters in London have produced some recommendations for the improvement of cargo results and it is hoped that these will receive general support.
The war risk sector has remained profitable although in 1980 there were claims resulting from the war between Iran and Iraq when74 vessels were trapped in the Shatt al Arab. These claims have now mostly been settled and efforts are being made to improve the rating basis following the redrafting of the hull war clauses and the revision of the list of excluded areas.
After two years the1981 account shows no great improvement over 1980 and with returns on invested funds likely to be less than those applicable to 1979, the results of the actual underwriting will have much greater relevance. Although in general terms the 1982 account after only one year shows an improvement for many marine underwriters, it is too early to make any firm predictions concerning the eventual outcome.
Statement by MrMichael Cockell, Chairman, Lloyd's Underwriters' Non-Marine Association
It is difficult for me to report on the Lloyd's non-marine result for the 1980 year of account without instinctively trying to draw conclusions and learn lessons from it. I look at 1980 as the worst non-marine underwriting result since the mid-1960s, brought about by thegradual decline since those days in commercial sanity bolstered by the insidious buffer of historically high interest rates.
I started on the underwriting side of Lloyd's in 1954, the year of three major American windstorms. The syndicate I worked for absorbed their losses on those storms net with no reinsurance and the Names were duly rewarded with an excellent cheque. Thebank rate in 1954 was 3%. From that date for the next 13 years, a gradual decline in underwriting standards produced a substantial loss to Lloyd's on the 1965 account closed at the end of 1967. The reaction to the problems of 1965 was slow but when it came, positive, and by 1968/9 rates were increased sufficiently to produce proper profits, the main excuse for action being the US windstorm "Betsy". The bank rate in 1967/8 was 8%.
From that date for thenext 13 years a gradual decrease in underwriting standards has produced a substantial pure underwriting loss to Lloyd's non-marine market on the 1980 account. The minimum lending rate in 1980 was 16% and this time there is no US catastrophe for us on which to hang our hats.
So over this period of26 years we have seen sound underwriting yo-yo while interest rates have increased by five times. we have reached the stage where I report to you a unique year supported almost entirely by the most outrageous movement in interest rates down from their height of 16% to the present 10% and the consequent increase in the gilt market.
The consequence of deteriorating underwriting without the investment returns will, indeed must, result in a sharp move to more sensible rating levels, otherwise the outcome for the industry world-wide will be extremely serious. I would like to be sure in the knowledge that 1980 was successful for what I would regard as the right reasons-however it is not.
Itmay prove in time that 1980 was the year when many syndicates were able to reserve for their asbestos and trauma-related potential. It would be appropriate if I explained how difficult it is to comment on the asbestos situation in a way that would be useful. It must be understood that extremely onerous and sensitive discussions and negotiations are continually taking place. There is always the potential danger of punitive damages, so I cannot helpfully comment in detail on these subjects.
It takes a brave man, or a foolish one, to forecast the outcome of the open years. For what it is worth I wouldpersonally expect the bottom line on each to show a deterioration on the preceding one.
Short term life business grew by 16% in 1980 compared with 1979, also producing its highest overall profit in the last ten years. It is expected however that the open years while showing significant growth in premium will in fact result in much more modest percentage profits.
I would like to be able to report that the EEC has contributed significantly to new business for Lloyd's. However, the extremely nervous approach of the major European countries to the free market for insurance which the British would like to see has served to limit the choices open to the buyer. I am convinced that if we continue to offer what the buyer wants, not what someone else believes the buyer should want we will break down the unnatural barriers which exist.
Statement by MrTerence Pitron, Chairman, Lloyd's Aviation Underwriters' Association
In past years previous chairmen have commented on the underwriting results in respect of all aviation business placed in the aviation market at Lloyd's.
with the change in presentation for the 1980 year of account this is no longer possible as the figures for personal accident and cargo written in the aviation market are now included in other classes. Since many underwriters have profitable personal accident accounts I suspect that the loss shown for the 1980 account is not a true reflection of the outcome for the aviation market. Nevertheless, the very poor result is indicative of the extremely difficult trading conditions existing these past eight years, regularly referred to by my predecessors and well documented in the insurance press.
During 1980,23 western-built commercial airliners (including two wide-bodied aircraft) were lost compared with 19 (three wide-bodied) in 1979. There were also 742 passenger fatalities compared with 879 in the previous year. 1981 saw the number of airline total losses drop to 12, only one of which was wide-bodied, but 1982 reverted to the level of previous years with 20 total losses, including three wide-bodied and three in the USA, the first in that country since 1979. In addition, there were substantial partial losses and six jet aircraft destroyed or damaged beyond repair in the fighting in Beirut. There were 455 passenger fatalities, many of whom were US citizens, compared with 355 in 1981.
Excess capacityis still a major problem despite large claims due to aircraft losses in 1982, the previous poor years and lower interest rates which mean reduced investment income for those insurers who rely on this to overcome underwriting deficits. Traditional leaders in the London market have been endeavouring to continue to improve the terms and conditions of airline business but it is an uphill struggle and sometimes results in reduced orders. Ironically these orders are frequently lost to insurers who then seek reinsurance from the London market.
Although thecapacity is still excessive, it is reducing both in London and abroad for other than the better risks and it is not unknown for some insurers to pay higher rates on their reinsurances than they themselves have received. In addition, proportional reinsurance becomes more and more difficult to complete and is increasingly being replaced by excess of loss. This usually implies a higher retention in respect of each claim for the reinsuring underwriter.
While it is difficult to obtain increases in premium on the world's major fleets, those with poor records are paying more although the increases are considered by many underwriters to be inadequate. Completion of the order in respect of the smaller operators with high value aircraft and poor claims records is sometimes achieved only with some difficulty. It is clear that, generally speaking, underwriters are becoming more selective. Some classes of general aviation business are proving extremely difficult to place and increases in premiums are commonplace, except in the USA where competition between domestic insurers is fierce.
From about 1968 the aviation market has pioneered insurance against the failure of satellites to achieve their predetermined position or projected life span. whilst the underwriting record for this new class of business has fluctuated over the years, the total loss of two satellites in 1981 costing approximately $81 million has once more put the overall account into deficit.
The number of launches is steadily increasing, however, and beginning to produce a significant volume of premium income and while the premiums are considered by many in the aviation market to be inadequate, the introduction of the shuttle and its successful operation to date encourages the hope of an improvement in this area.
Our major clients, the airlines and manufacturers, have been going through extremely difficult times and their problems, losses and reduced profits are reflected to some degree in an erosion of our premium base. However, with many older expensive-to-operate aircraft disposed of, reductions in staff and in some cases route structures, operators are now slimmer and fitter and returning to profitability and if the world continues to move out of recession, they may have turned their corner.
If underwriters are to follow in benefiting from any recovery in the aviation industry, then the improvement in market discipline and selectivity which has recently been apparent must be firmly maintained.
Statement by MrDerek Farley, Chairman, Lloyd's Motor Underwriters' Association
The 1980 account has closed with a fairly satisfactory result-an overall loss ratio (paid and outstanding combined) of88.1%.
On previous occasions, chairmen of the motor market have been known, justifiably, to comment on particularly adverse weather conditions. I do not propose to do so, but rather I would say that we were enjoying the results of rate increases imposed during 1979 and 1980 and which, despite the prevailing conditions, allowed us to achieve a reasonable result. we also had a situation where it was said in several informed quarters that the motorist was covering less mileage due to inflation and high petrol costs.
All of these factors added up to a profit of£35. 97 million. Premium income was £325. 3 million against £273 million for 1979. Those syndicates making a decent profit were probably genuinely surprised if their figures in any way compared with some I had seen at various stages through the three year cycle!
Things are not so good for 1981. In the Lloyd's motor market, we are all, or nearly all, different and do not all agree when making a forecast. Having said that, I believe that most underwriters would agree that 1981 will almost certainly produce an underwriting loss after expenses and we can only hope that investments will enable some of us to make what I believe will be a considerably reduced profit as against 1980.
1981 was a year of severe rate competition and many insurers either applied a very small increase, or having announced an increase of a more practical level found it necessary subsequently to announce changes in their rating schedules which effectively reduced rates back to-or even below-their original levels. I cannot stress too strongly the fact that many insureds are actually paying less now for their private car insurance than they were two years ago.
Looking to the future it is probable that over the next 12 months we will see a general round of rate increases in the motor market, the levels of which, I would suggest, could well vary from 7.5% to 17.5%. we have recently seen announced by the UK's largest motor insurer a rate increase said to be on average 10.5%. Many Lloyd's motor syndicates have indicated their intention of applying a rate increase by the end of this year, the need for such an increase having been apparent to us as insurers for a considerable period. Motorists will know that their premiums have risen relatively little over the past year or two and indeed, as I mentioned earlier in this report there are many occasions where motorists are paying less for their motor insurance as a result of fierce competition within our market.
The contribution made to an insurer's results by investments shows in no small manner in our 1980 result. However, investment income will be considerably reduced in 1981 and 1982 thus increasing still further the importance of sensible premium levels and proper underwriting. In my view it is fair to say that the policyholder will continue to benefit from the very competitive atmosphere of our market but that he can expect to see more realistic underwriting attitudes taken by many insurers over the next year or so.
Referring to the various factors which lead to increased premiums, emphasis is inevitably given to accidental damage which does, of course, contribute considerably to the overall cost of claims. An aspect of this which may not in the past have been fully recognised is the impact of part prices, an area which despite the attention of the Monopolies Commission continues to reflect a similar position to that which is well known to exist in regard to vehicle prices; namely that thecost of a vehicle or part is significantly higher in the UK than in most other countries of the EEC or Europe as a whole. without wishing to upset our friends in the motor trade, one could ask why for instance the price of a rear bumper for a British manufactured car should be considerably higher than the same part purchased in certain EEC countries.
If I am allowed one personal comment to close on, I shall be delighted if a little sanity returns to the motor market in 1984 following what I believe will be a slightly difficult 1981 and even more difficult years of 1982 and 1983. However, it is with great pleasure that it has been my duty to report formally on behalf of the motor market the results of our 1980 year of account which certainly were far better than at one time expected.
Theon Security - Financial Facts - Explanatory Notes as at 31 December 1982
1. The average deduction for
The Global results as announced by Lloyd's to the General Public
The undisclosed additional expenses, being agents' profit commission
(This excludes additional earmarkings of members unencumbered ‘Funds at Lloyd's' for Solvency Purposes.)
1 Sep 83
Sir Peter Green, Chairman of Lloyd s, appealed for a return to sanity in world insurance markets after reporting that more than90% of Lloyd s profits are coming from investment income and capital gains, rather than pure underwriting. Giving details of record overall profit of £264m for 1980, the last completed trading period, Sir Peter said that the figures are, from a professional point of view, a cause of some concern. He said it is a sobering thought that pure underwriting profit in 1980 accounted for only £22m, or 8.25% of the overall profit and did not cover management expenses. These figures clearly demonstrate what market leaders have been saying in the last few years, namely that rates are far too low and that we should not be conducting a business which is so dependent on the investment department to produce a bottom line profit, Sir Peter said.
A prolonged fall in interest rates would undoubtedly produce an unwelcome result for the Lloyd s business, he added.This year s global accounts for Lloyd s have been returned to the Department of Trade in the same form as insurance company accounts for the first time to meet the requirements laid down in the Insurance Companies Act 1982. Premium income in 1980 totalled £1,862m, reinsurance premium reached £1,791m and investment income came to £398m. Out of this, Lloyd s paid £1,518m in claims, £2,113m in reinsurance, and £156m in expenses.
Despite the bad publicity surrounding the recent scandals in the 300-year-old insurance market,Sir Peter said that 2,200 new Names are expected to join Lloyd s next year. He said that fortunately, Lloyd s business seems likely to keep pace with this growth. (No mention of double, treble etc. counting for retrocession upon retrocession).
Letter from Attorneys to the Interested Insurers and Reinsurers.
Pursuant to the request of representatives of the Claims Committee of the London Asbestos Working Party, we provide our summary of the decisions reached at the meetings conducted in Chicago on 6 & 7 September 1983. The parties present at these meetings included Messrs. Ayliffe, Heath, Kemp and Rayment of the London Market and Messrs of [A]. The meetings first and foremost reviewed and established year-end loss payments and expense reserves for the seventeen direct asbestos assured which are currently tracked by the London computerised Asbestos Claims Information System..
Following receipt of updated Claims Information System data in early October 198I, the U.S. attorneys were requested to provide to the Asbestos Working Party through Toplis & Harding (Asbestos Services) Ltd, short letter reports containing year-end loss and cost reserve recommendations for both direct and reinsurance accounts on an exposure and manifestation basis. It was directed that all of these reserve reports shall go forward to the London Market not later than 21 November 1983. Indemnity and expense reserve recommendations shall be separately identified per policy year and particularly where the policies involved are written on a costs-in-addition basis. The reports shall also identify those assureds who face potential loss exposure from asbestos-related property damage claims which may require additional precautionary loss/expense reserve recommendations... It was determined that these loss and expense reserve recommendations shall set forth a 100 per cent net reserve figure utilising a ground-up reserve figure per policy period minus underlying coverages and/or self-insured retentions for both direct risks and reinsurance accounts. The reinsurance reserve shall also reflect net retained lines and outgoing facultative placements where applicable so that the reserve recommendations will be a net figure to the London Reinsurers. All reserves will be tied to the original assured's policy periods. All reserve recommendations shall be calculated on the basis of an annual aggregate limit except where specifically shown to be otherwise. It was stressed by the Committee representatives that the U.S. attorneys must adopt a consistent approach to the reserving of the various accounts. Both firms were asked to freely communicate in this regard. The London Market representatives requested that full year-end reports serving to justify the reserves previously recommended be forwarded to London not later than the end of January 1984...
18 Sep 83
Sunday Times: The tax-dodge schemes that threaten Lloyd's. AS THE Inland Revenue mounts a searching investigation of Lloyd's, the future of the biggest insurance market is at risk
ON FRIDAYNovember 27. 1970, w hen Lloyd's was still perhaps the most revered of City institutions, a unprecedented event took place. A notice was pinned to the board in the underwriting room stating starkly: "As from Jan 1, 1971, in accordance with the directions of the Committee of Lloyd's, Mr Ian Richard Posgate will cease to act as an Underwriting agent at Lloyd's and will cease to be a shareholder in or a Director of any company or a partner in any firm acting as an Underwriting Agents at Lloyd's.
"Mr Posgate has been severely censured by the committee for the way in which he has conducted the affairs of Syndicate 128/9".
Andlast week another unprecedented event took place. It emerged that Sir Peter Green, retiring chairman of Lloyd's had written to his underwriting members effectively admitting a reinsurance scheme was tax avoidance. Explaining the existence of a huge £34m fund in overseas reinsurance companies, he wrote: "The problem from the underwriting agents' point of view has been to justify to Revenue, if challenged, that reserves for unreported losses are proper reserves and not tax avoidance.
At first sight there might seem much connection between the early censuring of the maverick who was to become Lloyd's star underwriter before being engulfed in the Howden affair last year, and the perhaps somewhat belated admission from the retiring chairman that there might be a question mark over some reinsurance arrangements. But if those trying to sweep a new broom through Lloyds have any luck they could mark the beginning and end of12 years in a moral morass.
LLOYD'S lost its way in the late 1960s. One must go back to the circumstances of the period - a Labour government with no love for the City; high income tax, a new capital gains tax and tough exchange controls to protect a pound lurching from crisis to crisis. Many in the City would not have felt too many qualms if ways of getting round these obstacles could be found.
Insurance provided special opportunitiesto do this and at roughly the same time a number of people at Lloyds seem to have tumbled to what must then have looked like a jolly good wheeze. Britain's exchange control applied almost exclusively to capital payments, with private investors having to pay huge premiums to buy foreign stocks. International Monetary Fund rules, on the other hand. prevented restrictions on trade, or current, payments - and insurance premiums were categorised as current payments.
The insurance market was then already international: British insurance companies and Lloyd's syndicates would share their risks with foreign companies by means of reinsurance. In addition, they could take out extra insurance against possible but unforeseen catastrophes, or claims that had not been made but might turn up.
Thewheeze at Lloyd's was to increase the amount of this extra insurance by special reinsurance policies with companies registered abroad usually in tax havens, that appeared to be independent but in reality were not. Thus money which would otherwise have been profit paid out to names in the UK and taxed could be "rolled over" as insurance premium and in reality sent abroad for investment in attractive dollar securities on which the income would be virtually tax free.
Theoretically themoney might just possibly be needed one day to pay claims if some disaster struck, but if not, then it still belonged to the syndicate or underwriters back in London and thus, unlike any normal insurance premium, could be got back.
Just where the idea originated is hard to pinpoint- It could even have been picked up from Bernie Cornfield of the collapsed Investors Overseas Services. He used much the same device at the same time - although he was quickly pressurised into stopping when the Bank of England realised what he was doing. Alternatively it could have originated with specialist firms of Lloyd's auditors whose partners often became intimately involved in their clients' affairs. In any event, in a world where conflicts of interest abound and many hats fit the same head, it spread quickly.
Posgateand Green seem to have started similar reinsurance schemes at about the same time in the late 1960s, Posgate forming a new company in Bermuda - Reinsurance (Bermuda) - while Green made use of a company - Imperial - originally formed in the Bahamas by his father for ordinary reinsurance. The existence and function of both companies was to remain unknown to the world at large until the upheavals of the last two years. But, while Green did not have to explain the role of Imperial to his colleagues on the Lloyd's committee until 1982 after the Howden and Minet scandals broke, Posgate found himself having to explain his syndicate's company to the authorities at Lloyd's quite quickly.
REMARKABLY, thecensuring of Posgate in 1970 went unnoticed in the outside world at the time and today it is difficult to reconstruct exactly what it was all about. What sparked off official Lloyd's interest in Posgate was an inquiry from the auditor about his syndicate's premium income and reinsurance. As a result, Baker Sutton, leading Lloyd's specialist accountants were appointed first to make a preliminary and then a full report. They examined the reinsurance arrangements with the Bermuda company carefully - and it was transactions with that company which led to the censure.
Posgate says that the Bermuda company had been set up originally because he had a succession of good results and he did not think his luck could last so he wanted a reserve. He wasadvised initially that it did not break any tax rules. But by the time of the inquiry he realised it did and admitted this fully.
Nevertheless. apparently it was not this that offended Lloyd's. In a lengthy written account drawn up later detailing the relationship between Posgate and Lloyd's over the years, thetax implications of the Bermuda reinsurance company are not mentioned. What, according to this account, riled the authorities at Lloyd's was an allegation that in the dealings with the Bermuda reinsurance company Posgate had personally benefited at the expense of his names. That Posgate categorically denies.
There was somediscussion as to whether the Director of Public Prosecutions should be informed but lawyers advised that this was not necessary. The committee decided on censure and disbarment from being an agent - but he could continue as an active underwriter, under the control of a minder. The committee was not unanimous: one member Paul Dixey, a later chairman, has said: "It is well known that I would be pleased to see Mr Posgate out of Lloyd's.
This was at the time the biggest test of the effectiveness of self-policing that Lloyd's had faced, not because Posgate should have been dealt with more harshly but because the tolerance that Lloyd's was already affording to behaviour by others that was little different from what Posgate had been doing. And Posgate's knowledge of this and what he saw as inherent hypocrisy instilled adeep contempt for those in authority in which the future chairman Sir Peter Green, who was not on the committee in 1970, had a special place because of Imperial. No doubt the news of Green's letter left Posgate feeling at least partly vindicated.
Posgate was not long in finding his minder: Kenneth Grob of Alexander Howden came forward with a generous offer. Posgate quickly demonstrated his contempt for the authorities in Lime Street by exceeding his premium limits - the amount of insurance business he vas entitled to write in relation to his syndicates' capital. Meanwhile Grob brought in Allan Page, an accountant who had previously worked for the firm which audited Peter Green's company's accounts as finance director, and new secret offshore insurance companies were formed.
Posgate's old Bermuda one disappeared into the Howden group when Grob took him on and when Howden's new generation of reinsurers came to light after the Alexander & Alexander take-over last summer, Posgate strenuously denied any involvement in the new ones - a position he is prepared to fight in court. But Lloyd's did not accept his arguments. The dispute went to court, where Sir Peter Green told of Posgate's past breaching of the premium limits (which Posgate did not regard as serious); but there was no mention of the 1970 censure.
THEREINSURANCE wheeze, in one form or another, turned into the most widespread of the questionable practices at Lloyd's. The known roll call of those involved includes Brooks & Dooley, Cameron-Webb and now Green himself. How many more cases turn up remains to be seen. It certainly became so pervasive that many of those involved could simply not understand why it should be considered wrong.
Changing the mentality that feels there is nothing wrong in avoiding tax - or even regards it as a sacred duty - is the hardest task that faces Ian Davison in his valiant attempts to preserve not only Lloyd's right police itself even its very existence. But, in addition to the many measures he has already introduced, there arefurther steps to be taken to eliminate conflicts of interest - one in particular which he, as an accountant may find particularly difficult. This is the role Lloyd's Disciplinary Proceedings in the matter of Peers, Brooks, Parry & Raven, case No. 8502/3, page 62, para 7(iv). Lloyd's Disciplinary Proceedings in the matter of Peers, Brooks, Parry & Raven, case No. 8502/3, page 62, para 7(iv).e of the auditors at Lloyd's.
To be allowed to audit accounts at Lloyd's, a firm of accountants has to be on the panel of accepted auditors - and you cannot get on to that panel unless you already have a Lloyd's customer. For years, therefore, the business was a cartel of smallish firms, auditing agents and syndicates alike, often becoming closely involved in the affairs of their clients.
But the most immediate threat is from the Inland Revenue whose attitude could well affect the future competitiveness if not viability of Lloyd's. By all accounts, theInland Revenue is now "fact finding" on a grand scale. It has two basic interests; first to track down individuals who have not paid all the tax they should. If the Revenue believes fraud may be involved it can go back as far as it likes; the problem of course is that the abolition of exchange controls, such an important influence behind the inception of the reinsurance schemes, has made the hiding of their gains in foreign bank accounts a great deal easier.
At present this may be the Revenue's main priority. But theirsecond interest is the one which could threaten Lloyd s commercial future. It is the extent to which rollover reinsurance should be allowed against tax.
Some tax free provision for the unforeseen risks is justified: the question is how much. WhenLloyd's reported its results recently, it revealed, for the first time ever, the global amount rolled over into the next accounting period as a provision against outstanding claims. It was a staggering £1-8bn. A good part of that can be easily identified but much of it cannot: for example it includes a huge figure for potential asbestosis claims.
Sir Peter in his letter suggested the Revenue was to blame for the emergence of the reinsurance schemes:had the Revenue recognise that the usual reserves for unreported losses were proper reserves there would have been no further need for this special type of insurance, he says. The Revenue might not take too kindly to this sort of line and make life a good deal harder for Lloyd's. But then one might comment of Lloyd's: it has only itself to blame.
The Lloyd's Working Party's 2nd Report on the Underwriting Agency System at Lloyd's
Part 2 of "Preferred Underwriting" and "Parallel Syndicates", Character and suitability. Recommendation was made that "Preferred Syndicates" and "Parallel Syndicates" be banned.Timescale:-
4 Oct 83
The Environmental Protection Agency (EPA) orders Shell to clean up the "Rocky Mountain" Arsenal.
4 Oct 83
Daily Telegraph: Lloyd's auditors under attack
AUDITORSat Lloyd's have not been controlled as effectively as the rest of the market and there ought to be tougher new guidelines to improve supervision of the methods, ethics and quality of work done, says the Association of Lloyd's Members in the latest edition of league tables of syndicate performance.
"It seems high time that the audit committee exercise their sanctions and remove any firm of auditors whose standards have slipped, from the cosy coterie of the panel." This will "raise standards of audit back to an acceptable level," the report adds.
5 Oct 83
The Times: Lloyd's firms to reveal accounts
Syndicates and members' agents working in the Lloyd's of London insurance marketmust open their books to the public from next year.
In the latest of a series of moves aimed atcurbing abuses at Lloyd's the 28-man ruling council yesterday endorsed a proposal that annual reports of syndicates and members' agents should be lodged in a central registry at Lloyd's. Members of the public and individual names (who put money into the market) will be able to study the reports.
Mr Ian Davison, chief executive at Lloyd's, said thatthe proposal replaced the previous suggestion that Lloyd's should establish a central register of agents interests, with a separate private register which quantified the value of those interests. Instead he said, all the relevant disclosures would be included in the annual reports of syndicates with nothing withheld from the public.
The annual reports will includefull disclosure of the material interests of underwriting agents and the benefits they receive from syndicates.
Individual nameswill also be able to compare the performance of the Lloyd's syndicates to judge where they might receive the best returns from their investments in the insurance market.
Underpresent arrangements names are presented only with information about the performance of their own syndicate and must rely upon a performance table put together by the Association of Members of Lloyd's to judge between syndicates.
Latest figures from the association showaverage returns from Lloyd's syndicates can vary from as little as £45 for each £10,000 line of business transacted to as much as £1,100 for each £10,000 line with the more successful syndicates.
Mr Davison said that two years ago this amount of disclosure would have been unthinkable. "We will be unwrapping the whole lot," he said.
TheRules Committee of Lloyd's has been instructed to draw up procedures to implement the council's decision so that the new rules apply to all 1983 accounts published in the first half of 1984.
Anew Lloyd's Accounting and Auditing Standards Committee will be established to advise agents and syndicates on the preparation of accounts to meet the new requirements.
In another move announced yesterday Lloyd's gave news of the $10m acquisition of Toplis and Harding, a Chicago-based firm of loss adjusters from the Getty Oil company. Mr Davison said that the acquisition would be funded by the Corporation of Lloyd's borrowing funds in the US.
Rocky Mountain Arsenal. US Government brings suit against Shell for clean-up of the site. As a result Shell brings suit against 270 of its insurers.
11 Oct 83
D P Mann Underwriting Agency Ltdadmitted to the Register of Managing Agents at Lloyd s as managing agent of Non-Marine Syndicate 435, which commenced for the 1984 year of account. C J M Hardie FCA appointed the Non-Executive Chairman.
14 Oct 83
United States -v- Chem-Dyne Corp., 572 F. Supp. 802, S.D. Ohio, 14 October 1983. United States District Court of Ohio held joint and several liability is permitted, but not required, under CERCLA. Defendant companies had moved for early determination that they were not jointly and severally liable for clean-up costs at site. Court held issue of fact existed concerning divisibility of harm and any potential apportionment, and therefore, summary judgement for defendant companies was premature. Court held scope of liability under CERCLA should be determined under federally created uniform law.
Letter from Attorneys to the Underwriters at Interest. Assured: ...Personal Injury
Attached hereto is a schedule of reserves coming through to thevarious excess layers on the captioned account. Said reserves are for personal injury/wrongful death claims arising out of exposures to asbestos-containing products manufactured by assureds. Underwriters subscribing to Policies should also be mindful of the fact that we have recommended a property damage reserve of $500,000 in connection with the Bay Point bulkhead claims our file 280,762. Said reserve is on a precautionary basis and is without prejudice as to date of loss. Reserve has not been included in the enclosed schedule...
Letter from Attorneys to the Underwriters at Interest. Assured: ...Bodily Injury Reserves
These are the following reserves coming through to the following account....Property Damage. Consideration has been given to Property Damage. However, since the policies are PL/PD combined and are fully reserved bodily injury, the question becomes mute...
E E Nelson, aged 53, steps down as the Alder/BPR Non-Marine Underwriter.
12 Oct 83
Barlow Lyde & Gilbert(AWP Solicitors) letter to the Asbestos Working Party on the formation of a company limited by guarantee under the proposed name of Asbestos Working Party Limited with a subsequent authority which deals with the settling up of the Asbestos Claims Service. (The Companies House took exception to the names "Asbestos Working Party Ltd" since there is a government body called the "Asbestos Working Party". The company limited by guarantee and subsequently incorporated on 28 March 1985 was "market Claims Services Ltd.")
ASBESTOS WORKING PARTY
I enclose a revised draft of the form of Authority. The amendments hopefully deal with the points raised at our meeting of 26th September. I have noted the following points:-
I appreciate there may well be other points since we had not entirely finished when the meeting on the 26th September had to break up.
P.S. I have also noted that you will be looking into the VAT position of the new company.
THIS AUTHORITY is granted by the UNDERWRITERS ("the Underwriters") on whose behalf it is signed below on and from the date provided in this document to ASBESTOS WORKING PARTY LIMITED whose registered office is at ("AWP")
1. The Authority
In consideration of the benefits to the Underwriters of appointing in conjunction with other underwriters one party for the purposes of handling Asbestos Claims (which expression shall be defined as meaning any claim or claims for which underwriters are or may be liable including any liability for legal costs thereof or series of such claims or a line or lines of business in which any such claim or claims may be comprised which arise out of the liability of an insured or a reinsured in relation to alleged exposure to asbestos or products containing asbestos) and for the other purposes described in this Authority the Underwriters hereby confer on AWP unconditional and irrevocable sole authority to act in the name of and for and on behalf of the Underwriters as fully and effectively as the Underwriters can themselves act in relation to Asbestos Claims including in particular but without limiting the generality of this Authority
PROVIDED THAT AWP shall not itself incur any liability in respect of any Asbestos Claims
3. Further Undertaking by the Underwriters
4. Undertakings by AWP
5. Period of Authority
This Authority shall take effect on signature on behalf of AWP and shall terminate save for clauses 2 3 6 and 7 on the natural expiry of any liability under any policy under which the Underwriters are at the date hereof liable for any Asbestos Claims or mutual agreement of the Underwriters and AWP (whichever shall first occur)
6. Choice of Law and Jurisdiction
This Authority shall be governed and interpreted in accordance with English Law and the parties hereto agree to submit any dispute between themselves to an arbitrator to be appointed in default of agreement between the parties hereto within thirty days of either party receiving a written request from the other for arbitration by thePresident of the Law Society for the time being on the application of either party and such arbitration shall take place in London in accordance with the Arbitration Acts 1950-1975 and any further procedural matters shall be settled by the arbitrator on the application of either party. The parties hereto agree to carry out and abide by the arbitrator's award and that the same shall be enforceable against a party who fails to do so in any territory in which such party is resident or domiciled or has assets or carries on business
Any notice to be given by one party to another shall be sufficiently served if sent or delivered in the case of Lloyds Underwriters to Lloyds and of any party being a Company to its registered office or registered address for service in England and proof of delivery or despatch by first class registered or recorded delivery post to such address shall be deemed to be proof of service on the party to be served 24 hours after such delivery or despatch (Saturdays Sundays and English Public Holidays excepted)
AS WITNESS the hands of the duly authorised representatives of the Underwriters and AWP on the dates hereinafter appearing
17 Oct 83
Financial Times: The high cost of self-reform
THEPROGRAMME of reform for Lloyd's insurance market could cost underwriters up to £10m in additional charges, it is estimated in a paper by Mr Robert Kiln, a former member of Lloyd's executive Committee.
Mr Kiln, who runs the R. J. Kiln underwriting Agency, hasalso warned that the rest of the new Lloyd's building to accommodate the market - estimated at £157m - has been responsible for "a great proportion of the large increase in members' (of Lloyd's) charges in recent years." These, he says, "have the effect of being detrimental to underwriting."
Thecontroversial paper was due to be published in the October issue of Lloyd's Log, an internal monthly magazine circulated to the 21,000 members of Lloyd's.
At thelast minute the Lloyd's authorities decided not to publish after intervention from Mr Brian Brennan, a deputy chairmen of Lloyd's.
In hispaper Mr Kiln, who resigned from the Committee of Lloyd's nearly two years ago over policy differences, warns about the dangers of increased regulation of the Lloyd's market. "There is a danger that too much regulation will destroy or weaken the economic viability of our various business," he says.
"Our chairman recognises this but with every such speech the number of working parties, advisers and paper increases at a rate of knots . . . the extra costs in 1983 to date are considerable. A market figure for underwriters and agents of around £2m must be conservative." He says that it is not unrealistic that extra costs will total between £5m and £10m and these are " likely to escalate."
Mr Kiln saysexpenses ten years ago in Lloyd's used to be about 2.5 per cent of premium income "for syndicates in major markets. Today they are probably nearer 5 per cent. This escalation has already made Lloyd's non competitive in areas of the large volume-small profit business."
That isparticularly in the non-marine market which insures general business where claims become payable in a relatively short period and the investment gain is small.
Mr Kiln argues that thecapital cost of the Lloyd's building which has risen over the years, should be met by raising capital from the members rather than meeting costs from revenue. He suggests that members subscriptions should be reduced if the basis of financing the building is changed.
He also says that Lloyd's should "stop pretending to regulate areas that we cannot. Most of Lloyd's income and profits come from brokers which are large public companies. It is surely questionable whether Lloyd's should or could regulate these financial empires."
Mr Kiln warns that arift is opening between the corporation staff, the administrators of the market, and the working underwriters and other professionals after the self-regulatory reforms. "Ways must be found to stop the alienation between the market and corporation staff which is already beginning to happen."
He says the self-regulatory approach in Lloyd's "must have the consent of the vast majority of the regulated.'' Near rules for disclosure of underwriters' interests in insurance companies " in no way alter the fundamental wrongness of holding such a position." He suggests that a code of conduct should be introduced.
published an article on the issue of liability of insurance companies for asbestos claims.
22 Oct 83
Financial Times: Lloyd's chief says scandals would have stopped Act
THE ACT of Parliamentgranting the Lloyd's insurance market wide self-regulatory powers would not have been passed into law last year if the scandals which surfaced in the community had come to light earlier, Mr Ian Hay Davison, Lloyd's chief executive, said yesterday. Instead, Lloyd's affairs would have been brought much more under statutory control
He said at a London conference of insurers thatone month after the Lloyd's Act was passed in July last year the report by Deloitte Haskins and Sells, into Alexander Howden had drawn the market's attention to possible improprieties including a Lloyd's insurance Syndicate once headed by Mr Peter Cameron-Webb.
"If those facts had come to light a month, earlier the Act would not have been passed," said Mr Davison.
He said that when he became chief executive, the problems he found were "not business problems. The place was humming. All valid insurance claims were being paid." Instead the problems centred on the relations between the members of Lloyd's and the underwriting agents who look after their affairs.
These problems he identified as:conflicts of interest, secret profits which benefited the agents at the expense of the members of Lloyd's and inadequate accounting procedures.
Mr Davison said there was acommitment by Lloyd's, with the support of the Bank of England and Whitehall, to make self regulations work. Bringing malefactors "to book" would be one of the priorities.
Policy Market has recently published its annual tables of UK companies 1982 Non-Marine business. 88 companies are listed of which only 9 produced an underwriting profit. Pearl was shown as making a profit, but the company's accounts show a £7m underwriting loss. The winners are all captives or quasi-captives, with the exception of Multiple Health which writes medical insurance.
Beaufort belongs to P & O; Tobacco belongs to BAT (as doesEagle Star); Warwick belongs to A J Wilkinson Ltd, and Westminster Motor insures taxis. From the losers, those with over a 125% combined loss ratio are shown:-
There is no obvious pattern in the poor results except that all of the companies are open-market underwriters dependent on brokers for their business. Several of them are foreign owned including:-
Although 1982 was a difficult year generally, there are other special features, in that a number of insurers took advantage of the availability ofrun-off cover to buy themselves out of the "asbestosis problem". This could include one or more of the above companies.
The Elizabethan was owned previously by Minets. The Allianz sold its 30% shareholding in Eagle Star to BAT on 29 December 1983 at a price of £7 per share. Sphere Drake, an important non-proportional underwriter in LMX, was purchased by Alexander & Alexander Inc. in the Alexander Howden take-over in December 1982. C T Bowring owned the English & American and Crusader insurance companies. Outhwaite appears to have written three run-off policies on 1 July, 20 August and 16 November 1981 for English & American; the latter policy was written into the 1982 year of account as a result of a portfolio transfer from 1981.
0 Nov 83
This isManville's second third-party action against the U S Government. The first action, filed in July 1983, sought contribution for damages Manville paid to asbestos victims who suffered shipyard exposure during World War II. In the second action, filed in November 1983, Manville sought contribution for damages it paid to government shipyard workers exposed to asbestos after 1964.
0 Nov 83
TheOccupational Safety and Health Administration (OSHA) issued in November 1983 an emergency temporary standard, which was struck down as invalid by the United States Court of Appeals for the Fifth Circuit in March 1984. The proposed standard would reduce the permissible exposure level from two fibers per cubic centimetre of air to either .5 or .2 cubic centimetres of air, depending upon which level would be most protective and most feasible. On June 19, 1984, the Occupational Safety and Health Administration (OSHA) held a hearing on a proposed permanent standard to reduce the permissible exposure level for asbestos, thereby reducing workers' exposure to the carcinogen.
2 Nov 83
General Meeting of Members of Lloyd's: Statement by Sir Peter Green, Chairman
One year ago the Membership of Lloyd's took the first major step in the implementation of the new Lloyd's Act by the election of its first Council.
The priorities for the first year were clearly twofold:First, to set up the necessary new self-regulatory machinery. Second, to support the Market in maintaining Lloyd's commercial success as one of the world's most important insurance markets.
I shall enlarge on the first of these later in my speech but with regard to thesecond - our commercial success - we were all heartened by the announcement of record profits contained in the 1982 Global Results. This is the finest possible platform on which to build on the work of our first year and I could not wish for a better start to this new chapter in our history.
Looking back, thepriorities were clearly right, responding to the pressures which had built up both within and outside our Society to make quite sure that the actions we were about to take would be successful in meeting the obligations laid upon us by Parliament.
All of us knew that1983 would in a very real sense be for Lloyd's a year of vital importance.
We had todemonstrate firmly that the proper regulation of institutions in a free society does not have to go hand in hand with the destruction of enterprise and initiative. We had to prove that a workable system of self-regulation could be devised which would safeguard all the legitimate interests of our Market and its operations, while preserving intact all that has characterised the success of Lloyd's throughout its long history.
The task ahead is to build on this careful planning an infrastructure that is both effective and cost-efficient. I do not doubt either the ability or the will of the Society to accomplish this.
The Council and Committee
Thenew Council, which has expanded the Committee of Lloyd's and now also draws upon the experience of eight External and four Nominated members, has embraced with determination the objectives envisaged for it by Sir Henry Fisher and our new Act of Parliament. Our first task was to bring in bye-laws concerning the disciplinary area, as required by the 1982 Act, and to set up a Disciplinary Committee and Appeal Tribunal. Then we turned our attention to seeking the best way in which to make self-:regulation reliable, flexible and acceptable, avoiding so far as possible detailed prescription.
We have devised a strategy which we believe meets these conditions, and which falls intothree distinct stages; firstly, the establishment of byelaws on matters of basic principle: secondly, regulations to provide for detailed application and interpretation; thirdly, the provision of codes of conduct for the general guidance of underwriters, brokers, agents and Members.
Anumber of the Fisher task groups and other working parties, such as that chaired by Mr Alec Higgins dealing with underwriting agencies, have already reported to the Council and where appropriate their reports have been issued as consultative papers. Much useful comment and criticism has been received and final proposals are now coming forward to the Council, which will give effect to them on the lines of the strategy I have outlined to you. I hope that after due consultation all our major rules will be in place by the end of next year.
In addition to this strategy we have alsomade considerable progress with regard to delegation. A number of Committees of the Council have been established and are hard at work with the appropriate delegated authority. These include, together with their chairmen, the Disciplinary Committee chaired by Mr Peter Foden-Pattinson; Rules Committee, Mr Stephen Merrett; Investigations, Mr Edward Walker-Arnott; Finance Committee, Mr Frank Barber; and Policy Review, Sir Kenneth Berrill.
Highlights of the Year
Before I turn in rathermore detail to the work of the Council, I should like to deal briefly with one or two of the year's principal developments.
Undoubtedly, themajor aspect of 1983 has been our continuing growth despite difficult trading conditions. Lloyd's continues to be seen internationally as a major investment opportunity by men and women who have carefully appraised both the benefits and hazards of membership after proper consideration with their financial advisers. The increase in membership for 1984 is now expected to be some 2,100, or about 10% of the existing total.
Our global figures, which were presented this year in a new form, now reveal as much detailed information as the accounts of any insurance company and have been well received by both regulators and the media; the reactions from Members and assureds are also very enthusiastic.
Lastly, early inOctober, at the instigation of the Non-Marine Association, the Council approved the acquisition of the United States firm of loss adjusters, Toplis and Harding Inc., the purpose of which is to ensure that we maintain the highest standard of service, particularly in the handling of claims for our American business which represents the largest single market from which Lloyd's obtains its income.
Finance and Cost Control
Let me now turn to certain other aspects of the work of the Council and their implications for the future.
The whole area of keeping the Corporation's costs within bounds is, as always, continuously under review.Since 1978 subscriptions have been levied on allocated premium income limits, thereby producing the necessary income to meet the cash needs of the Corporation. On the advice of the Finance Committee, your Council agreed at its meeting on 24th October to raise Members' subscriptions from 0-75%, to 0-85% of allocated premium income limits for 1984. Other subscriptions and Room rents will be increased by approximately the same percentage. I would like to give you some of the background so that you may understand why we reached this decision.
I know that many of you are properlyconcerned at the cost of running our Society and the increases which have occurred in recent years. Your Committee in the past and now your Council have been and are determined to contain these increases to the minimum possible level, commensurate with the proper provision of the appropriate services demanded by today's increasingly complex Market.
Before expanding on this, I should first make clear that theday to day costs of running the Corporation, have remained broadly stable in relation to the growing size of the Market as a whole. In money terms these costs have of course risen but in percentage terms over the last five years, the Corporation net expenditure, including planned surpluses, has been at or about 2% of calendar year premium income. It would appear from the global figures that agency costs are rising at a higher rate than the Corporation's.
Like all businesses, we have tobalance the books. However, we do have three areas of what might be termed extraordinary non-recurring items which have a significant bearing on our overall costs and these call for special comment.
Firstly, having largely completed a major eight-year redesign of the systems which handle data for the Market via LPSO and Central Accounting, we have now embarked upon a major upgrading of our vitally important data processing systems for the Corporation. The cost of this new programme falls on subscriptions as opposed to being recovered by direct charges to the Market.
Secondly, we are now going through a period ofpeak activity regarding expenditure on our new building. This is a major area of expenditure that affects all of us, but which is being most carefully controlled. I Should emphasise that the costs of this project, high as they are, have not risen in real terms above those made known to you at this time last year and I have no reason to believe that our earlier estimates will be exceeded. As you all know. we took an early decision that the most effective way to finance this significant expenditure was through subscription income. It is not, of course, the only way of financing the building and as an alternative strategy the possibility of raising further outside funds to do this has been considered on several previous occasions, but this idea has proved to be economically unattractive. The Finance Committee has decided to review this and, without making any commitments for the future, I can undertake that if at any time the net benefit to the membership from alternative methods of finance were to be found to be more attractive, we would not hesitate to make the necessary arrangements to effect such a change.
Lastly, we are now necessarily going through aperiod of relatively high expenditure in connection with our overall self-regulatory efforts. There has perhaps been more talk about this aspect of our expenditure than any other. It is very difficult to isolate those costs that relate to this aspect of the Corporation's efforts alone and any such amounts that are discussed should I believe be treated with caution. Certainly a large part of today's expenditure in this area would have occurred whether or not we had had our new Act and all the new rule making requirements that have flowed from it. I believe it is important to recognise that establishing a new self-regulatory regime is a short-term cost with long-term benefits that will stand us in good stead for the years ahead.
In summary, we are simultaneouslyplanning the installation of some of the most advanced information technology in the world, providing a new and permanent home for the entire Market, and putting into place a transformed system of self-regulation. The costs of these activities are being spread by means of Bank borrowing but we are hopeful that the overdraft facilities will not be required beyond 1992.
I stated in June that I hoped to be able to give youfigures which would show with some accuracy the cost of the Sasse case. Whilst we have been able to reach a financial settlement with nearly all the Names on this syndicate and have effected substantial reinsurance recoveries there still remains one large potential recovery outstanding. Negotiations with our insurers are proceeding but until they are completed, I cannot give you an accurate figure of the cost in this case. However, I must remind you that should these recoveries prove to be insufficient, a further contribution will be collected from 1980 Members as part of their future subscriptions.
Disclosure and Form of Members' Accounts
I referred in my statement at the last General Meeting to theprogress on disclosure by underwriting agents on which the Plaistowe Working Party has done much work. Since then, a consultative document has been issued to the Market and a series of valuable meetings held with Associations and others concerned.
Arising out of the consultative process your councildecided to develop its original proposal for a central register of underwriting agents' interests into a requirement for the annual syndicate reports, containing a fair presentation of all material insurance interests of the underwriting agents, to be filed at Lloyd's and to be open to public inspection. These new disclosure requirements, which will be effective for the 1983 syndicate reports, are clear evidence of our readiness to accept the implications of a new situation.
ThePlaistowe Working Party has also made progress in connection with the future form of Members' accounts as proposed in Fisher Task Group 4. It has now completed consideration of all submissions and has proposed a number of amendments to the Accounting Manual, although this document remains substantially unchanged. Consideration is being given to the extent to which these new requirements will be effective in Members' accounts as at 31st December 1983. The new Accounting and Auditing Standards Committee, under the chairmanship of Mr Brandon Gough, has an important continuing role in monitoring and reviewing these highly technical areas.
Divestment and Underwriting Agency Review
TheLloyd's Act requires that within five years from enactment there shall be a separation of interests of managing agents and Lloyd's brokers. A new information bye-law which will be effective in January 1984 will oblige brokers and agents to disclose relationships as a major step towards achieving this goal .
During the passage of the Lloyd's Bill through Parliament weundertook to conduct a thorough review of the underwriting agency system at Lloyd's. The Higgins Working Party has spent many hours investigating the subject and Part I of their report was issued in March 1983 dealing with ownership and control of underwriting agencies. Work is now in hand to translate all this input into definitive rules. In September the Working Party produced Part II of their report dealing with preferred underwriting and parallel syndicates and with character and suitability. The Council has issued this as a consultative document but has already made clear its determination to ban ‘preferred underwriting'.
Investigation and Discipline
I should like now to say something in particular about the areas of investigation and discipline, since these are matters which have undeniably caused the most concern during my Chairmanship.
It was quite clear when we presented the Bill to Parliament that we could no longer depend on the inadequate procedures of the past. It is equally clear today that proper consideration has to he given not only to the framing of practical and adequate regulatory procedures but also to the timely, fair and effective application of thedisciplinary powers conferred under the Act to any discovery of wrong doing.
There may be some who would say that this opens the door to excessive bureaucracy. My reply remains, as always, that in a highly complex commercial Society you cannot have good administration without some element of bureaucracy and that it is wiser and fairer to everyone to recognise the necessity for this, so that it can at least be kept within sensible bounds
You would not, I know, expect me to refer in detail to individual cases of investigation and discipline now in process. The allegations of malpractice and inadequate disclosure have caused Lloyd's to be in the public eye far more frequently than we have been accustomed to. This in no way deters us in our resolve to put our house in order. We must accept the, at times painful, corollary that theattention of the media will continue to be upon us until we have completed this task.
Work of the Corporation Departments
Before concluding, let me report briefly on one or two of theprincipal activities of the Corporation of Lloyd's during the year under review. In addition to the admirable support which the Corporation's various departments have provided to the Council and Committee in putting into effect the arduous programme for self:-regulation, they have continued to make their own essential contribution to the total effort .
TheCommittee has agreed to important changes to the pattern of monthly Central Accounting settlements. A task force to design the changes in detail has been set up.
Lloyd's Underwriters' Claims and Recoveries Office, which settles claims on behalf of the Marine Market and has a record of which we are justifiably proud, now handles about 70,000 claims a year. More than 90% of these claims are examined within four working days of receipt and no less than 98% of claims which do not raise queries are given an LPSO Settlement Date within seven working days of being lodged with LUCRO.
The work of the Personnel Department is often unnoticed particularly in co-operating with local authorities in such fields as career advice to schools and colleges, youth training programmes, teacher exchange schemes, and the provision of work experience. These activities are doing much to promote the Corporation as a responsible member of the business community.
Next year marks the250th anniversary of Lloyd's List and the directors of Lloyd's of London Press have made a number of arrangements to celebrate this landmark in London's oldest surviving daily newspaper which will include an exhibition at the National Maritime Museum. Several Crown Colonies have arranged for special issues of stamps to mark this anniversary and a banquet will be held in the Guildhall on 1st May.
On the public relations side we are still having some understandable difficulties. Given the continuing publicity surrounding our regulatory enquiries, this is perhaps not surprising. However, I do believe that our considerable efforts to achieve more open lines of communication are beginning to pay off and the message is being better understood.
I think I can hardly do better than to quote from The Observer for 4th September 1983: "Circumstances might well have played their part in the swift transformation of Lloyd's of London from the world of the Coffee House to the harsh commercial realities of the 20th Century, but there is no doubting the success of the transformation".
Since our last meeting the Corporation staff has been strengthened by the appointment of MrJohn Moir, as Head of Finance, and Mr Philip Brown, as Head of External Relations. Mr Moir has wide experience as a Chartered Accountant in this country and North America whilst, as many of you will know, Mr Brown was responsible for insurance matters in the Department of Trade for many years.
This is the last time I shall speak to you, the Members, in General Meeting. I do it with feelings as mixed as those I shall, no doubt, experience on Friday, 30th December.
First let me say, I have thoroughly enjoyed being your Chairman through four tumultuous and historic years despite on occasions hostile comment from certain quarters. But more important has been the knowledge that even in our darkest days I have had theunfailing support of the Council, Committee, the Corporation staff and the Membership, and particularly the Deputy Chairmen who held office during this time.
I would like to dwell on the Council for a few moments. last January we were a body of twenty-seven individual many of whom had never set eyes on one another before. Hardly had we made each other's acquaintance than a new unknown Chief Executive joined us as an additional Nominated member. In a remarkably short space of time we have grown into a closely knit harmonious body totally devoted to serving Lloyd's. As Sir Henry Fisher predicted, the classification of Nominated, External, or Working member have no real significance. We are collectively the Council of Lloyd's. In case anyone should be murmuring they have been brainwashed let me say thatdiscussion at the Council table or in the sub-Committees is informed, forthright and even robust. This is as it should be. It is because of these attitudes that so much has already been achieved in these last ten months. The External members were warned that this would be a busy year, and so it has been proved, with Council members spending between two and three days a week on your affairs. Next year the Council plan to meet once monthly. This is a reflection not only of the work already achieved but also of the delegation of detailed work to various sub-Committees of the Council and to the Committee of Lloyd's.
Ishall hand over to my successor with a feeling of great confidence. Reform was necessary. The foundations are laid and over the coming months the structure for a self-regulatory system of governance will be completed. It will be I am sure flexible and responsive to our needs and will encourage the freedom, innovation, and individuality of judgment for which Lloyd s is justifiably so famous.
None of this could have beenachieved however without your continuous and unfailing support, for which I sincerely thank you. I must also thank the Secretary General, the Corporation Staff and our representatives overseas, some of whom are here today, for their loyalty, support, advice and help over the last four years.
Attorneys letter re. Love Canal litigation.
Letter from Attorneys to the Interested Insurers. Report No.... Assured:US Gypsum We submit to the London primary and excess insurers our Report No 7 [sic] regarding the asbestos-related product liability claims brought against the assured in multiple jurisdictions throughout the United States. This Report will provide only our 1983 year-end loss and expense reserve recommendations to the London insurers. In addition to bodily Injury reserves we are also recommending herein a precautionary reserve for each policy period for potential property damage losses which the assured may sustain in the growing nation-wide asbestos-related school and public building property damage litigation. ...
theDTI sent a questionnaire on "Insurance Claims Arising from Industrial Diseases Injuries" to selected reinsurers whose returns under the Insurance Companies Act 1982 showed a significant level of involvement with the accounting class into which these industrial risks fell. A copy of the letter was sent to the Asbestos Working Party who were invited to attend a meeting rather than complete the questionnaire. The letter of inquiry stated:-
INSURANCE CLAIMS ARISING FROM INDUSTRIAL DISEASES INJURIES
The Department has been considering the implications for insurers of recent developments concerning claims for industrial diseases and injuries. Over the last year or so, asbestosis, byssinosis and industrial deafness have all attracted public comment.
We are now making some inquiries amongst insurers whose current returns under the Insurance Companies Act 1982 show a significant level of involvement with general liability business (accounting class 7) into which industrial risks of this kind would fall.
In making these inquiries, we recognise that the business written by companies may have changed over the years. Moreover, any claims made may go back a long way.
Would you please let me know for your company/members of your group the answers to the following questions.
25 Nov 83
A C & S -v- Aetna Casualty & Surety Co.(Case No. 576 F. Supp 936 Eastern District of .Pa., 1983).
Judgement given that insurers obligations for asbestosis claims will be in each case to provide the broadest possible coverage to the buyer.Judge E Mac Troutman said he looked at preceding decisions in asbestosis coverage cases and found "each sought to maximise coverage to the insured" and he would "remain faithful to the rule". This again reviews the development of the case law and once again gives the insured firm comprehensive cover. .Furthermore, according to this judgement the insured can allocate his damage costs entirely as he thinks fit to the primary policies concerned and, finally, impose the costs of resisting the claim without limit on one of the primary policies which are in principal liable for cover in the same way.
28 Nov 83
Business Insurance: Grappling with Pollution Insurance.
Attorneys letter reAgent Orange litigation.
Potential future claims $900,000,000.
Decisions are said to be pending in another 30 actions. In the foreseeable future, there appears to be no chance of a judgement by the US Supreme Court which would harmonise the decisions by the previous courts on the issue of coverage.
0 Dec 83
Ernst & Whinney INSIGHT No 19
4. Although product liability and latent diseases give rise to many of the long tail claims particularly on US business,
0 Dec 83
Ohio Courts- Asbestos Case Management Plan
InDecember 1983, the Ohio Courts, both state and federal, implemented the Asbestos Case Management Plan to streamline asbestos litigation and facilitate the preparation of asbestos cases for trial. In processing asbestos cases, the plan makes use of such devices as case consolidation, expedited discovery and summary jury trials.
2 Dec 83
Lloyd's published aProvisional Lloyd's Accounting Manual.
It wasproduced by the Accounting and Auditing Standards Committee of the Council of Lloyd's and relied heavily upon the Draft Accounting Manual produced by Task Group 4 a year earlier. As with the Draft Accounting Manual, the Provisional Accounting Manual was not binding. But in a letter dated 1 February 1984 the Chairman of Lloyd's invited Panel Auditors to encourage their clients to comply with its spirit in preparing the 1983 Reports and suggested a proposed form of report. Ernst & Whinney contend that the Provisional Accounting Manual represented or reflected good practice to be observed by Lloyd's panel auditors.
Business Insurance: addressed the issue of liability of insurance companies for asbestos claims; the article stated:
We have some hard advice for insurers fighting with their policyholders over liability for asbestos claims under general liability insurance policies: Settle with your policyholder.
Insurers can no longer deny that they are fighting a losing battlewith policyholders when they argue that their specific policies do not apply to asbestos claims or that their policies are not as broad as the policyholders contend.
Insurers in 1980 could have reasonably expected that they had another chanceto beat broad liability for asbestos claims after 48 Insulations Inc. won its case for broad coverage by arguing that insurers on the risk when the claimant inhaled or was exposed to asbestos are liable.
Insurers were understandably incredulousin 1981 when Keene Corp. won its case for broad coverage under a policy interpretation radically different from 48 Insulations - that all insurers on the risk from the time of exposure through the manifestation of the injury are liable to pay asbestos claims.
And, in 1982, no one could argue that insurers had a right to be confused about how to interpret coverage whenEagle-Pitcher Industries Inc. won its case on an even different policy interpretation - that insurers on the risk at the time the injury manifests itself are liable for asbestos claims.
Looking at the three appellate decisions, however, a pattern was emerging. The judges each interpreted the policies to provide the broadest possible coverage to the specific policyholder whose coverage needs differed.
Now, with the decision inA C & S Inc., that pattern is a blueprint for lower courts considering insurers' liability for asbestos claims. Let there be no doubt: Insurers' obligations for asbestos claims will be in each case to provide the broadest possible coverage to the buyer.
The most recent decision byJudge E. Mac Troutman in the A C & S Inc. case makes this very clear .... The judge for the U.S. District Court for the Eastern District of Pennsylvania said he looked at preceding decisions in asbestos coverage cases and found "each sought to maximise coverage for the insureds" and he would "remain faithful to this rule."
We can understand why insurers initially went to court to determine their liability for these enormous claims. Insurers had every right to ask the courts to help settle legitimate disputes over coverage between themselves and policyholders. No one could foresee these claims when policies were written decades ago and the policies were unclear. Long latent diseases did pose a policy coverage question.
But, insurers, you now have your answer.
Now,insurers should face the reality that judges across the country will rule for the policyholder in these asbestos coverage disputes.
11 Dec 83
Sunday Times: Lloyd's poised to throw out Posgate
IAN Posgate, the one-time top earning Lloyd's insurer has been sacked from the board of Posgate & Denby, the underwriting agency whose fortunes he once directed.
And next Wednesday, theDisciplinary Committee of Lloyd's is expected to declare that Posgate is no longer a fit and proper person to enjoy membership. Under Lloyd's procedure, no evidence from Posgate will be taken at that meeting - although he has the right to appeal.
Both decisions come in the wake of themassive reports on Alexander Howden from lawyer Peter Millett and accountant Nigel Holland commissioned by Lloyd's. The 500-page report - which is due to be sent to the Department of Trade and the Fraud Squad - is scathing in its condemnation of former Alexander Howden directors, including Ken Grob, Allen Page, Ron Comery and Jack Carpenter - the so-called Gang of Four.
It is somewhat less vitriolic in its treatment of Posgate, who has alwaysdistanced himself from the Four ever since the Howden scandal first blew up in summer 1982.
Posgate has all along accepted that Lloyd's will try to expel him. He hasfew friends and many enemies in positions of power. He has a poor relationship with outgoing Lloyd's chairman Sir Peter Green.
But what must hurt Posgate most waslast week's sacking by his fellow Posgate & Denby directors, who include his former close friend Laura Davies. While Posgate has a 50% share of the agency profit - up from £329,000 to £418,000 in 1982 - he has just 25% of the voting shares.
Realising that the one time star underwriter could prove a liability if an offer was made for the agency, the directors seized their chance and sacked him - a decision which will be formally ratified at an extraordinary meeting early next month.
Thereport alleges that the Gang of Four were guilty of flagrant breaches of exchange control and Inland Revenue law. But the bulk of the report is devoted to Posgate
The report concedes that unlike the Four,Posgate did not transfer syndicate funds into his own accounts but that he did use those funds as collateral for a bank loan to enable him to buy shares in the Geneva based Banque du Rhone. Posgate considers he acted properly in this.
The report accepts that he wasnot aware that the Gang controlled the Panama-based Southern Re. It also accept s that quota share reinsurances between his syndicates and offshore reinsurers were effected on genuine commercial terms.
TheCourt of Appeal has recently dismissed an appeal by Aviation Underwriter, Mr C J Balfour, of the Green Syndicate 619 against the decision of Mr Justice Webster earlier last year to reject his claim that Lloyd's syndicates 448 and 179 and Turegum Insurance Company were liable under a reinsurance policy. The case related to the Turkish Airlines DC-10 crash near Paris in March 1974 and a product liability insurance for the manufacturer of the DC-10, McDonnell Douglas Corporation. The reinsurance was a slip covering:- "Losses occurring during 12 months of December 1972 and/or as original". The interest was "All sums payable in respect of liability occurring under the London Market Aviation Products Line Slip which includes products placed on a vertical basis with American domestic insurers .... and similar products policies". Mr Balfour's case rested on the contention:-
The first ten cases processed under theOhio Court's "Asbestos Case Management Plan" were recently settled for $1.1 million dollars. In December 1983, the Ohio Courts, both state and federal, implemented the Asbestos Case Management Plan to streamline asbestos litigation and facilitate the preparation of asbestos cases for trial. In processing asbestos cases, the plan makes use of such devices as case consolidation, expedited discovery and summary jury trials.
These first ten cases are among the more than100 asbestos cases filed in Ohio State and Federal Courts between 1979 and 1981. Each of the settling plaintiffs is expected to receive approximately $100,000.
16 Dec 83
The DTI Inspectors,Sir Robert Gatehouse Kt. and Ian G Watt FCA, appointed to investigate the Alexander Howden Group Plc provide the Secretary of State for Trade & Industry with additional information on 16 December 1983; in large measures and as a result of further evidence, this merely updated certain of the material presented in the earlier submission in a report to the Secretary of State for Trade & Industry under the provisions of Section 41 Companies Act 1967. At that time, the DTI appointed Inspectors stated: "that it became evident to us at an early stage that there were matters tending to show that offences had been committed" and a report under the provisions of Section 41 Companies ACT 1967 was submitted to the Secretary of State on 31 August 1983.
The Lloyd's Committee of Inquiry under Mr Peter Millett QC and Mr Nigel Holland FCA submit their 500 page Report into PCW and Alexander Howden to Lloyd's. This is a long and scathing report about the abuse of reinsurance. Lloyd's is to distribute the report to the thousands of Names on the Syndicates and has been advised that sending it only to Names directly involved could not give rise to libel suits. It has been told that it would be a dereliction of duty not to share the information so expensively collected.
(Lloyd's declines to release these reports on the grounds that the interests of the Society would be best served by a policy of confidentiality. This is despite the fact that the report of the Lloyd's Committee of Inquiry is duplicated within the DTI Reports, published 29 August 1990, into Alexander Howden and PCW. Publication of the report by Lloyd's would have saved considerable expense the duplication of a further investigation and report by Neville Russell, commissioned by Clifford-Turner, solicitors, on behalf of Richard Beckett Underwriting Agencies Ltd.)
20 Dec 83
United States -v- Wade,577 F. Supp. 1326, Eastern District of Pennsylvania, 20 December 1983. United States District Court of Pennsylvania held joint and several liability permitted under CERCLA, but was not required. Court denied Government's motion for summary judgement, and held that Government was not entitled to common-law restitution for sums expended in cleaning up site. The presence of evidence raised substantial fact issue as to whether defendants dumped at site precluded summary judgement.
Minet Holdings 1983 third quarter results showed a 19% growth in gross profit from £4.8m to £5.7m. the 9 months figures show:-
Minet has recently been the subject of a detailed study by stockbrokers Rowe & Pitman, who took a very positive view of the group's prospects on the basis of:-
1.Substantial underlying brokerage growth;
Rowe & Pitman also pointed out that profits from Lloyd's underwriting were only 12% of the group total, being the 1982 financial year and the 1979 underwriting year,thus limiting the impact of divestment. The stock market expected great things of Minet and the share price dropped slightly after the third quarter announcement, but then rose again. One area of doubt is the cost of the PCW investigations for which £1.2m was allocated in the first six months, but the Finance Director of Minet has stated that they did not expect to have to make a similar provision in the second half.
Ernst & Whinney's Insightgave details as to the extent of asbestosis claims in the US and attendant litigation as follows. Approximately 24,000 claims have been filed in each of which an average of 20 defendant companies have been named. Some 12 insurers are involved in defending litigation while another 15 to 20 have made payments. Costs and compensation are expected to escalate over future years.
The Council of Lloyd's considered a draft statement on the arrangements for brokers to divest their syndicate managing agency interests. The draft statement covers the timetable, legal position and guidelines for arrangements and approvals. The statement is expected to be released to the market shortly. Under the Lloyd's Act, divestment must be completed by July 1987.
19 Dec 83
The Register of Members Byelaw(No. 22 of 1983, 19 December 1983).
The Committee of Lloyd's forwards to underwriters and managing agents the new provisional accounting manual entitled"Provisional Accounting Manual, Accounting to Underwriting Members of Lloyd's". It is largely based on the report of two of the Fisher Task Force Groups, published in December 1982 and discusses the accounting requirements for syndicates and agencies, specifies requirements, covers the relevance of accounting principles to Lloyd's underwriting accounts and includes specimen forms of reports. As yet no Byelaw has been adopted by the Council, but it is expected that the Rules Committee will later put forward draft rules on byelaws for adoption as appropriate by the Council. As a result the application of the manual to the accounts for the year made up in 1984 as at 31 December 1983 is not mandatory; it is, however, regarded as best practice and underwriting accounts are expected to comply if possible. The Manual indicates that the "going concern" concept does not apply because each underwriting year is a separate venture; the Manual does nevertheless emphasise the need for equitable treatment between Names in different underwriting years. Use of a source and application of funds is recommended, but not mandatory. Reaction to the Manual is mixed. There is criticism of the amount of detail on grounds of cost and on the argument that external Names will not understand it and do not want it. With the considerably better flow of information, it will be more difficult to siphon of profits in any of the many forms as practised and much more difficult for poor underwriters to attract support. This is as it should be. There is widespread feeling in the Room that there are too many syndicates and not enough good underwriters. If Lloyd's capacity expands and is regrouped into a smaller number of strong, well-led syndicates, this will help strengthen its competitive position. Lloyd's has not suffered any loss of confidence from its policyholders and is in a position to expand. It desperately needs to help Names discriminate between good and bad syndicates; not by official selection, but by provision of data on a full and reliably comparative basis.
U.S. Excess and Surplus Lines Insurance is speciality insurance not covered by U.S. filed insurance forms, or on risks for which local cover is not available, with brokers required to certificate non-availability. The main areas are high-rated property risks, excess and umbrella liability and difficult liability classes. A survey by the "National Underwriter" showed premiums falling slightly over the last three years, 1980 U.S. $2-28bn, 1981 U.S. $2-23bn, 1982 U.S. $2-17bn, based on figures reported by State Insurance Departments. Five States produced more than U.S. $100m of excess and surplus lines insurance in 1982:
The decline in New York is clearly related toRegulation 41 of the New York State Insurance Department, designed to protect the admitted locally licensed insurance market by imposing much tighter regulations on non-admitted insurers. Yet another reason why Ex-Superintendent Albert Lewis is very unpopular in Lloyd's. The New York Free Trade Zone and the New York Insurance Exchange operate in the excess and surplus market. The New York Free Trade Zone is still small. With about 80 companies licensed, only 6 have got written business with AIG and INA writing 90% of the 1982 premiums of about U.S. $3m. The New York Insurance Exchange has grown very rapidly from U.S. $19m premiums in 1980, to U.S. $156m in 1982 and estimates of U.S. $250m for 1984. It has 36 syndicates and 63 full broker members. The "National Underwriter" divides the market into three:-
In a separate survey of 34 U.S. companies writing excess and surplus business, they show total premiums of US $1,432m in 1982 with the top three companies:-
The deterioration in the business of all the companies is seen in total figures for the past few years:-
31 Dec 83
The Sedgwick Group Annual Report for 1983discloses under:
31 Dec 83
Summaries of the1983 Balance Sheets of certain of the BPR Offshore Reinsurance Companies made up to 31 December 1983:-
For Midland Re, the only accounts at 31 December 1983 that are available consolidate Midland Re with Waldron and BPR Management.
The net earnings exclude dividends or earnings of BPR Group companies taken into the published results of the individual companies. Midland Re did not prepare unconsolidated accounts in 1983.Accounts were not prepared by Ocean Re in 1980.
Summary of Cash
Paid as Follows:-
The Midland Re was incorporated in Bermuda on 4 September 1970. By January 1972, the Midland Re had written business with premiums of some £100,000, net of retrocessions, of which 50% emanated from the 5% retention on the Brooks syndicates.
By1975, Midland Re's capital had increased to £50,000 through capitalisation of profits and net equity to £160,000, writing annual premiums of over £1 million. By this stage the Brooks syndicates' quota share premiums retained by Midland probably accounted for about 10% of its retained premiums. However, this might be understating its real importance within the portfolio if Midland were writing significant banker transactions during this period. This seems a distinct possibility from the company's Financial Statements and given Fidentia's activities in 1974 and 1975.
By1975, Midland was becoming involved in less conventional investments with the purchase of a ski lodge at Tignes in France for £30,000 and the commitment to buy the Bermuda Insurance Broker, Dawson Waldron Ltd, and its subsidiary BPR (Management) Ltd, for some £300,000. This was purchased during 1976 from Bellew, Parry & Raven (Overseas) Ltd, a United Kingdom insurance broker not registered to transact business within Lloyd's, for £295,410 at a profit £292,910.
Thebenefit to Midland Re through the retention of 5% of the quota share reinsurances that it fronted for the Fidentia during the years 1970 to 1975 has been calculated as £132,000 from the terms relating to deposit premium and late claims accounting, and £28,000 having regard to the terms relating to profit commission and overrider. The total premium ceded to Fidentia is believed to be in the region of £1.6 million.
TheColeman Committee of Inquiry concluded in summary, having regard to the size of the transactions into which it was interposed, the security provided by Midland was inadequate, particularly initially, when it was measured against Lloyd's and Department of Trade criteria. It had little track record, inadequate capital, a high concentration of business and thus little ability to spread risks. Midland's management, outside Lloyd's, was no more nor less impressive than Fidentia's.
31 Dec 83
Summaries of the 1983 and 1984 Balance Sheets of certain of the BPR Offshore Reinsurance Companies, in the Isle of Man, made up to 31 December 1983 and 30 September 1984:-
The net earnings exclude dividends or earnings of BPR Group companies taken into the published results of the individual companies..Accounts were not prepared by Hamilton Company, Isle of Man in 1983 Net Assets for period ended in:-
Accountswere not prepared by Hamilton Company in 1983. Summary of Cash Dividends Paid
Paid as Follows:-
The BPR Broking Companies
Thebrokerage paid by the reinsurance companies to the BPR broking companies in respect of 143 of the 144 contracts examined by the Singleton Inquiry, for which particulars of brokerage were available, amounted to £853,000. The £853,000 was credited to the following companies:-
Major Individual Claims
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