1984

1 Jan 84

Non-Marine Syndicate 435 commenced for the 1984 year of account. The Managing Agent, D P Mann Underwriting Agency Ltd , was admitted to the Register of Managing Agents at Lloyd s on 11 October 1983

Directors

Position

Other Involvement

C J M Hardie FCA

Non-Executive Chairman

Chmn ASM

D P Mann

Active Underwriter

Ex Willis Faber and Merrett

N A Burton

Deputy Underwriter

Ex Bowring Treaty broker

A C Mitchell

Non-Executive Director

M D Bowring Members Agency

B C Mackenzie FCA

Director Managing Agent

Ex Harman Hedley and Donner

O D Bassett

Non-Executive Director

Ex Agency employee

4 Jan 84

The Corporation of Lloyd's purchases Toplis & Harding Holdings Inc., Delaware. On 1 December 1981, the Lloyd's Asbestos Working Party, via an Elborne Mitchell market circular, addressed to all interested Underwriters, advised that an asbestos computer database had been established in the United States by Mendes & Mount, Lloyd's appointed Attorneys', with the assistance of Alexander Grant, computer consultants, and Toplis & Harding Inc., Chicago. Upon the advice of Lloyd's Solicitors' Dept., the Corporation sold Toplis & Harding Holdings Inc. to a management buy-out in July 1988. During the period 1984 to July 1988, the Corporation of Lloyd's wholly owned subsidiary controlled the U.S. Asbestos computer database.

4 Jan 84

Final discussions upon the coverage issue took place in San Francisco on the 4th/5th January 1984, at which the two London Market representatives were in attendance. The discussions with Asbestos Producers aimed at the establishment of a Claims Facility were reaching a positive conclusion.

9 Jan 84

Information Relevant to the operation of Sections 10, 11 and 12 of Lloyd's Act 1982 Byelaw (No. 1 of 1984, 9 January 1984).

9 Jan 84

Johnson County -v- United States Gypsum Co., 580 F. Supp. 284, Eastern District of Tennessee, January 9, 1984. On breach of warranty issue involving an asbestos property damage case, defendants prevailed based on statute of limitations. Plaintiff's negligence and strict liability claims survived summary judgement motion.

Jan 84

Letter from Attorneys to underwriter at interest. Re: Asbestos property damage litigation.

(An attorney's report dealing with coverage issues stated that the producers of asbestos products unquestionably will contend that all of the potential triggers apply, perhaps even a continuing trigger from date of first sale to date of last possible connection to damage, `a la Keene).

Various trigger dates of occurrence or the more limiting term, accident. ... Under the circumstances, the producers of asbestos products unquestionably will contend that all of the potential triggers apply, perhaps even a continuing trigger from date of first sale to date of last possible connection to damage, a la Keene. In our opinion, absent peculiar facts, there is no basis in the policy wordings or the case law to apply Keene-type reasoning to asbestos-related property damage claims. Whatever the trigger, it is a single, ascertainable event. Continuing damage cases involving multiple periods, like California Union Insurance Company -v- Landmark Insurance Company, 145 Cal. App. 3d 462 (1983), are inapplicable. We conclude that in light of the many contradictory judicial decisions on trigger of coverage in property damage cases, the most appropriate trigger in cases involving asbestos products, which are performing the purpose for which they were intended, is the period in which the damage - the diminution in value of the property - first becomes apparent.

Jan 84

Many Lloyd's brokers errors & omissions insurance covers are being renewed with a distinct firming of rates. The majority of Lloyd's brokers are covered on a market line slip giving £20m capacity in five layers.

Cover is claims made and on an aggregate basis with brokers retaining an excess from each loss. The normal minimum excess is 1% of net retained brokerage with excesses up to £250,000 per claim for larger firms. For Lloyd's brokers, the professional indemnity policy requires an undertaking by the insurers to submit any dispute to Lloyd's arbitration The cover is very wide, insuring brokers:-

  1. In a variety of capacities including broker, agent or consultant, pension fund trustee, claims adjusters etc.;
  2. Against negligence, dishonesty, fraud, libel and slander etc., loss of money or property (due to dishonesty, fraud, negligence) and claims made against the broker for loss of documents.

There are, however, a number of important exclusions including inter alia:-

  1. Underwriting agency activities (which can be specifically insured);
  2. insolvency of insurer etc.
  3. Computer record loss (in relation to claims for loss of documents);
  4. Claims from insurers in respect of agency or claims adjusting activities unless a legal award has been made against the broker;
  5. Fines, penalties and punitive damages, but punitive damages additional to an excess and surplus claim can now be covered subject to additional premium

For Lloyd's brokers the professional indemnity policy requires an undertaking by the insurers to submit any dispute to Lloyd's arbitration.

The brokers' requirement for errors & omissions cover is largely determined by the Insurance Brokers Registration Council and Lloyd's requirements for cover of at least six times annual brokerage with a minimum of £2m and a maximum of £20m, although a number of brokers buy higher limits to £40m and beyond.

The IBRC Code of Conduct is quite specific on brokers' duties. It requires that an insurance broker:-

  1. Conduct business with good faith and integrity;
  2. Do everything possible to satisfy the insurance requirements of the client;
  3. Place interest of clients before all other considerations;
  4. Have proper regard for others. In addition, advertising must not be misleading or extravagant.

The IBRC Code of Conduct gives specific examples of the standard of care requirements.

Underwriters provide a great deal of help including an annual Loss Prevention Memorandum to help brokers manage their professional indemnity risk.

The 1982 memorandum reminds brokers of the need to keep records:-

"In a number of recent claims, the most telling point against the broker has been the absence of complete and/or comprehensible documentation and if the parties involved are simply contradicting each other's statements then the chances of a broker obtaining a satisfactory outcome are greatly reduced. However, much may have to be done orally at the time, it is essential that a documentary record be maintained; this applies particularly to the handling of risks involving overseas insureds/insurers/reinsurers, where misunderstandings are likely to develop. It is also true that the broker's exposure from inadequate documentation grows in proportion to the complexity, size and unprofitability of the risk in question."

Lloyd's brokers' errors & omissions cover is an unique class of business in many ways. The underwriters know the insureds and are able to evaluate in part their skill. Underwriters can and are involved in making errors & omissions claims against brokers so special procedures are used to deal with the potential conflict of interest. When an underwriter is involved as a party to an errors & omissions claim, he will normally see the first advice of the claim only and waive the right to see further papers until the claim is settled or closed.

It is inevitable in today's market situation that there are many notifications of possible claims, but relatively few develop into court cases. Inside the market disputes are usually settled internally without resort to law, but many external claims are also resolved amicably. There is close co-operation between underwriters and their legal advisers which include most of the solicitors regularly involved in insurance cases.

There is a number of large outstanding claims on the excess layers and their outcome will obviously effect future premium levels.

Jan 84

Letter from Attorneys to RAG Jackson, Chairman, Asbestos Working Party. RE: Asbestos Working Party activities past 12 months in asbestos- related problems.

Reinsurance:- The NMA Reinsurance Sub-Committee therefore considered that it would be in the Market's interest if the Reinsurance Market joined forces with the Asbestos Working Party, which at that time was acting solely for the direct Market. In view of Counsel's advice that reports from servicing Counsel should not pass through the broker, the Sub-Committee have made increasing use of the Asbestos Working Party's facilities.

In order to supply reserve recommendations to the Market prior to the year-end, servicing Counsel were instructed to supply a short form report showing reserve and expense recommendations only. Such reports were to be sent direct to the Asbestos Claims Information Office during November and early December. Full detailed reports containing all necessary and relevant information would follow, hopefully early in 1984.

The Reinsurance Asbestos Claims Sub-Committee study these reports with the object of maintaining continuity in the methods of reporting and to check the accuracy of the reserves: the Market Leaders are consulted and all reports require the Leaders' approval.

The Asbestos Claims Information Office now maintains the complete record of the Lloyd's and Company Markets, by year and layer, for each individual Reinsurance Contract handled through the Office.

When a report has been approved by the Leader/s and the Sub-Committee the Asbestos Office circulates the Market. This is done by copy report, together with a schedule showing the amount Underwriters' line is part of, by year and by layer. This procedure maintains the confidentiality, as recommended by Counsel.

Property damage:- it will be evident from the reports being received by the Market that property damage arising out of the use of asbestos is now developing into a major issue. The Environmental Protection Agency order has caused a substantial number of suits to be filed by municipalities in respect of public buildings and particularly schools which contain asbestos in their structure. To date litigation activity appears to be limited to this specific area, but bearing in mind the extensive use of asbestos for insulating purposes, it is reasonable to assume that claims over a broader field could develop.

Difficulties exist from a coverage viewpoint in determining whether insurance contracts respond to such items as repair and replacement of allegedly defective material, inspection fees, loss of use and diminution of value of the property. From a practical viewpoint it is likely that the Courts will find that indemnity is afforded for at least some of these items. Domestic primaries have been influenced by this likelihood, and have been providing defence to Producers subject to reservation of rights.

Of equal importance to insurers is the manner in which any liability for property damage may attach. Insurers consider that only two bases may exist for determining which contracts respond; either the date of installation or the date of discovery of damage. To date it has not been necessary for Insurers to take a position on attachment of property damage claims. However, the problem will have to be addressed shortly, as a suit has recently been filed by GAF in Los Angeles, which relates solely to property damage. Advice has been received that US Gypsum, one of the leading property damage defendants, has now filed a Declaratory Action against all its Insurers in Cook County, Illinois.

It is important that there be a uniform approach adopted by the London Market to the coverage issue relating to the attachment of property damage. There have already been indications that Producers may assert that property damage should be allocated over all years from installation to discovery.

The Facility discussions have yet to address property damage, but every reasonable effort will be made to find a solution short of coverage litigation, which would be very expensive and time consuming.

84

Asbestos Working Party Chairman H R Rokeby-Johnson (Sturge) replaced by R A C Jackson (Merrett).

17 Jan 84

Daily Telegraph: Lloyd's receives Howden report

The authorities at Lloyd's have received the report on the scandals involving Howden, the broking firm, from the two inspectors they appointed and are now consulting legal experts on the course of action. Peter Millett, QC, and Nigel Holland, of accountants Ernst and Whinney, have delivered a long and scathing document about the reinsurance arrangements of the syndicates run by Ian Posgate, the former leading underwriter.

They are already subject to litigation and a series of cases has been set down for hearing next year. Despite this, Lloyd's is to distribute the new report to the thousands of members of the two syndicates.

Lloyd's has been advised that sending it only to people directly involved could not give rise to libel suits. It has also been told that it would be a dereliction of duty not to share the information so expensively collected.

Mr Holland and Mr Millett were appointed just a year ago and this is the final report on their original remit. Since then Lloyd's has added extra inquiries dealing with some of the other activities around the syndicates where Alexander & Alexander of the United States which took over Howden has charged that £32 million has been misappropriated.

Jan 84

Roy Miles, joint Managing Director of Lloyd's insurance brokers Miles Smith Group said recently that many insurers are refusing Employers Liability insurance cover to contractors involved in asbestos related work. The Insulation Industry Insurance Scheme, launched by the Miles Smith Group, was designed with the needs of asbestos removal contractors particularly in mind. The scheme would bring a new degree of consistency to medical screening for asbestos related infections and offered reputable, established insulation contractors the opportunity to contain insurance costs provided they conformed with the requirements of The Asbestos (Licensing) Regulations which will come into force on 1 August 1984.

There is no disputing the necessity for the 1984 Health and Safety at Work Act nor for the Asbestos Regulations which have flowed from the Act.

Concern has increased over a long period of time about working with asbestos and the tightness of legislative controls reflects a number of factors such as the increasing amount of accumulated knowledge of the subject; pressure from employee representatives to improve the conditions of insulation industry workers; technological advance - availability of safety equipment; the ability of the industry to implement controls without impeding progress to the works and publicity such as the recent Yorkshire Television documentary.

The construction industry from a health and safety point of view has been far too sloppy for far too long and the latest statistics give no cause for complacency - it is clear that the Site Safe 83' Campaign has not had an immediate practical impact in reducing casualties. Only recently Mr Peter Morrison, the Junior Employment Minister, complained that the industry was sacrificing safety for the sake of shaving "a few miserable quid off the contract price".

Jan 84

Letter Attorneys to underwriters at interest care of CJ Ayliffe Re: Asbestos Property Damage Litigation.

You have requested advice regarding the date of loss for coverage purposes. The context of your request is that assureds have commenced litigation against you at least one object of which is to establish an asbestos property damage date of loss for insurance coverage purposes...For the reasons set forth above, we believe it is proper to assert in litigation that the date of loss under your policies is the date when the underlying claimant recognises that asbestos contained in a building presents a potential hazard to health such that the owner has an obligation to take remedial action in connection with the asbestos... It should be recognised there is no controlling decision on the subject in the United States. Until such time as a general rule emerges for this kind of property damage claim, no definitive opinion is possible.

Jan 84

An attorney's report stated that property damage was now evolving into a major issue.

26 Jan 84

Meeting of insurance partners and managers of Ernst & Whinney.

  1. Nigel Holland stated that it is important that the majority of executives with insurance work have an overall insight into the market and their knowledge and experience is more widely based.

12. Asbestosis will be equally relevant for many London Market companies as it is for Lloyd's syndicates. Nigel Holland informed the meeting that progress towards a settlement involving many of the main manufacturers in the US, was being made and that an announcement to this effect was imminent. The fact that losses may now have to be paid out sooner rather than later may have implications for those companies which have adopted discounting techniques in the past. The chairman of the Asbestosis Working Party is to address a meeting at which E&W will be represented. Nigel Holland will ensure that notes of this meeting are circulated to interested parties. Peter Standish commented that a useful publication entitled "Asbestosis Litigation Reporter" had appeared in the London Market.

31 Jan 84

Letter from RAG Jackson, Chairman of the Asbestos Working Party to Underwriters - To Non-Marine Market and Non ILU Companies, but signed by H A R Rokeby Johnson. (The letters commences "The matters discussed in this letter concern the most serious claim problem ever encountered by our industry. I cannot over emphasise that it is essential for you to give active consideration to the issues that are addressed, and more particularly, your support to the efforts that are being made to develop a more practicable way of handling the asbestos problem. ... discussions with Producers aimed at the establishment of a Claims Facility were reaching a positive conclusion. Final discussions upon the coverage issue took place in San-Francisco on 4th-5th January 1984, at which the two London Market representatives were in attendance .... agreement in principle has been concluded...

3) Central Facility: Under the proposed plan, all claims will be handled within a Central Claims Facility.... It is proposed that there be a market meeting on Monday 13th February 1984. Due to space limitations it is requested that no more than two individuals attend from each underwriting organisation. In conclusion, I feel I must record that the Working Party has been closely associated with the initial concept of the Facility and various negotiations that have taken place over the past fifteen months. Now that an agreement is developing, you should be aware that members of the Working Party are unanimous in their support to what they consider to be the only practical solution to this difficult problem.)

To Underwriters - Non-Marine Market and Non I.L.U. Companies

The matters discussed in this letter concern the most serious claim problem ever encountered by our Industry. I cannot over emphasise that it is essential for you to give active consideration to the issues that are addressed, and more particularly, your support to the efforts that are being made to develop a more practical way of handling the asbestos problem.

You will be aware from the Asbestos Working Party Annual Report which was recently distributed to the Market that the discussions with Producers aimed at the establishment of a Claims Facility were reaching a positive conclusion. Final discussions upon the coverage issue took place in San Francisco on 4th/5th January 1984, at which the two London Market representatives were in attendance. Subject to minor points which have yet to be ratified, agreement in principle has been concluded upon coverage issues which provides that the signatories endorse and will recommend to their respective principals the proposals. It is unlikely that the terms can be embodied into a formal agreement before April, but meantime the Asbestos Claims Council Resolution Committee has agreed to lift the confidentiality agreement to enable details to be provided to the insurance industry. However, it is important that the London Market respects the need to keep confidential the information provided in this letter in order to prevent premature leakage to the media, which could be counter-productive to the interests of all parties at this stage.

The negotiations extending over a fifteen month period have been complex, and have to an extent been influenced by coverage interpretations handed down by the Courts over that time. The salient issues involved are as follows :

1. Coverage and Funding

Insurance coverage for an "exposure period" will be provided for a period from the first exposure to an asbestos product until manifestation of a disease ……. Approximately 1975 forward insurance coverage for asbestos diseases was either not available to a Producer or was written very protectively with high claim deductibles.

Therefore, before a producer has to apply payments to such policies, he will be permitted first to exhaust all of the earlier policy years. This is the so called "accordion'' theory which permits a Producer to exhaust his insurance coverage before having to make payments from his own resources.

2. Dismissal of Coverage Disputes

All coverage actions brought by Producers and Insurers seeking declaratory relief for damages, including punitive damages, shall be dismissed. Any disputes that may arise in the future shall be resolved within the Central Claims Facility through an alternative dispute resolution process to be developed.

Certain unique difficulties arising on one account are of such a nature that they could not be resolved prior to the creation of the Facility. It was agreed that in such instances the parties would be permitted to join the Facility with the understanding that they attempt good-faith settlement negotiations or resort to an alternative dispute resolution process if negotiations fail.

In either case, if settlement is still not possible, the parties may submit the matter to the Courts for final resolution. However, in such instances, all claims for punitive damages are to be waived.

3. Central Facility

Under the proposed plan, all claims will be handled within a Central Claims Facility. Meetings have been held with the leading plaintiff's attorneys who approved of the Facility method of handling asbestos claims. The procedure calls for an attempt to settle such claims through negotiation - if that fails, to resort to arbitration which may either be binding or non-binding at the choice of the parties and to resort to the Courts only if all other settlement fail.

The Facility will also establish liability shares to be paid by Producers and insurance shares for each settlement to be paid by Insurers. The Facility will be governed by a Board of Directors whose membership will principally consist of Insurers and asbestos Producers.

Advice is being provided by business consultants and a special sub-committee has been formed which has been preparing the ground work for the creation of such a ........ process the claims. At the start, the facility will be managed by loaned employees from Domestic Insurance companies. It is estimated that this ‘‘loan" should be for no more than one year during which time in addition to handling claims the loaned employees will also train new employees who will eventually become the full-time staff of the Facility. It is estimated that most of the loaned employees will return to their respective companies at the end of the year, but that some may elect to stay on as full-time employees of the Facility.

4. Scope of Facility

To date, agreement has only been reached in regard to the handling of bodily injury claims. There are still disputes as to the trigger of coverage and the amount of coverage available for property damage claims. A sub-committee exists which is attempting to work out an agreement regarding the existence and extent of coverage for property damage claims, but this may not be possible prior to the start-up date of the Facility which is estimated to be 1st July 1984. If there has not been a resolution of the property damage question at that time, it is proposed that an interim agreement be worked out to permit the handling of property damage claims within the Facility, whilst the parties attempt to negotiate a final resolution.

5. Facility Costs

The costs of establishing the Facility will be borne by the Primary Insurers. Excess Insurers will participate in operational costs commensurate with their involvement and a Producer will be required to pay its share of Facility operating expenses after all of its applicable insurance is exhausted.

6. Reimbursement of Payments Under Interim Agreements

Producers and Insurers shall be reimbursed and reallocated in accordance with the proposed agreement for payments and expenses incurred prior to the creation of the Facility, except where interim agreements explicitly provide otherwise. Where a party is required to reimburse another party, such reimbursement may be made over a period of three years with interest accruing.

Claims for fees and expenses incurred in asbestos insurance coverage litigation in which a Producer or an Insurer consider that they can justify a case for equitable relief will be submitted to the Facility for resolution in accordance with standards to be developed. Similar treatment will be afforded to claims by Producers for reimbursement for costs of co-ordinating Counsel and certain in-house costs incurred in handling of defence which ….

7. Non-aggregate Policies and Deductibles without a Stop-Loss:

A formula has been developed which puts a cap on payments where a non-aggregate insurance policy which attached in the period prior to knowledge of the asbestos issue has been triggered. The formula involves a multiplier of policy limits which decreases with the face amount of the policy. Where Producers have deductibles without a stop-loss, relief has been afforded under a similar theory where deductibles do not exceed $25,000 per claim or per occurrence. Deductibles or self-insured retentions in excess of that amount must be negotiated between the parties or in the event of a dispute, the parties must resort to arbitration, and if necessary, litigation. However, all punitive damages are waived. Policies written in the knowledge of the asbestos issue will be interpreted strictly in accordance with their terms.

8. Duty to Defend

This subject resulted in one of the more hotly disputed problems in the negotiations. The Producers took the position that in the pre-1966 policy forms, the duty to defend did not end upon exhaustion of the policy limits. Insurers took the opposite position. Unfortunately, during the negotiation process, two different decisions were handed down by Courts supporting the Producers' position and indicating that due to the wording in the pre-1966 forms, the duty to defend continued beyond the exhaustion of policy limits for all claims which triggered such policies. Obviously, these decisions weakened Insurers' bargaining position but a compromise was worked out which essentially provides that the duty to defend on a policy on pre-1966 form will expire on exhaustion of indemnity, but be revived on exhaustion of all excess policies. Rather than impose the burden of defence on such a policy which is revived, the Primary Insurers will fund a special defence policy which will pay for the cost of the revived defence in such instances.

9. Gaps in Indemnity Coverage

Subscribing Insurers are now giving consideration to the Producers' request that they cover gaps created by solvent non-subscribing Insurers in the band of coverage provided that the subscription to the Facility by Insurers is heavy and there are few non-subscribers and that the Producer will pursue any non-subscribing Insurer who refuses to pay his share through litigation in Court. If such suit is successful, the Producer will reimburse Insurers who have paid money on the behalf of non-subscribing Insurers.

The items listed above are the principal issues covered in the proposed agreement. There are other issues involving interpretation of insurance policies which have also been resolved, but they are too numerous to mention and do not substantially affect the operation of the Facility.

I hope that the above summary will give you a sufficiently broad indication of the proposals to enable initial consideration of the matter. As I have stated, it is likely to be at least two months before the proposals have been put into a detailed form for presentation to all parties at interest. However, The Working Party considers that it is essential that the market be made aware of these important developments and be provided with some background to the negotiations and likely developments in the future if endorsement is forthcoming from the Insurance Market. It is therefore proposed that there be a market meeting at 10:30 a.m. on Monday 13th February 1984 at the City Conference Centre, Marine Engineers' Building, 76 Mark Lane. Due to space limitations it is requested that no more than two individuals attend from each underwriting organisation, and that they each sign the attendance form at the entrance.

I must emphasise that your attendance at the meeting is essential in order that the Asbestos Working Party and the various US Counsel involved in these matters can address any concerns that exist within the Market. The formal proposals will be distributed at all sections of the London Market when they are available. However, at that stage a speedy response will be necessary from London, and it is therefore important to address questions that arise now, rather than later.

For your information, you will find attached to this letter a list of the Producers who have been involved in these discussions, and the Insurer members of the Asbestos Claims Council. Those individuals who form the Resolution Committee have been separately identified.

In conclusion, I feel I must record that the Working Party has been closely associated with the initial concept of the Facility and various negotiations that have taken place over the past fifteen months. Now that an agreement is developing, you should be aware that members of the Working Party are unanimous in their support to what they consider to be the only practical solution to this difficult problem.

0 Feb 84

Lloyd's Log: New asbestos scheme by Miles Smith

Roy Miles, joint managing director of Lloyd's insurance brokers Miles Smith Group said recently that many insurers are refusing employers liability insurance cover to contractors involved in asbestos related work. The Insulation Industry Insurance Scheme, launched by the Miles Smith Group, was designed with the needs of asbestos removal contractors particularly in mind.

The scheme would bring a new degree of consistency to medical screening for asbestos related infections and offered reputable, established insulation contractors the opportunity to contain insurance costs provided they conformed with requirements of the Asbestos (Licensing) Regulations which will come into force on August 1, 1984.

Concern has increased over a long period of time about working with asbestos and the tightness of legislative control reflects a number of factors such as the increasing amount of accumulated knowledge of the subject, pressure from employee representatives to improve the conditions of insulation industry workers; technological advance - availability of safety equipment; the ability of the industry to implement controls without impeding progress to the works and publicity such as the recent Yorkshire Television documentary.

There is no disputing the necessity for the 1974 Health and Safety at Work Act nor for the Asbestos Regulations which have flowed from the Act.

The construction industry from a health and safety point of view has been far too sloppy for far too long and the latest statistics give no cause for complacency - it is clear that the Site Safe 83 campaign has not had an immediate practical impact in reducing casualties. Only recently Mr Peter Morrison, the junior employment minister, complained that the industry was sacrificing safety for the sake of shaving "a few miserable quid off the contract price".

3 Feb 84

The Committee of Lloyd's established a Committee of Enquiry, chaired by Sir Edward Singleton, to enquire into Bellew, Parry & Raven and, to establish the facts and report, inter alia, as expeditiously as possible in relation to all reinsurance business giving rise to material premiums and or claims transacted directly or indirectly by Lloyd's Syndicates managed by the BPR Group Managing Agencies with Companies directly or indirectly controlled through interrelated party interests. (In the case of PCW and Alexander Howden, the enquiry related to all reinsurances and purported reinsurances transacted by Lloyd's Syndicates through the agencies of (amongst others) PCW, WMD, Alexander Howden Underwriting Ltd. This included reinsurances and "inter syndicate reinsurances" placed by Alexander Howden Ltd,

4 Feb 84

Financial Times: Cavalier warranty insurance holders ‘not protected'

MANY of the 130,000 policyholders who insured their kitchen equipment and cars with the failed Cavalier Insurance Company will get no compensation for financial loss.

They have been left in this position by a weakness in the 1975 Policyholders' Protection Act.

The Act was intended to protect the public from the financial consequences of a collapse of an insurance company. It ensures that individual policy-holders with insurance claims against the failed company would receive at least 90 per cent of their claim.

The shortcomings of the Act emerged yesterday when details were given to the Department of Trade and Industry of the winding up of Cavalier Insurance Company. The winding up order was made the previous day.

Cavalier Insurance Company was authorised under the 1982 Insurance Companies Act only to underwrite property insurance. However, during the period 1982-83 it underwrote extended warranty insurance - insurance which covers the cost of replacing or rectifying defects in goods or motor vehicles receiving more than £1m in premiums, even though it was not authorised to do this type of business.

Mr. Colin North Smith, chairman of the Policyholders' Protection Board which administers the Act, said yesterday that legal advice given to the board was of the opinion that these extended warranty contracts were not policies under the 1975 Act as the company was not authorised for this type of business and thus not covered by the provisions of the Act.

But he confirmed that any claims outstanding from the 7,500 policyholders with property insurance policies with Cavalier would be protected by the Act.

This legal opinion is apparent]y based on a recent case concerning unauthorised insurance policies.

Policyholders with extended warranty claims cannot expect much from the normal liquidation processes. . The preliminary advice given by the Official Receiver, who has been confirmed as provisional liquidator, is that they may be entitled to claim only for premiums received by the company and that they have no rights of recovery in respect of other claims.

He warns that because of the numbers of policyholders and the complexity of the company's affairs, it may be some considerable time before any possible distribution can take place.

Indications of the complexity came in the winding-up petition read out in court. This stated that the Official Receiver had been unable to establish the identity of the shareholders nor establish the financial position of the company. Doubts were cast over the validity or enforceability of an alleged reinsurance contract with an unnamed reinsurer.

Funds intended to pay the £950,000 reinsurance premium had been misappropriated as to £800,000 by directors, former directors or persons purporting to act as directors and applied to purchase shares in the company in contravention of the 1981 Companies Act.

4 Feb 84

Financial Times: Lloyd's to investigate BPR companies

The ruling authorities of the Lloyd's insurance market have set up an official investigation into the affairs of Lloyd's underwriting agencies which form the Bellew, Parry & Raven Group .

Lloyd's has appointed Sir Edward Singleton, a former president of the Law Society, to carry out a wide-ranging investigation into the group which is responsible for the affairs of 540 members of Lloyd's, and provides underwriting services for a further 450 members.

A notice announcing the inquiry was posted in Lloyd's yesterday.

The new investigation at Lloyd's arises from an earlier inquiry launched into the affairs of Brooks & Dooley Underwriting Agency and the links that two executives of the agency had with a company in Bermuda, the Fidentia Marine Insurance Company.

Sir Edward has been asked to examine the flow of funds between 18 Lloyd's insurance syndicates under the management of the Bellew, Parry & Raven Group with companies which either are or have been under the control of Mr. Bertram Grattan-Bellew, Mr. John Parry and Mr. Frederick Charles Raven, who are directors of the agency company.

Sir Edward has been asked to look at the premiums or claims transacted in the form of reinsurance contracts directly or indirectly through the following agency companies in which Bellew, Parry & Raven have an interest.

The agency companies are Bellew & Raven (Underwriting Agencies); K F Alder (Underwriting Agencies); A R E Chambers Underwriting Agency; Coucher Underwriting Agency; Haynes & Clack Underwriting Agencies; R P Milligan (Underwriting Agencies).

Mr. Edward Nelson, a former member of Lloyd's ruling council, is a senior executive of K F Alder.

Sir Edward has been asked to examine the extent of involvement of any person or their families connected with the agency company, and with brokers which acted in the placement of business in the form of reinsurances for the syndicates.

He will look at the financial impact of any transactions on the interests of members of Lloyd's whose affairs Bellew, Parry & Raven and the agency companies are responsible. In addition, the conduct of everybody involved in the transactions is to be examined.

Bellew, Parry & Raven disclosed nearly a year ago that the group dealt with an offshore company in Bermuda, the Midland Reinsurance Company, which was controlled by trusts held for "the children of directors of Bellew, Parry & Raven".

None of the directors of the Bellew, Parry and Raven was available for comment.

5 Feb 84

Sunday Times: Davison wins Lloyd's in-fighting

AFTER 10 months of secrecy, Lloyd's has finally come out into the open with a full scale, wide-ranging inquiry into the affairs of Bellew, Parry & Raven, writes Tony Levene.

The new investigation - led by the lawyer, Sir Edward Singleton - represents a major victory for the chief executive of Lloyd's, Ian Davison, in his internal struggles against the more backwoods elements in Lloyd's.

One area of special interest will be Bermuda where two reinsurance companies - Bermuda Re and Midland Re - are closely linked with Bellew, Parry & Raven.

The case of Bermuda Re will be a major test of Lloyd's ability to oblige underwriting members to appear before its investigation committee.

Bellew, Parry & Raven Agencies used to have a stake in Bermuda Re until it was transferred in the late 1970s to Breen Ltd, a company over whose country of registration there is some doubt. A second major shareholder is Ocean Re, an offshore reinsurer.

But also appearing on the shareholder list are members of the Pearman family. Recently, Sir James Pearman held 25,000 shares out of 230,000, R S L Pearman 25,000, and James A Pearman held 5,000. The Pearmans are connected to a Bermuda law firm, Conyers Dill & Pearman, and at the time of the Lloyd's enquiry into Brooks and Dooley refused to give evidence. The law firm had set up both Midland Re and Fidentia. Four members of the Pearman family are names on syndicates now under investigation.

In November, at the time of the Brooks & Dooley report, lawyers acting for BPR said: "Although it remains to be seen whether BPR and Conyers Dill and Pearman are the main recipients of publicity in the second Brooks & Dooley report, our clients certainly do not believe this will be the case."

They were right. BPR and the Bermuda lawyers will now be central figures in a report of their own.

6 Feb 84

Daily Telegraph: Outsider to lead Lloyd's inquiry

FORMER Law Society president, Sir Edward Singleton, has been called in by Lloyd's of London to investigate reinsurance business arranged by the Grattan-Bellew, Parry & Raven group of companies.

The move arises from information which came to light in the course of Lloyd's current investigation into the affairs of underwriting agents Brooks and Dooley arid their association with Fidentia Marine Insurance of Bermuda.

Lloyd's has launched a number of investigations in the past year to examine allegations that some Lloyd's members had undisclosed interests in reinsurance companies with whom they did business.

9 Feb 84

Accountancy Age: Investigations loom in wake of new Lloyd's probe

A leading authority on the Lloyd's of London insurance market warned that still more formal inquiries into the activities of underwriters are on the way as Lloyd's launched its latest probe this week.

The prediction came from Peter Anderson of Financial Intelligence and Research after former law society president Sir Edward Singleton was called in by Lloyd's to investigate Arthur Grattan-Bellew, John Parry and Frederick Raven and their companies.

Sir Edward will look into the reinsurance placed by underwriting syndicates managed by six agencies and the interests of the three men in the reinsurers - particularly their links with Bermuda.

Anderson said: "It was accepted practice to send reinsurance to connected companies. The abuse arose when it didn't come back."

Since the practice was widespread, he said, further inquiries are bound to follow.

Already Lloyd's investigations hare covered Alexander Howden, Minet subsidiary PCW Underwriting Agencies and Brooks and Dooley where offshore interests in reinsurance were not disclosed.

Anderson said: "The great majority did it. They were constrained by the tax rules. The question is how many took a personal benefit."

Auditors to the six Lloyd's agency companies in the latest probe, Bellew and Raven (Underwriting Agencies), K F Alder (Underwriting Agency), A R E Chambers Underwriting Agency, Coucher Underwriting Agency, Haynes and Clack Underwriting Agencies and R P Milligan (Underwriting Agencies) were this week considering their response.

Lloyd's chief executive Ian Davison has said there are between 10 and 20 investigations under way of which four are public inquiries.

10 Feb 84

Financial Times: Neville Russell supervised BPR insurance contracts

Accountants Neville Russell, which specialises in audit work in the Lloyd's insurance market, supervised insurance contracts arranged by underwriting agents in the Bellew, Parry & Raven (BPR) group with companies in which the agency executives had interests.

The details were revealed this week at a meeting of more than 100 Lloyd's agents who have introduced underwriting members to insurance syndicates managed by the Bellew, Parry & Raven group.

The meeting was called following the announcement by Lloyd's that an official inquiry was to be launched, headed by Sir Edward Singleton, former president of the Law Society, into the affairs of Bellew, Parry & Raven.

Sir Edward Singleton has been asked to examine the flow of funds from insurance syndicates under the management of Bellew, Parry & Raven agency companies with companies in which the three founding directors of the agency have a direct or indirect interest.

Mr. Edward Nelson, an executive of the agency K F Alder, which forms part of Bellew, Parry & Raven, told the meeting that his agency and the syndicate's under its management had traded with affiliated companies.

He said that his syndicate had a rollover policy and other contracts established with affiliates and that there had been contracts arranged in the past. "all contracts were supervised by our auditors Neville Russell", he told the meeting.

Mr. Nelson, a former member of the council of Lloyd's, said: "we have made it a practice over the years that all reinsurances of a material nature are advised to our auditors annually and we seek their approval."

10 Feb 84

Policy Holder: Lloyd's man to head inquiry

Lloyd's has appointed Sir Edward Singleton, a solicitor and former president of the Law Society, to investigate six underwriting agencies belonging to the Bellew, Parry and Raven Group.

The inquiry will investigate all reinsurance business transacted by Lloyd's syndicates through these agents with companies controlled by Arthur Grattan-Bellew, John Parry, Frederick Raven, their associates or families.

10 Feb 84

Underwriting Agents requested to disclose the reinsurance arrangements they have made with offshore companies to Lloyd's. Lloyd's required the confidential returns to assist them in their discussions with the Revenue.

10 Feb 84

Daily Express: Storm tossed

Widespread storm damage in Britain during January will cost around £70 million according to the British Insurance Association.

It is the worst weather damage since December 1981/January 1982 when blizzards and major flooding raised the total cost of property damage to £250 million.

10 Feb 84

Lloyd's List: M&M acquires Canadian firm

The consulting and financial services group of Marsh & McLennan Co. Inc has acquired Hickling-Johnston Ltd in Canada for a total cash consideration of about Can $4-1 million (£2.3m).

Hickling-Johnston is a consultant to industry and the Canadian government in the areas of human resources and organisational sand strategic planning.

It will be merged with the Canadian operation of William M Mercer, the leading world-wide employee benefit and compensation consulting company Marsh & McLennan said.

10 Feb 84

Lloyd's has decided not to publish Part 2 of the Coleman Report into suspended underwriters Messrs R Brooks and T Dolly and their relationship with Fidentia. Although not being made available to Names, Part 2 resulted in Lloyd's Disciplinary Proceedings, case No. 8301/4, "Pearman", being brought against J A Pearman and R S L Pearman, partners in the Bermudan law firm, Conyers Dill & Pearman, and members of Lloyd's via BPR; and case No. 8502/3, "Fidentia", being brought against B C Peers, Miss M M Brooks, J R Parry, F C Raven and Bellew, Parry & Raven Ltd.

11 Feb 84

Financial Times: Disclosure of reinsurance details requested

Underwriting Agents in the Lloyd's insurance market have been asked to disclose the reinsurance arrangements they have made with offshore companies. The Request, at a meeting of agents yesterday, was made by Mr. Peter Miller, Lloyd's chairman, following a wave of scandals in the market.

Lloyd's is under pressure from the Inland Revenue, which is trying to trace millions of pounds not declared for tax purposes by the market's professionals.

Under the guise of reinsurance contracts, money has been channelled out of the market by the professionals to companies based in tax havens which are controlled by the working members of the Lloyd's market and their families.

More than $400m (£282m) is believed to have been channelled to Bermuda and Lloyd's is to examine which are legitimate and which are bogus reinsurances.

Underwriting agents will have to complete forms which show their reinsurance arrangements, which they have always claimed are designed to protect underwriting members of the market against onerous losses.

The disclosure arrangements are part of a deal reached with the Revenue by Mr. Ian Hay Davison, Lloyd's chief executive, a year ago. Following the scandals surrounding Alexander Howden and Minet Holdings where $55m and $53m were alleged to have been channelled out of the groups' Lloyd's interests to companies controlled offshore by former executives the Revenue wanted to seize Lloyd's files.

Lloyd's argued that it could not carry out investigations into alleged irregularities if the files were seized. It said more disclosure by the market's professionals would allow the Revenue to identify areas which it wanted to investigate further.

The disclosure proposals form part of the agreement with the Revenue which has set up a special office in Mincing Lane near Lloyd's to investigate the market's affairs.

In the past week, Lloyd's launched an inquiry headed by Sir Edward Singleton, former president of the Law Society, to investigate the affairs of Bellew, Parry & Raven, the underwriting agent, and establish the amounts of money which have flowed from insurance syndicates under their control to offshore companies controlled by the agency's founding directors and their families.

12 Feb 84

Sunday Times: Lloyd's private report

Lloyd's has decided not to publish the second part of the report into suspended underwriters Raymond Brooks and Terence Dooley and their relationship with Fidentia, the offshore reinsurance company they controlled.

It has decided that this part of the report is of no direct concern to names because it will apparently contain nothing which could be actionable.

The first part was critical of the way Brooks and Dooley used the offshore services of Bellew Parry and Raven, among others, to move premium cash to Bermuda.

But the recently announced Lloyd's inquiry into BPR will go far beyond Brooks and Dooley. In all, premium income well in excess of $250m is involved.

The investigation - led by lawyer Sir Edward Singleton will assess each reinsurance contract for degree of commercial risk, a task made harder by the practice of inserting several intermediate layers between the originating syndicate and BPR before the premium ended up in Bermuda companies

We have been asked to make it clear that Ocean Reinsurance Corporation SA of Liechtenstein had no shareholding in, nor any other connection with the Ocean Re mention in last week's article.

13 Feb 84

A Market Meeting took place on the subject of asbestosis at 10.30 a.m. at the City Conference Centre, Marine Engineers' Building, 76 Mark Lane. This was under the auspice of the Lloyd's Underwriters' Non-Marine Association, H R Rokeby-Johnson 1984 Chairman. R A G Jackson, the 1984 appointed Chairman of the asbestos Working Party, is understood to have addressed the meeting. The Working Party considered that it is essential that the market be made aware of the important developments concerning the setting up of a Central Claims Facility and be provided with some background to the negotiations and likely developments in the future if endorsement is forthcoming from the Insurance Market. Due to space limitations it is requested that no more than two individuals attend from each underwriting organisation.

13 Feb 84

The 1983 Annual Reports of Syndicates Byelaw (No. 2 of 1984, 13 February 1984). The Council shall set up a central file of annual reports of syndicates, which shall contain a separate section in respect of each syndicate. The Managing Agent shall send to the Society, not later than 15 June 1984, two copies of every annual report prepared, but excluding the individual personal account prepared for each individual Member. On copy of every annual report received by the Society shall be placed on the Central file. Every Managing Agent which managed a syndicate at 31 December 1983 shall produce in respect of such syndicate an annual report signed by at least one director or partner as the case may be, of the underwriting agent and the active underwriter of the syndicate (or separate reports by each of them) on the business transacted for the account of the underwriting members who underwrote through that syndicate during any relevant year of account and other matters of specific interest including comments on the progress of open years. The annual report shall comprise any additional commentary which the Managing Agent considers appropriate. The "relevant year of account" in relation to a syndicate, the 1983 year of account or any earlier year of account other than a year of account in respect of which all outstanding liabilities of underwriting members arising out of insurance business underwritten through that syndicate were, with effect from a date no later than 31 December 1982, wholly reinsured at Lloyd's. The Interpretation Act 1978 shall extend to and be applicable to this byelaw, which shall be deemed to be subordinate legislation within the meaning of this Act. The Council or the Committee may on application extend as it may think fit any time limit specified in this byelaw. (This Byelaw relates to the 1981 year of account closed in mid 1984 as at 31 December 1983). Under paragraph 5.28, the Neill Report states "we have already mentioned the existence of published comparisons of syndicate results made possible by the decision of the Council of Lloyd's to establish a central register of accounts. Although the Fisher Report pointed in this direction, the non-Lloyd's members of the Fisher Working Party were persuaded by their Lloyd's colleagues not to press any formal recommendation on the subject (Fisher Report paragraph 9.13) (The Lloyd's Members of the Fisher Working Party; Mr T B Langton, an Underwriting Agent and Lloyd's Committee Member 1973 - 76, Mr Norman R Frizzell, a Lloyd's Broker and Chairman of the Frizzell Group, Mr A B Gray, a Non-Marine Underwriter and Lloyd's Committee Member 1976 - 79, Deputy Chairman 1977/8, were on "Baby Syndicates"). Nevertheless, this reform was implemented early in the life of the new constitution by means of the 1983 Annual Reports of Syndicates Byelaw (No. 2 of 1984) which was later extended in operation by the Syndicate Accounting Byelaw (No. 7 of 1984)".

15 Feb 84

Financial Times: Lloyd's considers reinsurance curbs

The ruling authorities of the Lloyd's insurance market are considering whether the market's professionals should be prevented from arranging deals for insurance syndicates under their management with offshore companies which they control.

Lloyd's has received a recommendation from investigators who probed the relationship of two of the market's professionals with the Fidentia Marine Insurance Company in Bermuda, which they controlled, that there should be "a comprehensive prohibition on all future related party reinsurance transactions."

The investigators said in an internal report that control by syndicate underwriters over reinsurance companies "will almost give rise to abuses of the underwriter's fiduciary duty to his syndicate" which he runs at Lloyd's.

Mr. Ian Hay Davison, Lloyd's chief executive, said yesterday that the recommendation was under consideration. But he warned: "It is all very well for the inspectors to say what the market should do. It is another matter to consider what is possible."

Mr. Davison confirmed that the Inland Revenue was interested in the operation of roll-over reinsurance schemes which are often arranged offshore by the market's professionals for underwriting members in offshore tax havens.

Under a rollover scheme money is taken out of an insurance syndicate at Lloyd's under the guise of reinsurance and placed with companies in tax havens.

The device is designed to reduce taxable disclosable profits in the UK and the contracts usually contain an agreement that the money should be returned to the syndicate at a later date. The Inland Revenue is attempting to crack down on the operation of blatant tax avoidance devices.

In a further wave of reforms Lloyd's is to make mandatory the filing of audited annual reports of its syndicates to a central filing system, which will be available to the public. A bye-law giving force to the measure has been passed and reports will have to be filed by June 15 this year

Lloyd's said it had no plan to ask for information from underwriting professionals for the period before the end of the last underwriting account at the end or December 1983. Mr. Davison said: "We do not design rules with the assumption that everyone is up to no good."

  • Mr. Joe Hodges, secretary general of the Corporation of Lloyd's, once the top administrative post in the market, has resigned after 34 years service.

Mr. Hodges, 52, was said by Mr. Davison to feel that his job had changed since Mr. Davison had taken over as chief executive. Mr. Michael Parry is to succeed him in a new post - secretary to the Council of Lloyd's. The title of secretary general has been dropped.

15 Feb 84

The Times: Disclosure order to syndicates

Members of the public and Lloyd's names will be able to inspect fully audited annual accounts of individual Lloyd's syndicates for the first time from July.

The new system is the latest move by the Lloyd's regulatory authorities to improve the standards of accountability and disclosure in the wake of the recent scandals.

Mr. Ian Davison, chief executive of the market, said that copies of audited annual reports must be deposited with Lloyd's ready for filing by June 15.

Early in July the reports, which will relate to the three years accounts 1981, 1982 and 1983, will he available for inspection in much the same way as public company accounts are made available at Companies House. A small fee will be charged for inspection.

Mr. Davison said that in April another by-law will be enacted to include mandatory disclosure of related party Interests and transactions. A thorough review of audit requirements is also in hand.

Underwriters will also have to produce a descriptive report of the business which would be similar to the chairman's statement in a public company's annual report.

Details of the latest requirements have been sent to 300 Lloyd's underwriting agents affected by the changes.

Mr. Davison promised that Lloyd's will investigate any irregularities which come to light as a result of the increased disclosure requirements. This would include passing on details of any gross tax irregularities to the Inland Revenue.

Lloyd's also announced yesterday that Mr. Joe Hodges, secretary general of the corporation, has resigned after 34 years at Lloyd's. A new position of secretary to the Council of Lloyd's has been created and will be filled by Mr. Michael Parry, head of personnel at Lloyd's.

16 Feb 84

Financial Times: Minet fails to trace $17m lost in underwriting scandal

More than $17m (£11.78m) belonging to over 1,000 Lloyd's underwriting members who form insurance syndicates under the management of Minet Holdings, one of Britain's largest insurance brokers, is still missing.

In the scandal which erupted at the end of 1982 it was feared that $40m had been misappropriated. It later appeared in court proceedings designed to recover the money that $53m was missing. But the final amount which has been diverted out of the Minet insurance syndicates is feared to exceed $57m.

Minet has tracked down $40m of assets in Gibraltar and has yet to recover the rest of the money for the insurance syndicates.

Attempts to account for the full amount have so far failed although investigations are being carried out world-wide by the company to trace the money. It is alleged that the money has been misappropriated by former Minet executives.

The City of London Police Fraud Squad, which started an investigation in November 1982, is still investigating the matter along with Department of Trade and Industry.

Lloyd's which has carried out an investigation, is studying a confidential report into the matter prepared by Mr. Simon Tuckey, QC and Mr. Nigel Holland, an accountant, with Ernst and Whinney. The report is being studied by the Lloyd's regulatory committee and bodies.

The report details how money was channelled out of the syndicates under the guise of reinsurance to tax havens. The money was channelled to the Isle of Man, Guernsey, Bermuda, Gibraltar, Liechtenstein, Panama and Switzerland.

The investigators have been told how at least $57m was paid out of money belonging to the syndicates for so-called reinsurances. But the amount of money received in Gibraltar only totals $40m under the reinsurance contracts.

Minet and J. A. Hassan, the law firm of Sir Joshua Hassan, chief minister in Gibraltar, which acted as trustees for the companies set up by Minet's former executives, gained a ruling last month that $40m worth of assets could be recovered in the English courts.

Lloyd's investigators have detailed in their report how the money was fed from the syndicates to a number of anstalts (financial trusts) in Liechtenstein which were formed with code names by the former Minet executives. The code names mentioned are Perix, Optix, Manix, and Papix.

The Papix anstalt was created for the benefit of Mr. John Wallrock, the former chairman of Minet Holdings, who resigned in November, 1982 after admitting that he had secretly received benefit from reinsurances arranged for the group's Lloyd's insurance syndicate.

Mr. Peter Cameron-Webb, who ran the Minet underwriting agency, PCW. which looks after the affairs of the syndicate and who is seeking to start insurance work in the Insurance Exchange of the Americas in Florida, also received benefits through a settlement with the code name Alix, which was later known as Maderna.

Mr. Peter Dixon, who ran the underwriting agency when Mr. Cameron-Webb resigned at the end of 19.81, received benefit via a settlement called Cafix, which was later known as Rosalinda.

At present Lloyd's has no plans to publish the report which is under study. The ruling authorities have yet to decide whether they will take disciplinary action.

17 Feb 84

Financial Times: Sedgwick names two in case of lost funds at Lloyd's

A former main board director of the Sedgwick Group, Britain's largest insurance broker, and a former employee received secret payments from an underwriter, who is alleged to have misappropriated at least $57m (£40m) from more than 1,000 Lloyd's underwriting members.

The two men were named by Sedgwick as Mr. Michael R. Adams, a director of the group who retired in June 1982, and Mr. Geoffrey F. Naude, a broker at Sedgwick who resigned on Wednesday.

The two men received payments from an offshore settlement called Cafix, which was set up to receive money secretly from Lloyd's insurance syndicates under the management of companies controlled by Minet Holdings, another large insurance broker.

Cafix, and a range of settlements, were set up to benefit privately Mr. Peter Cameron-Webb, Mr. Peter Dixon and other former executives of Minet, including the former group chairman, Mr. John Wallrock. The Department of Trade and Industry, the City of London Police Fraud Squad, investigators in the Lloyd's insurance market, and the present management of Minet Holdings have been attempting to trace where the amount of at least $57m had gone.

So far $40m has been located in Gibraltar. Other cash has found its way to Liechtenstein trusts.

Mr. Adams and Mr. Naude received $62500 as beneficiaries of Cafix sub-account number 7957. In a statement yesterday, Sedgwick, without specifying the amount of money the two had received, said that they had received payments "at a time when they were employees of the Sedgwick Group from Mr. Peter Cameron-Webb or a company controlled by him."

Sedgwick added that the "payments were made to the individuals concerned in their personal capacity without the knowledge of or any impropriety on the part of Sedgwick Group."

Sedgwick has said that it has sought and received assurances from all directors of the group, as well as all executive directors of all subsidiaries world-wide "that they were not party to any such improper arrangements" involving reinsurance schemes.

17 Feb 84

Financial Weekly: More Lloyd's suspense?

More Lloyd's suspense?

ONE WONDERS whether suspended underwriters of. Lloyd's - currently sunning themselves in the- Caribbean and the Mediterranean - get-the time to read Lloyd's Log - Lime Street's monthly bible.

If they do, they will probably spill their rum punches and Martinis and seek the shade of some nearby palm tree because the February issue of The Log makes no bones of the fact that Lloyd's chief Ian Hay Davison is intent upon bringing the culprits to book.

In a major feature article entitled "The Quiet Revolution", the chief executive, tells Lloyd's members that "the miscreants- are being tracked down."

Reports on various investigations are now available to Lloyd's and "disciplinary charges are being formulated and brought forward," he says.

"From the middle of this year the accounts of all syndicates at Lloyd's are to be available on public file" says the Lloyd's chief. Furthermore, these accounts will contain information about the related party interests - of underwriters and others involved in the management of syndicates. Dubious practices will fade away like mists before sunshine" says Hay Davison.

Fine thoughts indeed, but where large sums of money are involved, greed usually surfaces before honour. The Act of Parliament granting the Lloyd's insurance market wide self-regulatory powers would not have been passed into law if the scandals which surfaced had conic to light earlier.

19 Feb 84

Mail on Sunday: Lloyd's to face a blitz from taxman

SCANDAL-SHOCKED Insurers at Lloyd's of London could soon be hit directly in the wallet. At long last, it looks as if the taxman has taken an active interest the millions that have been squirreled away overseas disguised as reinsurance.

Top-level discussions have recently. taken place at the Inland Revenue to decide whether to launch a tax-collecting blitz on the artful reinsurers of lime Street, some of whom may have tucked the money away into their own offshore pockets,

Siphoned off

Reinsurance is a quite standard procedure both at Lloyd's and in the company Insurance market. Prime insurers or underwriters often lay off part of their risks, in return for part of the premiums, with companies specialising in such business.

But a flush of multi-million scandals affecting such major Lloyd's brokers (agents) as Alexander Howden and Minet Holdings highlighted a :new twist. Here much of the reinsurance money went to companies secretly owned by individual brokers and underwriters.

Not surprisingly, the Inland Revenue has come round to the view that such alternative reinsurance via offshore companies may represent plain (or rather complex) tax fiddling as well as depriving other Lloyd's syndicate members of their full profits.

‘The Revenue in the past has approved reinsurance,' a Lloyd's official reported last week, ‘but, having discovered the occasional chicanery, wants to know how deep these things go.' Current Indications are that they may go very deep Indeed.

Latest disclosures involve the Minet-owned underwriting agency POW, which under Peter Cameron Webb - a former colleague of Lloyd's ex-chairman Sir Peter Green - is alleged to have siphoned off $57 million (£40 million) of which $1.1 million still untraced.

Several private Liechtenstein trusts had been set up act as money-boxes for Minet chairman John Wallrock (his is called Papix), Cameron Webb (Alix) and colleague Peter Dixon (Cafix). And these offshore benefits ex tended beyond the in-house group.

Lucrative

PCW also handled special reinsurance for Alexander Howden, whose chairman Ken Grob left with three co-directors after its lucrative in-house arrangements were revealed. Now Sedgwick Group has admitted that Michael Adams and Geoffrey Naude shared in Cafix.

Minet still refuses to disclose which well-placed ‘Names' are behind three other booty-full off-shore trusts, Manix, Optix and Perix. ‘Of course we know who owns them,' a spokesman said defensively, ‘but these things take time to sort out:'

Inland Revenue investigations may concentrate on what are known in Lloyd's as ‘roll-overs', where money can be sent overseas in fat years and brought back in leaner insurance seasons. They can be legit if the reinsurer takes a risk.

20 Feb 84

Financial Times: Lloyd's tries again to improve image with Inland Revenue

Ten days ago, Lloyd's underwriting agents were summoned at short notice by Mr. Peter Miller, chairman of their insurance market, to a meeting to discuss their reinsurance arrangements.

The move marked another stage in Lloyd's attempts to improve accounting and disclosure in the market after a wave of scandals. But the latest proposals for .disclosure are more than usually significant for they could affect Lloyd's standing and relationship with the Inland Revenue - a relationship which has become extremely tense in the past year or so.

While Lloyd's is faced with the problem of tracing funds running into millions of pounds which have been allegedly misappropriated by the market's professionals from money belonging to the underwriting members, the Inland Revenue is faced with the equally daunting problem of recovering funds which have not been declared for tax.

The Inland Revenues concern about the recent irregularities in the Lloyd's insurance market centre on two main issues: the use of reinsurance as a tax evasion device for all members of Lloyd's; and the use of reinsurance as a tax. evasion device for the market's professionals.

The tax authorities are alarmed at the degree of tax evasion which has taken place at Lloyd's. Lloyd's already enjoys considerable, and recognised, tax advantages from the Inland Revenue in order to attract new capital, in the form of the underwriting members, to the market, and ensure its continued growth

So the Revenue is exerting considerable pressure on Lloyd's to give a full account on how schemes which have had a tax evasion purpose have been structured at Lloyd's.

To this end, Lloyd's, at the meeting of underwriting agents, had asked the professionals to give full details of how a tax scheme devised by the market has operated. The scheme is known as "rollover" reinsurance.

Reinsurance is an important .!insurance mechanism, which allows professional insurers to lay off large parts of their risks with other companies and protects them against onerous losses. Rollover reinsurance, widely used in Lloyd's, is a different device and operates as follows.

Once the Lloyd's professionals have arranged the usual reinsurance protection for the syndicates under their management for real underlying risks, they usually assess the disclosable profitability of the syndicate. If the disclosable and taxable profits of the syndicate are likely to a big jump, another reinsurance contract is arranged.

The extra contract, which carries little likelihood of a claim ever being made against it; is paid for by a premium out of the syndicate. The reinsurance premium is deductible for tax purposes and the contract usually contains a contractual arrangement that the reinsurer refunds the premium in the event of no claim, which is most likely, or the balance of the premium in the event of a claim.

The reinsurer may enter into a reverse contract with the syndicate, so that money eventually flows back to the syndicate, which then acts as a reinsurer to the group with which it placed its reinsurance business.

At, the same time, the Revenue is also attempting to identify where that type of reinsurance business has been placed.

Recent investigations in Lloyd's have disclosed that rollover funds are often lodged with companies where the market professionals have a direct shareholding interest.

The companies are usually based in tax havens, and the professionals have drawn money from the funds which they have lodged offshore for their personal benefit.

The Revenue is attempting to establish the amount of tax that the market's professionals have evaded through the use of those related companies. Lloyd's is insisting that all related party transactions are disclosed in the future.

Mr. Ian Hay Davison, Lloyd's chief executive, said that if "gross tax irregularities"' were disclosed in the market's official investigations into individual firms, the findings would be reported to the Inland Revenue.

20 Feb 84

Daily Telegraph: Mounting losses in insurance

THE major composite insurance companies are likely to report mounting underwriting losses for 1983 and 1984 contrary to the recent optimistic view of improving prospects, says John Ginarlis of stockbroker Quilter Godison in his latest assessment of the industry.

Commercial Union, which starts the insurance "season" of results later this month, has been "dogged by severe market conditions," and continued bad weather claims in the United States and Britain.

20 Feb 84

Financial Times:

Mr. Patrick Sheehy and Mr. Brian Garraway have been appointed to the boards of Eagle Star Holdings and Eagle Star Insurance Co. Mr. Sheehy is chairman and Mr. Garraway is a deputy chairman of BAT Industries.

22 Feb 84

Accountancy Age: Top names feature in Lloyd's reinsurance probe

Lloyd's of London latest probe into reinsurance arranged by the Bellew Parry & Raven Group for underwriting syndicates run by six agencies is to question the accountants involved and other members of Lloyd's.

Five firms of accountants on the Lloyd's panel who audit and in some cases keep the books for the syndicates will be questioned if this inquiry follows the same pattern as the one into Brooks & Dooley Underwriting and its Fidentia offshoot, Fidentia Marine Reinsurance.

The five firms are Neville Russell, Futcher Head & Gilberts, Arthur Young McClelland Moores, Ernst & Whinney and Spicer & Pegler.

Accountancy Age has obtained a copy of the earlier report which reveals that Neville Russell senior partner Alan Dyer was involved in the setting up of Bermudan-based Fidentia.

The auditors of the 19 syndicates involved will be asked by Sir Edward Singleton, who leads the latest inquiry, about reinsurance premiums sent offshore to companies connected with Bertram Grattan-Bellew, John Parry, Charles Raven and their families.

Among the syndicates to be probed will be Syndicate 973, a "Baby Syndicate" comprising Bellew Parry & Raven individually, suspended underwriter Ian Posgate, Lloyd's ruling-Council Member David Coleridge and Chairman of Lloyd's Non-Marine Underwriters' Association Ralph Rokeby-Johnson.

Coleridge said "It was not desperately successful. It wrote personal accident, some stop loss on other syndicates and a bit of kidnap and ransom".

The syndicate ceased business at the end of last year and made a loss in 1980 - the last closed year - for its working "Names".

22 Feb 84

Lloyd's List: New date for Beirut war risk surcharge

Members of the Far East to Europe Freight Conferences have confirmed that they will introduce a war risk surcharge of 10% on cargo loaded for direct discharge at Beirut from Feb 28.

The charge was first announced at the beginning of the month to take effect on Feb 6 but a day later the conference issued a postponement notice.

Now it says the cost of calling at Beirut has increased sharply, particularly the charges of war risk insurance which were over 2%.

Brokers in the London market yesterday said 2-5% to 3% hull war rates for Beirut had about doubled in the last week and were now about, but there was little evidence of any business.

Some underwriters have covered the vessels doing evacuations from Beirut at rates around 2%. Lloyd's Shipping Information has no record of any losses from Beirut this year.

However, three vessels badly damaged in the northern part of the Gulf earlier this month look like producing substantial claims on Lloyd's and London market underwriters.

They are the ore-bulk-oil carrier Skaros (16,028 tonnes dead-weight) insured for $2.5 million (£1-7m), general cargo vessel Neptune (8,364 tons gross) insured for $2-5m, and the bulk carrier City of Rio (16,000 tonnes) covered for $ .

Despite increased fighting over the last ten days, hull rates for journeys to the Gulf appear to have remained stable. Last year 14 vessels were lost or damaged in the northern part of the Gulf, according to Lloyd's Shipping Information.

0 MAR 84

OSHA Regulations

An emergency temporary standard, which was issued in November 1983, was struck down as invalid by the United States Court of Appeals for the Fifth Circuit in March 1984.

1 Mar 84

Financial Times: Lloyd's and the Revenue dispute tax liabilities

ONE OF the biggest battles between tax authorities and an institution is in progress as Lloyd's of London and the Inland Revenue try to agree millions of pounds of disputed tax liabilities in the Lloyd's insurance market.

Central to the row is the Revenue's insistence that money lodged offshore in tax havens in the form of rollover funds by the market's professionals should be declared for tax

The Revenue is trying to identify precisely how much money has been used in the form of reinsurance arrangements for tax evasion purposes.

Its concern arises from recent irregularities in the Lloyd's market involving misappropriation of more than $100m (£68.4m) by the market's professionals from money belonging to underwriting members.

The Revenue's concern at these irregularities focuses on two issues. These are the use of reinsurance as a tax evasion device for all members of Lloyd's and for the market's professionals.

Lloyd's has formed a top-level committee headed by Mr Peter Miller, the market's chairman, to deal with discussions with the Revenue. The latest arguments focus on:

  • The Revenue's request for an immediate interim payment from the market to meet the tax liabilities;
  • How such an interim payment should be funded
  • Other ways the liabilities call be mitigated.

Lloyd's underwriting agents previously said they had problems justifying to the Revenue, if challenged, that normal reserves for unreported insurance losses were proper reserves and not tax avoidance or evasion schemes.

The establishment of large reserves can cut the disclosable amount of taxable profit, which reduces the tax liabilities of underwriting members. Funds from reserves can be released in bad underwriting years, to boost profits.

In this way the tax liability and the returns to underwriting can be smoothed between one underwriting account and the next.

Huge funds have been built up offshore in tax havens because of the Revenue's sceptical attitude to the agents' reserving policy. The agents say these have been established as extra reserves.

In what are known as rollover policies a reinsurance contract is taken out by a Lloyd's insurance syndicate. A tax deductible reinsurance premium is paid by the syndicate and the money lodged offshore with a company in a tax haven.

The premiums and investment earnings are rolled over between one underwriting account and the next in the offshore company and are returned to the syndicate only under a contractual arrangement if the syndicate's profitability looks like falling.

Over the years these funds have become used increasingly to warehouse the syndicate's surplus funds which might otherwise be liable for UK tax.

At the same time, the funds have often been lodged with companies where the market's professionals have a direct shareholding interest and have taken dividend out of the offshore tax haven company.

Now the Revenue wants these arrangements fully declared. It intends to conduct an examination of the market's books to assess whether there has been a legitimate reinsurance purpose behind the rollover contracts or they are sham contracts arranged to warehouse funds.

Lloyd's is anxious to avoid a direct tax liability and penalties. It argues with the Revenue that the offshore funds should be brought back and applied to underwriters' general onshore reserves and the reinsurance to close items of the market.

At the end of each underwriting account Lloyd's establishes an arrangement to reinsure the outstanding liabilities of one account into the next underwriting account

Lloyd's says huge losses will necessitate a large "reinsurance to close" item this year which could be offset by the funds lodged offshore.

The Revenue, however, is adopting a tough line because Lloyd's is one of the most profitable insurance markets in the world and past catastrophe claims, such as the recent computer-leasing losses, the current asbestosis claims and other large claims, have had little impact.

Lloyd's also faces problems with its market members over funding of any interim payment by the Revenue. The Lloyd's authorities are considering making any pavement from the central fund of last resort. This fund is designed to protect policyholders and is funded by members' subscriptions.

Members say any payment on tax liabilities should be paid for by those liable rather than spread across guilty and innocent alike.

5 Mar 84

Meeting of Ernst & Whinney. The main topic of the evening, latent diseases with particular references to asbestosis. (Ernst & Whinney's notes recorded that the number of claims is difficult to determine but may be in the region of 25,000. New claims are still coming in at roughly 500 per month and the peak may not occur until 1990). 7.

Michael Bolger introduced the subject of asbestosis, which is one of the diseases that can arise as a result of exposure to asbestos dust, and has given rise to significant claims under Workers' Compensation and Products Liability Policies (and even under property damage policies where asbestos products have to be physically removed). The problems this presents to the insurance industry are: (a) the question of what triggers the coverage - exposure manifestation or some combination of the two. (b) The length of the latency period (17-18 years). (c) The identification of the relevant insurance policy or carrier. (d) The attitude of the U.S. Courts since the Supreme Court has not set a national standard.

  1. There are several theories as to the basis on which liability should attach to a particular insurer:
  1. Manifestation.
  2. Exposure.

(c) Pro-rata.-all insurers share

  1. Triple trigger (Keene case).
  1. The number of claims is difficult to determine because of double counting, but maybe in the region of 25,000. New claims are still coming in at roughly 500 per month and the peak may not occur until 1990. T he main primary insurers are...... but Lloyd's underwriters are heavily involved in excess lines.

10. A syndicate needs to establish reserves as best it can. To do this it will need to have a proper understanding of policy wordings, and in particular of any aggregate limits written into the policy. Where reinsurance protection is available, careful consideration will need to be given to the adequacy of the security, and an appropriate IBNR estimate will need to be arrived at. Legal costs are soaring, and represent a very significant reserving factor, although the clarification of coverage and the establishment of the claims handling service in the USA should help by reducing litigation.

11. Ernst & Whinney have sent out a questionnaire to clients designed to elicit information as to the sources checked, the records established, the number of losses notified, reserved and settled, reinsurance writings and recoveries and the basis of the IBNR.

  1. Steve Abbott stressed the need for our thought processes to be properly documented on file ..... There is no specific guidance from Lloyd's this year though there was an instruction for the 1981 solvency test that the liabilities should not be discounted. It is generally accepted at Lloyd's that the higher of the amounts arrived at on the exposure or manifestation bases should be provided together with legal costs. Reserves must be assessed gross and have reinsurance recoveries deducted.

13. In answer to a question Steve Abbott commented that he was not aware of any syndicate that had kept its accounts open because of asbestosis, although some have done so for computer leasing (which is now basically sealed). There may be a need to summon PSP meetings for particular clients during the present audit season.

7 Mar 84

Daily Telegraph: Lloyd's wins on Brooks Dooley

"Disciplinary proceedings at Lloyd's will proceed without delay " against Raymond Brooks and Terence Dooley, following yesterday's go ahead in the High Court. Lloyd's had asked the court to approve using the new procedures to expel members who had broken rules before the Lloyd's Act 1982 came into force.

Mr Justice Neill said he saw no inclination "to suggest that the specified grounds upon which disciplinary proceedings may be instituted have to exclude past events," so Lloyd's is entitled to use the simpler new method.

The victory for Lloyd's enables it to expel the two men who were the subject of a scathing report by its investigators. Their report said there had been "substantial misconduct" by the two men who had "abused their fiduciary duty " and concealed information.

Lloyd's was also awarded costs, and having won its first; such case will be fee to expel former star underwriter Ian Posgate. The new procedure allows for expulsion by the council, while the old system called for a public meeting.

8 Mar 84

Lloyd's List: Scottish Equit in Lloyd's deposit scheme

Scottish Equitable Life Assurance has launched a new scheme to help Lloyd's underwriters meet higher deposit requirements.

Under the scheme, Barclays Bank will give a guarantee to Scottish Equitable allowing the assurance group to give Lloyd's a guarantee for the full amount need to satisfy Lloyd's requirements, increased under a 1981 ruling

Barclays will in turn require the underwriter involved to assign property, shares or other assets as security for the guarantee given by Scottish Equitable.

Under the 1981 rule change, deposits were increased steeply

The requirement for an underwriting limit of £100,000, for example, was increased from £15,000 to £25,000. For a £200,000 limit the deposit was doubled to £50,000.

8 Mar 84

Daily Telegraph: Libel of insurers denied

Two Lloyd's underwriters claimed libel damages against THE DAILY TELEGRAPH in the High Court yesterday over a City page report which, they say, implied that they there awaiting trial on criminal charges

Senior underwriter Mr FREDERICK SASSE, of Camden House Terrace, Kensington, and his deputy, Mr THOMAS TURNBULL, of Stoke Hammond, Milton Keynes, Bucks, were both directors of Sasse Turnbull & Co., managing agents at Lloyd's until 1978.

The company was suspended by Lloyd's following losses by one of the syndicates under their management.

Their claim arises from a report on Sept. 30 1981 under the heading: "Underwriters suspended in Lloyd's purge."

The newspaper denies libel and says that the report, which did not name the pair, could not be taken to refer to them.

"Quite untrue"

Mr Patrick MILMO for Mr Sasse and Mr Turnbull, told Mr Justice Hirst and a jury that the allegations were quite untrue and amounted to a serious libel on them both.

"There can be no worse stain on a person's character than a charge that he has committed a crime."

He said THE DAILY TELEGRAPH was a "quality newspaper with a very large circulation," and widely read by people working in the City where the pair were based.

The firm, set up 1965, had been managing the affairs of Lloyd's Syndicate 762 which crashed and was suspended by Lloyd's along with their own firm in 1977.

The crash followed the underwriting, on behalf of the syndicate by a broker in

Florida, of a large number of policies insuring " slum and derelict properties in New York and Philadelphia," he said.

As a result Mr Sasse and Mr Turnbull were accused by Lloyd s of "discreditable conduct".

This charge against Mr Turnbull had been dropped, though that against Mr Sasse remained undetermined.

But, despite a two-year police investigation, the two men had never been accused of any criminal offence and police had concluded that no fraud had been committed in Britain.

The article, which said Lloyd's disciplinary proceedings against " three underwriters connected with the Sasse syndicate " had been suspended "pending criminal proceedings," came as a body blow " said Mr Milmo.

In fact, the Lloyd's disciplinary proceedings had been suspended pending civil High Court proceedings in which the directors of Sasse Turnbull sought damages against Lloyd's

"Token Defence"

Mr Milmo said the newspaper's defence to the action was "a token defence and the

real issue in this case is one of damages."

He told the jury: "I will be asking you to award substantial damages."

Mr Sasse said he was chairman of Sasse Turnbull and its leading underwriter

The company founded Syndicate 762 which became "market leader ‘ in providing "product liability" cover for products including pharmaceuticals

The American insurance was underwritten by Mr Dennis Harrison, an Englishman, and former Lloyd's member based in Florida. They took on a lot of slum business in New York which turned out to be Mafia-controlled.

Lloyd's disciplinary proceedings had been brought under the Lloyds Act 1971 and 1911 and the pair were not awaiting trial. The libel was "clear cut and straightforward."

The case is expected to last two days.

8 Mar 84

Lloyd's List: Australia may limit credit to insurance broking sector

Proposed new Australian insurance legislation will limit the amount of credit companies allow brokers and will also impose annual reporting requirements. Insurance companies will also be liable for policies written by agents and brokers.

Recently appointed Insurance Commissioner Mr Warren Tickle said in Melbourne that the government also intended that the broking industry should fund administration of the legislation, likely to be A$500,000 (£318 000) in the first year.

Some 1,000 brokers would be registered under the legislation but it was suggested that as many as 10,000 would seek registration.

Mr Tickle, who will administer the changes, said one problem was how to enforce the legislation regarding the insolvency of brokers - should he keep a close watch on everyone or wait for complaints to come in?

Under the proposals, brokers will be required to pay to insurance companies premiums collected on policies they write, within 30 days of them being signed by the consumer.

At present, they keep the premiums for some time, using the funds for income earnings investments, leaving the responsibility to fall on the consumer.

Mr Tickle said he believed the 30-day rule would lead to a transfer of profitability from brokers to insurance companies in the short term. It could also lead to some smaller brokers going out of business.

9 Mar 84

Financial Times: Overseas earnings by City up 23%

OVERSEAS EARNINGS by the City rose sharply last year. Financial services earned £2.6bn, up by 23 per cent from the 1982 figure.

The improvement, shown in the official balance of payments figures for 1983, out yesterday, reflects a better year for the insurance industry, particularly Lloyd's.

The surplus earned by private sector services as a whole, including tourism and consultancy, rose 12 per cent to £5-2bn last year, compared with £4-7bn in 1982.

However, after allowing for a deficit on the government sector, the overall surplus on services was cut to £4 4bn.

The overall deficit on shipping rose from £340m in 1982 to £800m last y ear, but the surplus on civil aviation rose 9 per cent to £430m.

The figures show the current account surplus on the balance of payments for last year was £2bn, substantially more than was generally expected last autumn.

The surplus was matched by a net outflow of capital of £2bn, although after allowing for changes to the official reserves there was an unexplained " error " of $800m. However, this was much less than the £3-6bn unexplained item in the 1982 accounts.

British institutions' portfolio Investment overseas appears to have levelled off with the total for last year at £6-3bn little changed from the level in 1982, but still well above the £4bn in 1981.

However, total overseas investment into Britain almost doubled from £3-6bn in 1982 to £ 6-4bn last year. The largest increase was in direct inward investment which rose £1-2bn to £1-6bn last year. However, there was also a very large rise in inward portfolio investment from £130m in 1982 to £930m last year.

The steady build-up of British institutions' portfolios of overseas investments since North Sea oil came on stream is reflected in a steady rise in dividends and interest payments.

Last year, earnings on overseas portfolio investment was £2-4bn, compared with £1-6bn in 1982 and £940m in 1981. The total of interest, profit and dividends from abroad rose 3.3 per cent above the 1982 figure to £11-4bn.

9 Mar 84

Financial Times: Revenue seeks £30m from Lloyd's underwriters

THE INLAND Revenue is trying to recover £30m in evaded tax liabilities from Lloyd's insurance underwriters. Top-level discussions are taking place between the Lloyd's authorities and the market in an effort to establish a way in which the Inland Revenue's demands can be met.

The Revenue is concerned, following a wave of scandals in the Lloyd's insurance market, about the volume of money which has been channelled off-shore to tax havens by professionals operating in the Lloyd's community.

Through bogus reinsurance arrangements, money has been channelled out of Lloyd's insurance syndicates, under the management of the professionals, to offshore companies based in tax havens. The companies have often been owned or controlled by the professionals who have arranged the contracts.

Reinsurance . is usually designed to protect insurance syndicates against onerous losses. But over the past 15 years or so underwriters have been using reinsurance to evade tax liabilities.

In the tax evasion schemes set up - which are known as "rollover policies" - money is taken out of the Lloyd's syndicates as a reinsurance premium and lodged with the offshore company. In this way the disclosable taxable profits of insurance syndicates are reduced in any one underwriting account.

A contractual arrangement is entered into with the offshore company for the return of the premium at a later date and the reinsurance contract is arranged in such a way that it never experiences any insurance losses.

Offshore funds, not liable for tax in the country in which they are built up, have been amassed by the market's professionals as the contracts are rolled over between one underwriting account and the next.

The Revenue is trying to crack down on blatant tax evasion devices in use at Lloyd's and has reached a compromise with the market for the return of £30m in liabilities so far not paid.

In Lloyd's there is much concern about how the tax payments should be met.

Some professionals are arguing that it should be a general charge to all members of Lloyd's but others say that those who have been responsible for the setting up of the schemes and the syndicates which have so far benefited from them should be liable.

9 Mar 84

WIR: JUDGMENT UPHOLDS LLOYD'S DISCIPLINARY POWERS

In his judgment given in the High Court in London on 6 March, Justice Neill found that the Society of Lloyd's are entitled to bring disciplinary proceedings in accordance with the byelaws in respect of the acts or defaults done or committed before January 1983. Lloyd's can thus go ahead with disciplinary proceedings against underwriters Raymond Brooks and Terence Dooley, who had challenged in court Lloyd's right to take what they claimed would be retrospective disciplinary action. Justice Neill granted leave to appeal.

Lloyd's had asked the court to hold that the 1982 Act, and bye-laws made under its, empowered it to take disciplinary action over offences committed before 5 January 1983, when the new disciplinary process was set up in accordance with the 1982 Lloyd's Act. The new system differs substantially from previous ones in the scope and manner of investigation and the possible range of penalties.

Mr Brooks and Mr Dooley argued that the 5 January was a cut-off date and that Lloyd's had no right to take action over offences occurring before that date. They argued that the 1982 Act was not retrospective and that it in effect granted an amnesty in respect of misconduct. No charges against Mr Brooks or Mr Dooley had been laid by Lloyd's before the so called cut-off date. Mr Brooks and Mr Dooley denied misconduct and argued that the report on their activities had identified no criminal offence. They claimed that there had at no stage been any Lloyd's regulation or requirement prohibiting active underwriters from controlling insurance companies or affecting reinsurance of their syndicates with such companies. After a complaint by Mr Brooks and Mr Dooley, Lloyd's had revoked a bye law enabling its powers to be used retrospectively and passed a fresh one in December 1983 which allowed retrospection but provided that pre January 5 1983 offences should be judged and penalised under the pre-1982 Act laws.

The case sets the precedent for actions to be taken concerning the Alexander Howden Group and others at present under investigation. The first part of the Howden report has been with Lloyd's since November, but action had been suspended until the Brooks & Dooley problem was resolved.

9 Mar 84

WIR: MEMBERS OF SYNDICATE 895 DISCUSS LEGAL ACTION

Members of Lloyd's syndicate 895 are considering taking legal action against Spicer & White Underwriting Agency Ltd, the syndicate's managing agents for losses of over £13m (US$18. 8m) which fell on the names in the 1980 - 82 underwriting years. Spicer & White is a majority owned subsidiary of Willis Faber plc. A review of the case by solicitors Clifford Turner apparently confirmed that this was the most appropriate action syndicate members could take. The Association of Lloyd's Members has arranged a meeting on 19 March for members of 895 to discuss the planned legal action. A preliminary legal opinion already circulated to the Names then on 895 reportedly suggested that the losses resulted from bad underwriting judgement, overwriting the Lloyd's premium limit for the syndicate and inadequate outward reinsurance protections. Names have already been warned that their accounts for 1980 - 82, failing any alternative action to recover, will reflect a one-for-one loss situation; i.e. they will each have to find £20,000 for every £20,000 of business written for them.

9 Mar 84

Daily Telegraph: Lloyd's warns ‘pay up'

MEMBERS of Lloyd's crashed Syndicate 895 who refuse to pay up for their share of losses may have their deposits sequestered. A confidential report to members of the syndicate says that of the £4,359,800 called for at the end of Novembers only £3,959,043 has been received.

Some members are in demonstrable financial hardship and are being helped out by their agents. But a few of the 13 members not yet paying are just being reluctant to pay and action may be taken against them via the Lloyd's authorities.

"Not only do we owe it to the Lloyd's market and, of course, to the policy holders to maintain the integrity of the market, but we also have it in mind that other members hare promptly and properly discharged their obligations," says the report.

Nearly £8.5 million has been collected, leaving £4.25 million outstanding. Solicitors have been consulted about these, but it looks likely that members may be asked for another £15,000 per £10,000 underwritten.

11 Mar 84

letter from Ropes & Gray to CJ Ayliffe Re: toxic waste sites: (referred to the New York Times report on toxic waste sites. The Office of Technology Assessment has found 10,000 sites that qualify for priority action, and it estimates that the cost of clean-up may reach $100 billion. That office observes that the EPA has only 528 sites on its priority list and has given "remedial clean-up attention" to only 30% of them. The EPA disputes those figures, saying there are 800 sites on its current priority list with another 1,200 likely to be added. The general accounting office is preparing its own report on the toxic waste programme that will be issued shortly. One official in the office estimates that there are potentially some 378,000 sites, though most would not qualify for priority treatment). The New York Times yesterday carried the enclosed report of revised estimates by various agencies of the Federal Government... The office of technology assessment has found 10,000 sites that qualify for priority action, and it estimates that the cost of clean-up may reach $100 billion. That office observes that the EPA has only 528 sites on its priority list and has given "remedial clean-up attention" to only 30% of them. The EPA disputes those figures, saying there are 800 sites on its current priority list, with another 1,200 likely to be added. The general accounting office is preparing its own report on the toxic waste programme that will be issued shortly. One official in the office estimates that there potentially are some 378,000 sites, thought most would not qualify for priority treatment.

13 Mar 84

The Times: Blind man's buff takes over in the Revenue avoidance game

If 1971 is remembered. it might be for the collapse of Rolls-Royce, Mrs Margaret Thatcher's decision to save £9m by putting an end to free school milk or possibly as the year when the People's Republic of China made its first appearance at the United Nations Security Council.

Mr George Dawson remembers l971 because it was the year he entered into a complex series of transactions designed to defer a capital gains tax charge.

Thirteen years and several court cases later, the House of Lords ruled that the tax inspector suing Mr Dawson was right. The scheme had no business purpose other than the deferment of tax and, therefore, could not be allowed. the case of Furniss -v- Dawson was finally laid to rest.

The decision was the latest in a series which has changed the face of tax planning and encouraged the Inland Revenue's anti-avoidance crusade, inspired by the tax avoidance schemes devised and marketed to great effect by the Rossminster group of companies in the 1970s.

Loopholes have been closed and the legality of schemes pursued in the courts. This led to the decision in the Ramsey case which enshrined the principle of the substance of a transaction taking preference to its form, effectively putting an end to the Rossminster style of artificial tax schemes.

The decision in Furniss -v- Dawson, however, has wider implications for most large companies obliged by the nature of their operations to carry out complex, but commercially based, tax planning. The legality of many tax-efficient schemes is now brought into question.

The decision has thrown the company tax planning world into turmoil leaving accountants afraid to act.

The wording of Lord Brightman's judgment in Furniss -v- Dawson appear to have widened the scope for the Inland Revenue to clamp down on tax avoidance schemes. Apparently, even a scheme with a legitimate commercial end may still be caught if it includes a step which has no commercial purpose other than the avoidance of a liability to tax to no business effect.

It is this distinction between business purpose and business effect which has posed the problem. The difficulties for tax planners have been compounded by the Inland Revenue's reluctance to give guidance on how the Furness -v- Dawson decision will be applied.

Mr Dawson's scheme sought to take advantage of the relief afforded to company amalgamations by exchanging shares in two family companies for shares in an investment company incorporated in the Isle of Man which produced neither a gain nor a loss.

It failed because of the inserted step which had no business purpose. Tax planners are concerned about which other types of scheme might also be invalid.

It is a situation in which the Inland Revenue is revelling. One tax accountant with a large company visited Somerset House in London shortly after the Furniss -v- Dawson judgment and reported that, while the taxmen said the decision would have no great impact on companies, their assessment was delivered with a broad grin.

For the time being, the Inland Revenue is happy for tax accountants and lawyers to sweat. But it knows that some guidance will be needed.

Mr Philip Hardman, tax partner with the accountants Thornton Baker, is concerned that without that guidance companies are going to suffer. He said: "Businesses need to know what they can and can not do. At the moment, a number of transactions which a group would undertake previously as sound commercial propositions are under a cloud.

"If a company is going to carry out a transaction, it needs to know what the tax bill is going to be. After Furniss -v- Dawson, nobody can tell."

Adam Smith wrote in The Wealth of Nations: "The tax which each individual is bound to pay ought to be certain and not arbitrary." For the present, tax on many likely company transactions is in doubt, though the taxman might say that the tax is clear enough and only attempts to avoid it create uncertainty.

Some of the most common transactions used by companies to minimise their tax bills are connected with utilisation of capital losses. These schemes now look vulnerable.

The problem centres on the curious tax anomaly which prevents capital losses being relieved between different companies in a group. A capital loss can only he offset against a gain made in the same company.

To overcome this, it has long been she practice of groups of companies to transfer an asset into the ownership of a subsidiary with capital losses just before it is sold. The Inland Revenue has always turned a blind eye to this.

Whether its attitude will change now is uncertain but more sophisticated capital loss schemes may not escape.

The Inland Revenue has already warned one firm of chartered accountants against advising clients to pursue a capital loss scheme which involved the purchase of a company with a capital loss in order to offset a gain.

Such changes will no doubt encourage the Institute of Directors in its campaign for a legal market in unused tax allowances.

Other schemes which could be at risk include the hiving off of assets into another subsidiary when a business is being sold in order to protect tax losses and avoid a claw-back of stock relief. Also, when a loss making trade is about to cease but there are assets which will produce gains, these can be sold to an associate company before cessation and the gains set against losses. This is done because after cessation of trade losses cannot be carried toward.

To reduce the uncertainty, Mr Hardman advocates that an independent tribunal be set up to assess the acceptability of schemes. He says: "The tribunal should consist of Inland Revenue representatives, accountants and members of the business community. They could make instant decisions to reduce the uncertainty and make life easier for everybody."

This tribunal may be closer than Mr Hardman thinks, although its form might be different.

There is speculation that the Inland Revenue will be given wide-ranging powers to make its own rulings on the acceptability of tax avoidance schemes. This should end the uncertainty but the Inland Revenue is unlikely to draw too heavily on outside advice.

The United States has had a tax-ruling system for some time. Taxpayers can ask for a ruling on any scheme or transaction under consideration. If the scheme is properly described and carried out as suggested, the ruling becomes binding.

This is standard procedure but it is lime-consuming because a ruling will normally take six months. It is also labour intensive to administer and that would not appeal to a cost-conscious Government.

If a formal system is not introduced, the Inland Revenue would be free to use Furniss -v- Dawson against would-be tax avoiders.

The irony of the uproar which has been caused among tax accountants and lawyers by the case is that few of these professional advisers are supporters of the aggressive tax avoidance which borders on evasion. Their concern is very much for the future of prudent commercial tax planning

Mr Roger White, a tax partner with the accountants Peat Marwick Mitchell, reacted less excitedly than some. "It is an important decision but only one part of emerging law which follows from cases such as Ramsey", he said.

"It curtails the most aggressive of tax planning but then most of the totally artificial schemes which arose in the 1970s have now gone. However, we do need a statement from the Inland Revenue on what it considers acceptable and on the instructions it has given to tax inspectors."

Mr Stephen Oliver QC, who acted for the taxpayer in Furniss -v- Dawson, said at an Institute for Fiscal Studies seminar on Friday: "A young inspector on the make with a small amount of inventiveness will be able to threaten the taxpayer with heavier penalties by adopting and exploiting Furness -v- Dawson. There will be a very real temptation to use it."

To avoid this type of exploitation, formal guidance from the Inland Revenue is urgently needed.

Until this is given, companies will be obliged either to sit tight and keep their heads down on the tax planning front, or to take a chance.

No company will be happy for too long with advice that runs along the line of "By all means do it but don't blame me if it doesn't work." After all, the marketing success of Rossminster's schemes was based on an attached opinion from leading counsel saying they would work.

Tax planning ideas carrying no authority are of little value and too much uncertainty could put tax planners out of business. Perhaps this is what the Inland Revenue has in mind.

13 Mar 84

Daily Telegraph: Lloyd's tussle with Revenue

Negotiations between Lloyd's and the Inland Revenue have become tense as the insurance organisation tries to maintain some of its tax privileges.

The Revenue had been first alerted to lost tax by the revelation of the series of scandals which showed some Lloyd's people had misappropriated up to £100 million.

In pursuing these funds the Revenue has started to question the whole established Lloyd's procedure for minimising tax.

One of the important methods has been the "rollover" policy which has enabled syndicates to shift cash to tax havens during high-profit years, by making payments seem like reinsurance.

Then during lean years of low or nil tax the money is remitted.

There are several other tax-efficient ploys being examined, and under the Revenue's wider powers of discretion stemming from a recent House of Lords decision, many of these may be ruled "unacceptable".

Peter Miller, chairman of Lloyd's, with a small team has taken on the important negotiations which had been at one time handled by Ian Hay Davison, chief executive.

13 Mar 84

Lloyd's List: Bid to clarify law on illegal underwriting

The Attorney General is to help clarify the law on illegal insurance underwriting, the High Court in London was told yesterday.

Sir Michael Havers has appointed barrister Mr David Latham to act as amicus curiae - a friend of the court - in a case involving Lloyd's syndicate 173 and the South Korean reinsurer Oriental Fire and Marine.

The move follows a decision by Mr Justice Neill in a case involving the Bedford Insurance Co of Hong Kong and the Instituto de Ressagrous do Brazil in November.

He ruled that the Bedford could not collect reinsurance claims from 1981 and 1982 because neither it nor its underwriting agent had been authorised to do business in the United Kingdom.

13 Mar 84

Lloyd's List: Underwriter in bid to clarify ruling

A representative Lloyd's underwriter has started an action in the High Court in the hope of clarifying the recent decision in the Bedford Insurance Co. case, whose "horrendous" implications were said to have left the market "in a state of shock".

In that case, a dispute arose involving various overseas reinsurers, a High Court judge decided that where an insurance company carries on a class of business in Great Britain, defined in the 1974 and 1981 Insurance Companies Acts, without the authorisation of the Department of Trade, any contract entered into is void.

It is also illegal to pay claims in the course of such unauthorised business.

Outlining what he described as the "very unusual circumstances" of the case, Mr Anthony Coleman QC told the court his client, Mr Brian Stewart, of the Lloyd's Syndicate 173, had claims totalling US$334,000, Can $33,000 and £113,000 against a South Korean reinsurance company, Oriental Fire & Marine Insurance.

He said that Oriental, represented by Mr Kenneth Rokison QC, was taking "a completely honourable position."

The firm was not trying to evade its contractual obligations, but if payment was illegal it feared nits own reinsurers could also refuse payment.

Mr Coleman said Oriental was not itself pleading the contract was illegal. It thought the Bedford decision was wrong. The judge commented: "They are not alone in the market in thinking that."

The Attorney General has appointed Mr David Latham as amicus curiae in the case.

Syndicate 173 had facultative reinsurance with Oriental and another South Korean company, Hai Dong, since 1975 on a policy covering the International Federation of Airline Pilots Association against loss of pilots' licences through personal accident or sickness.

Oriental, which carries on business in Seoul, empowered a Liechtenstein firm, Safeguard Registered Trust, to make contracts of insurance on Oriental's behalf.

Safeguard appointed as sub-agent, World Underwriting Agencies, a London firm which has since been dissolved.

World Underwriting could not make contracts on Oriental's behalf, but referred such matters back to the trust.

None of these companies asked for, or received, Department of Trade authorisation to carry on insurance business in the UK.

Mr Coleman said if the Bedford decision was right, it appeared the Lloyd's underwriter would not be able to recover under the reinsurance contract although for nine years all parties had assumed it was binding.

Mr R J Kiln of R J Kiln & Co. Ltd, underwriting agents, a former leading international reinsurance underwriter, said in a statement to the court that the "horrendous" implications of the case struck at the very root of the international reinsurance business.

He said no insurer, trading without authority, would pay its claim once it realised the reinsurer could repudiate.

The Bedford decision would throw the industry into disorder, and punish the innocent public.

Mr Coleman's argument is that Oriental was not in fact carrying on business in Great Britain, and that in any case the prohibitions in the Acts, which refer to certain classes of business, do not, expressly or by implication, prohibit individual contracts.

15 Mar 84

Ernst & Whinney meeting of insurance partners and managers. 2. In response to a request for any other matters which people felt ought to be raised, Steve Abbott reported that he had obtained a copy of a report by [A] on Agent Orange in relation to Dow chemicals. Although this report gives high figures which might apply on certain assumptions, these are not firm reserve recommendations and the market is treating the document as information rather than as a claims advice. Steve will pass this report to John Philpott so that an appropriate note can be circulated. 3. The increasing tendency to take out aggregate excess of loss reinsurance contracts which were simply banking / saving policies was discussed in the light of the recent publicity surrounding Commercial Union. 5. Peter Standish stated that the insurance partners saw all staff as having a valuable part to play in client maintenance which must precede client development. Clients expect the Ernst & Whinney personnel they meet to know a great deal about the industry .

Mar 84

Attorneys report re: DES.

Mar 84

Letter from Mendes & Mount to the Asbestos Working Party forwarding their Report on the Asbestos Working Party activities during the past twelve months. Some 66 Reinsurance Reports were circulated. (To whom circulated?)

Mar 84

Letter from Attorneys to CJ Ayliffe, Merrett syndicates and John Heath. RE: Asbestos insurance coverage cases. Enclosed is a recent note from the Harvard Law Review dealing with the adjudication of asbestos coverage. I haven't read the Note in its entirety but in general it blatantly asserts that the intent of the contracting parties is irrelevant and the interest of the asbestosis victims is paramount, leading to a conclusion that continuous injury should be the trigger of coverage. I pass it along for your general background information.

Mar 84

An attorney's report stated about $1 billion in compensation and litigation expenses had been spent by the end of 1982 on more than 20,000 open and closed asbestos product liability claims. Many times that number of people have been exposed to asbestos, and the potential liability of the defendant firms runs into billions of dollars. Three major corporations have already filed chapter 11 bankruptcy petitions.

30 Mar 84

The Institute for Civil Justice of the Rand Corporation to James Ayliffe, Merrett syndicates. I have enclosed a working draft of our second report on the costs of asbestos litigation. It investigates factors that help explain variation in compensation and expenses. Asbestos litigation is as difficult to do research about as it is important to understand. If you have any comments on the data or their interpretation, I would appreciate receiving them before April 16 when we will begin making final revisions prior to publication.

Executive summary: Asbestos-related disease and consequent litigation involve enormous personal and economic stakes: about $1 billion in compensation and litigation expenses had been spent by the end of 1982 on more than 20,000 open and closed asbestos product liability claims. Many times that number of people have been exposed to asbestos, and the potential liability of the defendant firms runs into billions of dollars. Three major corporations have already filed chapter 11 bankruptcy petitions and identify the costs of asbestos litigation as one of the reasons for filing. These costs (both compensation payments and litigation expenses) are a major concern to the claimants, the defendants, their insurers and the public.... The asbestos calamity may be unique in scale and intensity, or it may be the forerunner of a wave of environmentally based injury claims of unprecedented dimensions.....(106) Implications in summary, the heart of the asbestos litigation problem is its huge scale. Much human suffering is involved. Tens of thousands of the current and future injury claims are worth billions of dollars. The sheer numbers stretch the ability of some Courts to handle the claims, threaten the economic survival of some defendants, and ultimately threaten the ability of the injured parties to receive fair compensation. Because the asbestos problem is immense and because it may influence public reactions to other major health and legal problems, many different responses have been proposed. Several generic lines of reform have been suggested by various people: increased co-ordination and efficiencies within the existing tort system, establishment of a joint claims Facility for settlement negotiation without filing a lawsuit; arbitration; and government-mandated compensation systems. We believe that any rational course of action must be based on facts such as those developed by this study.

5 Apr 84

United States -v- Stringfellow, 20 ERC 1905, 14 Envtl. L. Rep. 20,385, 1984 WL 3206, U United States District Court of California District, 5 April 1984. United States District Court of California held joint and several liability finding for waste disposal site permitted under CERCLA, RCRA and California state law. Court found that the imposition of joint and several liability was justified after finding that harm caused by the toxic waste disposal site at issue and the effects of the commingling of different wastes was indivisible. District Court had discretion to use equitable factors in apportioning damages in order to mitigate hardships of imposing joint and several liability upon defendants.

6 Apr 84

WIR: Asbestosis and Beyond: UK Reserving and R/I Enquiry. This refers to the Department of Trade Questionnaire.

Casualty Liability Accident Section:

In a move to inform itself and, eventually, to influence reserving and underwriting standards for the better, the now apparently anxious UK supervisor, the Department of Trade and Industry, is asking all authorised insurers and reinsurers about their world-wide exposures to industrial disease claims. DTI particularly wants to know about potential long-tail asbestosis liabilities in the USA, byssinosis (textile fibre dust inhalation disease) and industrial deafness. The existence of the inquiry was disclosed at a London conference last month by DTI assistant secretary Michael Hoddinott. It appears to mesh in with a broader program of investigation into new means of reinsurance control and relations between primary, particularly casualty, underwriting and reinsurance in which some European supervisory authorities may collaborate. The DTI has since circulated a private and confidential letter asking companies if they have written industrial disease/injury business (e.g. through employers' liability/workers' compensation or product liability) anywhere in the past 50 years, whether any of it was in the named risks, whether and in what amounts there had been any claims since 1 January 1980 or indications of claims-pending, whether and how much IBNR provision they have for such claims and the extent to which the named disease/accidents and the IBNR are reinsured.

The DTI's interest in the handling of long-tail liability exposures of the asbestosis type is seen as part of a wider examination, in collaboration with other supervisors, of international reinsurance reserving problems. (see Financial Management section, this issue).

Financial Management

REINSURANCE STANDARDS (1): COMPROMISE SOUGHT ON SUPERVISION

The UK Department of Trade's new interest in British insurers' involvement in transatlantic long-tail liability business (see Casualty-liability-accident section, this issue) is just one part of a widening international effort to raise standards of financial and technical management and accountability at the reinsurance and "wholesale" levels of the world-wide market. International, even domestic, reinsurance operations have until recently been thought ungovernable in most old or large markets, though susceptible to some control only by state monopoly action in other, newer insurance countries.

Now, however, it is not only national supervisors who see some possibility of firmer regulation: non-insurance government agencies, intergovernmental organisations, stock market bodies, accountancy institutes, are all taking a new interest in the issue of permissiveness-versus-regulation in the reinsurance field. So, too, are the leading trade associations, particularly those with a specialised interest in reinsurance, which now clearly seethe need for self-regulation and standards-building by consent if oppressive and possibly counter-productive public intervention is to be avoided.

Reluctant

Because of the extreme speed and high expertise companies world-wide need to close reinsurance arrangements, and the importance of the business to many countries' balance of payments, national supervisors have in general been reluctant to interfere with international treaty operations. After the failures and problems of the past few years, even though a small proportion of world reinsurance turnover may have been affected, that reluctance is disappearing.

At a conference in London last month, Michael Hoddinott, the DTI assistant secretary, and Colin Smith, a senior chartered accountant with Peat Marwick, outlined some parts of a possible future timetable. Mr. Hoddinott said the UK supervisor was increasing co-operation with its counterparts in some EEC member countries on the subject. A future conference of European supervisors is likely to consider, for example, a paper on the security of reinsurers internationally. In 1982-83 the DTI required for the first time that companies disclose their major outward protections and identify the reinsurers at home and abroad from which reinsurance is bought. Lloyd's is introducing similar requirements under the new Lloyd Act for its underwriters. Mr. Hoddinott indicated that this was not the end of the matter: the DTI in future would closely scrutinise the suitability at all stages of UK-authorised insurers' overall reinsurance programs.

Treatment as investment:

Speaking for-.the accounting profession, Mr. Smith was pessimistic about early prospects of international regulation of reinsurers, but urged that something could be done to improve the transparency of :reinsurance operations through the accounting systems. In particular, more disclosure of reinsurance arrangements and proportions in accounts did not necessarily deflect criticism or dispel doubts. Present accounting for reinsurance tended to recognise the form of the transaction rather than its substance. Taking into account that, in reinsurance, income should be matched with expenditure, "... in those cases where the recovery under a reinsurance could not materially exceed premium paid plus income which might reasonably accrue over the period of the contract, the reinsurance premium should be accounted for as a deposit, recognising the real nature of the contract as an investment".

Motivation:

Mr. Smith noted that while in some reinsurance transactions, or contracts described as such, there may be a genuine risk transfer, in others the primary motivation may be inter-company profit transfers, movement .into a more favourable tax regime, financing companies arranging the reinsurance through repayment of funds lodged with a reinsurer, or other minimisation of economic effect on either party to a transaction.

REINSURANCE STANDARDS (2): LOSS RESERVE EVALUATION

Accurate loss reserves are of critical importance in determining adequate reinsurance premium levels, and a reinsurer may need to undertake a review of a ceding companies' claims to assess reserves, L S Harding, v/p of Mercantile and General Reinsurance Company of Canada Ltd. Toronto, suggests

(1). Some primary insurers follow the practice of setting their reserves to the level of their net retention: this effectively prevents the reinsurer from learning about claims until loss payments exceed the retained levels, and the primary insurers need to recover the excess from the reinsurer.

The expenses involved in pursuing claims, which can be significant in the case of major losses, are also often omitted from calculations, and can seriously distort reinsurers' results and rating assessments. If a reinsurer reviews the primary company's claims, this could assist the primary company in providing fuller information, and help the reinsurer to understand the claims-reserving philosophy of the ceding company, Mr. Harding says.( l ) Paper, "Some Observations on Excess of Loss Treaty Claims Reserving in Canada", 27 February 1984.

US reserving changes sought:

• The US Securities & Exchange Commission has proposed a rule that would compel property-casualty insurers to disclose information about their loss reserves in 25 business classes and indicate if they under-or overestimated liabilities. Data is now submitted only on total reserves: the breakdown would be intended to help investors' decisions.

9 Apr 84

The Disclosure of Interests Byelaw (No. 3 of 1984 9 April 1984)

drew attention to the duties imposed by the law of agency and to mandatory disclosure of reinsurance transactions with related companies, which were entered into or subsisted, during the period beginning 1 January 1981. Certain Managing Agents disclosed this under a separate document not forming part of the 1981 year of account at 31 December 1983, closed and made up in April /June 1984. A mandatory disclosures paragraph appears in the 1982 year of account to 31 December 1984, closed and made up by July 1985. Certain agents chose not to comply with this Byelaw. Insurance companies were required to disclose reinsurance arrangements with effect from 22 December 1982, under DOT requirements.

9 Apr 84

Corporation of Lloyd's Annual Report and Accounts at 31 December 1983

Statement by Peter Miller, Chairman

In November 1983 the Council of Lloyd's laid down guidelines for its own activities in 1984. These were:

(a) the restoration of confidence in Lloyd's at home and abroad;

(b) the completion of the necessary framework of self-regulation;

(c) to support and assist the Market in maintaining and improving Lloyd's commercial success.

At the General Meeting at the end of June, I shall be talking to you in more detail as to our work on these various subjects during this year.

Meanwhile, I have pleasure in presenting the Annual Report and Accounts of the Corporation for 1983. You may notice various changes in its format, as we continue to modernise the presentation of the Report and Accounts. One particular change this year lies in the date; previously the Report has been described on a two year basis, for example 1982-1983, based on the fact that traditionally the Report is presented and the Accounts adopted at a General Meeting in mid-year. However. the Accounts are clearly those on an annual basis and I believe that the Report should follow the same calendar and relate to 1983. While this shortens certain events described in the Report. nevertheless I hope that you will find the review of the Corporation's activities to be interesting.

I would like to take this opportunity of recording the Society's debt to my predecessor, Sir Peter Green, who served the Society as Chairman so faithfully during four such wearing and turbulent years. His knowledge of the Society and its affairs was immense, his application to duty unswerving and his stature as an underwriter recognised throughout the world.

These are exciting, if difficult, times at Lloyd's. There are serious problems in the Market still to be overcome, but I am sure that we shall do so.

I believe that the Market is well placed to take advantage of the upturn in insurance markets generally, which now and at last seems really to be taking place. Lloyd's retains the confidence of its policyholders, Names continue to wish to invest in Lloyd's in large numbers, we offer the strongest policy of insurance and the great spread of our Market means that we can respond with swiftness and flexibility to the needs of the insuring public.

REVIEW OF THE CORPORATION'S ACTIVITIES

The inception of the new Council of Lloyd's in January 1983. representing working and external Members of the Society together with four independent nominated members, heralded a period of change unprecedented in the Society's history.

The Council established under the Lloyd's Act 1982, is the principal policy making body of Lloyd's and has wide powers to promulgate rules with statutory force under the provisions of the Act.

In the exercise of its powers during 1983, the Council has applied itself vigorously to its task of initiating policies designed to achieve a flexible, yet effective self regulatory system. For the staff of the Corporation in particular, the new environment has involved adjustment in order to optimise their contribution to the efficient operation of the Lloyd's Market and its development.

The first postal ballot for the election of working members of the Council took place on 2nd November. There were five vacancies - four by rotation and one caused by the resignation of Sir Peter Green.

Of the nine candidates the following were elected to serve for four years: I R Binney, P G Bird, M H Cockell and W N M Lawrence. N T Evennett was elected for three years to complete the unexpired portion of Sir Peter Green's term of office on the Council.

Staff Organisation

During 1983. the Council and its associated Standing Committees introduced fundamental changes in the machinery for processing policy decisions. The staff structure was reorganised accordingly to reflect these changes. In addition to the appointment of Mr Ian Hay Davison as Deputy Chairman and Chief Executive. an important feature was the appointment of six Group Heads responsible for Regulatory Services, External Relations, Finance, Market Services, Corporation Services and Systems and Communications respectively. The Group Heads, together with the Secretary to the Council, report directly to the Deputy Chairman and Chief Executive and provide management support to the policy areas handled by the various committees of the Council. These changes have introduced a greater degree of centralisation into the staff structure of the Society. They have also produced closer co-ordination between Corporation departments in the implementation of policies and decisions taken by the Council and the Committee of Lloyd's.

Following the resignation of Mr Joe Hodges from the post of Secretary General, the Council approved the appointment of Mr Michael Parry to the new post of Secretary to the Council. The Society records its appreciation and gratitude to Mr Hodges for the contribution he made during his thirty-four years with the Corporation and particularly the four years in which he held the appointment of Secretary General.

Membership

Despite the vicissitudes of 1982 the membership of the Society has continued to expand vigorously. The number of underwriting Members at the beginning of 1984 was almost 23,500, representing a net increase of eight per cent on the previous year. Within this encouraging overall increase, UK membership increased by seven per cent and membership of American and other foreign nationals increased by 13 per cent. The proportion of female members of the Society continued to grow and they now represent more than 20 per cent of the total membership. This rapid increase in membership, which is expected to continue this year, placed considerable burdens on committee members, former committee members and the Membership Department who serve on the Rota Committees to whom the Society is greatly indebted.

Regulatory Matters

Various enquiries into allegations of misconduct continued throughout the year and most major investigations are now well advanced and, in some cases, had been concluded by the end of the year. The reports by the Committees of Enquiry provide prima facie evidence of wrong doing in a limited number of cases. It is expected that disciplinary proceedings will be initiated in a number of cases during 1984. The inspectors were appointed with a brief to prepare charges for prosecution before Lloyd's Disciplinary Committees where evidence of wrong doing is found.

It is not intended that the reports of Committees of Enquiry will be published. However, in one case. where the Council was advised that a ‘community of interest' had been established. that particular report was issued to the appropriate Members of Lloyd's.

Civil litigation was completed during the year in relation to the Sasse Tumbull syndicates and, following that, it was decided that the disciplinary proceedings pending under the Lloyd's Act 1871 against two of the working Members involved, should continue. The financial implications of the settlement relating to syndicate 762 are described in Note 15 of the Corporation's Accounts.

The matters that emerged during 1982, and the consequent Committee of Enquiry reports, have shown the correctness of the policy changes for regulating the Society proposed by Sir Henry Fisher in his report in 1979.

Two important working parties under Mr Alec Higgins and Mr Ian Plaistowe met regularly during the year and submitted extensive proposals for the reform of regulatory arrangements at Lloyd's. Mr Higgins' Committee dealt with the activities of agents and Mr Plaistowe's with auditing and accounting practice with particular reference to accounting for related party interests and reinsurance. Their valuable work and recommendations are now being given regulatory effect by the relevant Standing Committees, the Rules Committee and the Council of Lloyd's. The Society is greatly indebted to Messrs Higgins and Plaistowe and the members of their respective working parties for their invaluable contribution to the work of the Society.

During 1983 Lloyd's embarked on the promulgation and codification of the Society's new rules which will be carried forward during 1984 and 1985 to implement the proposals of the Fisher Report as modified by the recommendations of Plaistowe, Higgins and the various enquiry reports.

External Relations

Lloyd's relations with the Inland Revenue were a source of particular concern during 1983 and, in particular. matters relating to so-called ‘rollover' reinsurance policies.

The European Economic Community exerts considerable influence over Lloyd's affairs derived from the statutory force of the Treaty of Rome. The Society is concerned to seek appropriate approvals for Lloyd's under the competition rules of the Community and also to exploit the considerable opportunities which would derive from the proposed and long-delayed directive on freedom of non-life services. The External Relations Department has maintained close liaison with the European Commission and the European Parliament and the Community is therefore well informed about our regulatory plans.

Lloyd's is dominated by its export business. but a substantial trade imbalance remains between Britain and the EEC. Almost 50 per cent of Britain's exports are destined for the European Community, but less than three per cent of our insurance business is generated from within the EEC.

The USA represents the prime source of Lloyd's business; more than 50 per cent of its total net premium income comes from the United States. The Society, under the guidance of our General Counsel in New York, (LeBoeuf, Lamb, Leiby & MacRae) maintained an active programme of consultation with US regulators and with the Internal Revenue Service with whom good relations are maintained.

Redevelopment

The Society's financial statements elsewhere in this report reflect changes to the balance sheet arising from the investment in the new building. Excellent progress has been recorded in construction and we are delighted that H M Queen Elizabeth, The Queen Mother has graciously accepted our invitation to perform the topping out ceremony on 12th July this year. The new building is scheduled to be completed by the end of 1985. Moreover, there is every confidence that the cost will be within the £157m reported by the Chairman to the meeting of members of the Society in November 1981.

Underwriters have indicated that they will require more space than they forecast in 1982. It is probable that at least four floors of the 12 storey building will be required for the Room when the Market moves in 1986.

The rapid strides being made in the use of information technology fully justify the sophisticated services that are to be installed in the Room. Its ability to meet the complex needs of coming decades are becoming increasingly apparent.

Meanwhile, negotiations are in hand to let the remaining available space in the new Lloyd's building, thereby ensuring an acceptable return on the capital invested.

Market Services

During the year the Corporation acquired the entire share capital of Toplis & Harding, Inc., a well known firm of loss adjusters with offices in the United States and Canada and which has close historic links with the firm of the same name which operates from the UK. A new Chief Executive for THI is to be appointed. During 1983 the Council will be considering plans for developing THI from a pure loss adjusting role to assisting more fully in the settlement of claims in America on behalf of Lloyd's.

The Corporation continues to be a major user of data processing services and during 1983 the Council resolved to introduce more advanced electronic data processing into the Market by 1988. In furtherance of this resolution, reorganisation plans are in train for the data processing activities of the Corporation to be brought under the aegis of the Systems and Communications Committee.

The Lloyd's Policy Signing Office continued to provide the vital processing support operation for Lloyd's underwriters. During 1983, an eight year programme to redesign the LPSO's computer Systems was completed, and the new central accounting system is in place producing significant productivity improvements,

Lloyd's of London Press

The company continued its profitable course, recording a profit before tax of more than £700,000 for the year, despite recessionary conditions. Continuing development of computer-based information systems has produced important new business including a major development contract for the port and harbour authorities of the EEC.

Financial Results

The Corporation's annual Accounts this year include the expenses of overseas operations, such as trustee fees for the Lloyd's American and Canadian Trust Funds, the costs of Lloyd's General Counsel in the United States, (LeBoeuf Lamb Leiby & MacRae) and the operating costs of other overseas representative offices, It is felt that this provides a more accurate presentation of the total costs and revenues of the Society. The 1982 figures have been restated on the same basis.

During 1983 the Corporation recorded a net surplus of £15 million compared to £13 million last year. This surplus is in line with the long term cash forecasts and is necessary to meet anticipated future expenditures.

Conclusion

Lloyd's is an historic institution which has embarked upon a major programme of far reaching internal reform. The signal achievements of 1983 were without precedent in Lloyd's history and they will be expanded in 1984. The reforms were not prompted by the few cases of wrong doing in 1982; but those difficulties have illustrated the wisdom which the Committee of Lloyd's demonstrated in the initiation of the reforms envisaged in the Fisher Report and supported by the new Lloyd's Act.

This period of reform and change has placed an enormous strain upon the staff and resources of the Corporation of Lloyd's, particularly those involved in the investigations and advisory areas. Their willingness to adapt to the changes which have taken place has been exemplary. Their loyalty in continuing to provide efficient and effective support to the world's greatest insurance market is one of its great strengths. All members of the Society are indebted to them.

Apr 84

The Inland Revenue has been progressively extending its investigations and the Revenue wrote to all Managing Agents in Lloyd's, following the breakdown of discussions between Lloyd's and the Revenue. The latest letter to agents in April asked for details of all reinsurances where the amount payable in claims cannot materially exceed the "premium" paid including amounts carried forward from previous arrangements and interest - covering any arrangements at any time since April 1974.

Apr 84

Mr Michael Jackson, Underwriter of the Richard Becket managed Non-Marine Syndicate 918 is dismissed. He is replaced in May by Mr Ralph Bailey, the Chief Non-Marine Underwriter of the Terra Nova Insurance Company, a Bowring subsidiary, having previously served ten years as an Underwriter with the Harvey Bowring Non-Marine Syndicate at Lloyd's. The DTI Report into PCW states that upon his appointment "he spent much time in examining the loss experience and the outstanding claims of the Non-Marine Syndicates. His method of reserving as at 31 December 1984 was different from that used by Mr Pateman at 31 December 1983, although both methods were acceptable by Lloyd's standards. This led to a very substantial increase in the provision for claims incurred but not yet reported. There was also a very substantial increase in reported claims. This resulted in the announcement in April 1985 of losses of approximately £63m (U.S. $106m) as at 31 December 1984. These were in addition to the underwriting losses of £38m at 31 December 1983, which had effectively been met by the £38.17m paid to the Names in respect of the 1984 offer. Losses to Names amounted to as much as £500,000 in certain cases, with almost 300 Names having losses in excess of £100,000. Of the underwriting losses of £63m, £31m related to the 1982 year of account, which was due to close as at 31 December 1984. The remaining £32m related to the 1979, 1980 and 1981 years of account, and were in addition to the losses of £38m on the same years of account determined as at 31 December 1983. Furthermore the figure of £63m was a discounted figure; the estimated gross figure was £130m (U.S. $218m). Much of the business of the Non-Marine syndicates was long-tail, and so a high proportion of the £130m would be paid out in claims some years in the future. The assumption was that the interest earned on £63m provided immediately would be enough to bring it up to the level of claims when they were paid. Both the discounting and the gross methods of reserving were acceptable by Lloyd's standards at this time: it was only in February 1986 that Lloyd's prohibited the discounting method. The announcement of the losses gave rise to a rapid loss of confidence in PCW by the Names. As a result the directors of PCW asked Lloyd's to replace PCW by as new managing agency under the auspices of Lloyd's. This led to the appointment by Lloyd's in June 1985 of Additional Underwriting Agencies (No 3) Ltd (AUA3) to take over the business of PCW with effect from August 1985. The directors appointed to AUA3 were independent of both PCW and Lloyd's. Lloyd's indemnified AUA3 against all costs it would incur. AUA3 became responsible for the Marine and Non-Marine Syndicates. The aviation and WMD syndicates continued unchanged for the time being, although AUA3 later became responsible for these as well. One of the early actions of AUA3 was to state that it did not agree with the discounting of losses, and so the Names would have to cover the full £130m in view of the fact that the cash necessary to build up the fund to meet the ultimate estimate sum required to meet losses was not available. (The discounting method of reserving was still acceptable to Lloyd's at this time). However, this change had no immediate effect, as the Lloyd's solvency requirements as at 31 December 1984 had by then been met. (In many cases this was only achieved by the earmarking of money from the Lloyd's Central Reserve Fund, in respect of those Names declared to be in default). In 1986, on the basis of further inquiries and revised assumptions, AUA3 estimated that the gross losses would be not £130m, but $235m. (Both figures were in addition to the losses of approximately £38m as at 31 December 1983, which by 1986 had been paid as a result of the 1984 offer.

Apr 84

The Annual Report and Accounts to 31 December 1983 of the Corporation of Lloyd's state, inter alia:-In the United States, where more than 50% of its net premium income is generated, Lloyd's acquired Toplis & Harding Inc., a Chicago-based adjusting firm. A new Chief Executive is yet to be appointed, but the report notes that the Council already is considering how to develop Toplis & Harding Inc. into the company that settles Lloyd's claims in the United States. (Documents disclose that H R. Rokeby-Johnson was a director in March 1985 and, since retirement from underwriting, he lives partly in the States. Lloyd's failed to disclose that via Toplis & Harding Inc., it controlled the US bases asbestos databank computer.

Apr 84

Asbestos School Hazard Abatement Act of 1984 (Public Law Order No. Of the USA). In April 1984 the bill was introduced in the Senate. Under this bill $500,000,000 would be spent over the next six years to remove asbestos from schools across the country. The bill would require States to submit priority lists, indicating which schools are in the most need of Federal assistance. Eventually, the Environmental Protection Agency (EPA) was granted a total of $600,000,000 to be used for loans and grants to schools for the abatement of asbestos problem. A significant factor is that the Act preserves claims for damages against manufacturers and producers.

84

Two working parties led by Alec Higgins and Ian Plaistowe finished their reports on how Lloyd's should restructure its underwriting agencies and its auditing and accounting practices, with particular reference to disclosure of reinsurance transactions and possible conflicts of interest. Lloyd's increased its trust funds by 27% to a total of £1-4bn ($2-06bn). The funds, which are held as part of the security underlying Lloyd's policies includes Lloyd's members' deposits, Lloyd's members' special reserve funds, and Lloyd's central fund. In addition to these funds, Lloyd's also maintains an American Trust Fund which last year was increased 5% to £4-4bn ($6-47bn).

17 Apr 84

Lloyd's List: Insurers may face waste dump claims. (reported that Lloyd's syndicates faced potential claims running into tens and perhaps hundreds of millions of dollars as a result of environmental pollution in the United States. The EPA is continuing to identify and investigate thousands of hazardous waste sites. Mr. Robin Jackson said the London market should be concerned about these developments because during the 1950's and 1960's it was much more involved in direct business from the US and at much lower limits than now).

Lloyd's Syndicates face potential claims running into tens and perhaps hundreds of millions of dollars as a result of environmental pollution in the United States.... In the biggest action the US Justice Department is suing Shell Oil Co. for S1-8bn (£1-27bn) for alleged damage to land leased from the US Army at Rocky Mountain Arsenal near Denver, Colorado. Shell has asked for a court ruling that its liability insurers should pay part of the clean up costs at the site and at a tip in Fullerton, California, if it is found liable. Neither case is near judgement, but in the meantime the US Environmental Protection Agency is continuing to identify and investigate thousands of hazardous waste sites....

Leading Lloyd's Non-Marine Underwriter Mr Robin Jackson said the London market should be concerned about these developments because during the 1950s and 1960s it was much more involved in direct business from the US and at much lower limits than now.

Apr 84

Asbestos School Hazard Abatement Act

In April 1984, a bill, known as the Asbestos School Hazard Abatement Act, was introduced in the Senate. Under this bill $500,000,000 would be spent over the next six years to remove asbestos from schools across the country. The bill would require states to submit priority lists, indicating which schools are in the most need of federal assistance.

25 Apr 84

Letter from HR Rokeby-Johnson to Winchester Bowring : "Run-off of Sturge Non-Marine Syndicates" in relation to asbestosis and other causes of loss affecting the old U.S. casualty policies, which states inter alia:-

I enclose herewith the statistical data at 31 December for transmission to the Reinsurers. The industry problem of products related claims as reported to you previously is continuing to pose more questions than are currently being answered and the time has come for a further up-date.

The current areas for concern are Asbestos, D.E.S., Agent Orange and Environmental claims.

Asbestos

It is certainly proving to be the most expensive claim in insurance history and perhaps will prove to be the tip of the iceberg. There is no continuity within the courts as to interpretation of policies other than perhaps "what the Assured wants he gets". One hope is that the Asbestos Claims Facility will come into being and at least drastically reduce legal costs and achieve realistic settlement levels. There are currently 30,000 claims and they are still being filed at the rate of 500 per month with no sign of abating. The deterioration in Sturge figures over the last 12 months has almost exclusively been due to inward reinsurance advices and all reserves to date of any moment are strictly for bodily injury, but a serious problem yet fully to develop is Property Damage.

The media are now seriously coming to grips with the School District cases which could alone cost $1.4bn without considering other industries which, without the same public sympathy, could still prove very expensive.

As is now becoming common there is no universal interpretation of coverage for P.D. and the industry could pour even more money down the drain before learning its lesson from the judiciary. Certainly by this year end there will have to be substantial reserves raised for this contingency unless the situation changes dramatically.

DES

DES claims still tend to linger in the unknown and no manufacturer has won a final decision and most have not had their coverage actions heard at all.....

Environmental Claims

The EPA is currently very active under both political and public pressure to "clean up America", listing various National Priority sites and has been the instigator of the school district cases. London is receiving preliminary advices of claims with great regularity, but it will be some time for proper evaluation to take place. One case that has received certain publicity is U.S. Army -v- Shell at Rocky Mountain Arsenal claiming $1-8bn where Sturge has considerable involvement but again evaluation of this problem will take time. ...

Love Canal

Merely a foot note to say that substantial money has been paid but not involving reinsurers and hopefully there will be no involvement for them at all.

General

My claims Director is currently spending most of his time on these problems and is serving on the Asbestos Claims Council with the hope that something can be salvaged and put on a proper basis for future handling.

I regret that this letter does not contain any optimism, but I am sure my reinsurers are only too aware of the increasing problems confronting us daily in America.

26 Apr 84

Murray Lawrence letter to Sir Bayley Lawrie Bt., Chairman of Bowring Members' Agency

"On behalf of the company I am writing to advise you that as managing agents for non-marine syndicate 362/444, we have been in discussion with the Inland Revenue for some months regarding a stop loss policy first taken out by the syndicate in the early 1970s. This policy was placed at arm's length with the Munich Reinsurance Company, a large well respected international reinsurance company."

Mr Lawrence, who is chairman of C T Bowring (Underwriting Agencies), went on to say that the Inland Revenue had been provided with full details of the policy - "… and although it has indicated the policy is open to question it has given no indication, to date, in terms of taxing statutes or case law, of the basis on which adjustments should, in its view, be made to the accounts for taxation purposes."

The letter notes that Bowring does not accept that additional past tax liabilities are due and it is conducting its discussions with the Revenue in that light. "However, as names are ultimately assessable to taxation as sole traders, we would draw to your attention that any such taxation adjustments as may become due would be borne by the names personally."

Lawrence goes on to suggest that the placing of the stop loss policy has proved to be justified in that the losses, against which was protection sought by Names, have now come to fruition in the shape of asbestos claims which arise for occurrences, as long ago as 1945. A "substantial recovery" under this policy is to be credited to the 1981 syndicate account.

The letter concludes with some bad news about asbestosis and other latent diseases' claims, with the 1981 account said to have been hit by a considerable increase in such advices going back to the 1940's.

Syndicate members are advised that the agency has negotiated additional reinsurance cover to protect future accounts completely from any further deterioration in claims relating to 1978 and all prior years of account. "We have managed to contain the cost of this, together with the underwriting loss of the 1981 account within the amounts generated by interest and capital appreciation on invested syndicate funds plus the reinsurance recovery obtained under the stop loss".

28 Apr 84

Financial Times: Minet affair may cost underwriters up to $50m

More than 1,000 underwriting members of the Lloyd's insurance market whose affairs are managed by agency interests of Minet Holdings face losses of up to $60m (£35.6m).

Members of syndicates under the management of Minet's stricken underwriting agency, PCW, have not been told the figures, which are still being calculated by accountants. But losses could rise to $50m, according to estimates at Lloyd's.

Mr Raymond Pettitt, group chairman of Minet, said yesterday that final figures could not be given, as negotiations with a number of parties were still outstanding.

The possibility of large losses for the syndicates emerged this week as Minet warned that its Lloyd's members "face substantial underwriting deficiencies."

Members of the syndicates last year received a cheque for £15,000 for each £200,000 of business accepted on their behalf. But with losses looming, they may be forced to pay cash from personal resources to meet liabilities.

The new problems emerged as Minet described progress in recovering £38.9m in funds allegedly misappropriated from the syndicates by former group executives.

A total of £6.7m has been provided by Minet to the agency company from which the money has been allegedly misappropriated. Minet has established that some of the £38.9m has been used to invest in a racehorse syndicate, oil well developments and film production companies.

Mr Pettitt said yesterday that although the group did not expect to contribute more than £6.7m to the agency company, there were no plans to put the PCW agency company into liquidation if further problems arose.

"we have made the provision after a study of a variety of options," Mr Pettitt said.

Minet is leaving the accounts of the syndicates open until it can get a better idea of what losses are likely. Some arise from asbestosis claims.

The additional problems could delay completion of the audit for the whole Lloyd's market, which has to submit annual global returns to the Department of Trade and Industry.

0 May 84

Ernst & Whinney INSIGHT No. 23. Environmental considerations.

The following matters are drawn to the attention of Audit staff as a supplement to those reported in INSIGHT 19:

Non-Marine. The insurance technical section has received a report by Lord Bissell & Brook on the exposure of insurers of the Dow Chemical Company in respect of Vietnam War Veterans claiming injury as a result of agent Orange. This contains figures which are more in the nature of an indication of potential reserves than firm recommendations and the market is understood to be treating the document as information rather than as claims advice. The Financial Times reported on 8 May that seven US chemical companies had agreed to set up a $250 million trust fund to meet claims as part of an out-of-court settlement.

0 May 84

Interpretation of Insurers Accounts.

A recent booklet prepared by Arthur Andersen & Co. compares insurance accounting in fifteen of the more important insurance markets. A common format is used to present summary information on each country covering:-

1.

a short national note;

2.

the insurance market - size etc.;

3.

nature of the insurance industry - types of organisation, disclosure of ownership, policyholder protection etc.;

4.

regulation of insurers;

5.

solvency requirements;

6.

accounts - reporting requirements, accounting bases, accounting principles (including investment and asset valuation, technical reserves, inner reserves etc.) audit;

7.

taxation basis.

0 May 84

US Excess & Surplus Lines

US excess and surplus lines is an important source of US insurance for Lloyd's. Information recently presented at a seminar in New York reveals that 1983 was the third successive year to show a decline in estimated total US E & S premium:-

1980

US $ 2-25bn

1981

US $2-23bn

1982

US $2-16bn

1983

US $2-05bn

A breakdown of 1982 figures for California, which is second only to Texas in size of E & S premiums shows the UK market taking 56% (Lloyd's 32%, Companies 24%) and other "alien" insurers writing a further 12%. The US market had grown over 230 domestic insurers writing E & S in 1982. All three insurance exchanges can write non-admitted and the New York Insurance Exchange can write E & S in 30 states as well as business rejected in the New York Free Trade Zone. The rapid premium growth in the NYIE has mainly come from reinsurance but with total

0 May 84

Comparison of Average IBNR Claim Reserve and Average Paid and O/S Claim Reserve (as at end 1982).

1978

1978

1979

1979

1980

1980

1981

1981

1982

1982

IBNR

PAID & O/S

IBNR

PAID & O/S

IBNR

PAID & O/S

IBNR

PAID & O/S

IBNR

PAID & O/S

General Accident

1,000

1,032

2,500

1,235

1,400

1,707

1,750

1,773

1,553

1,940

Iron Trades

1,575

1,988

2,128

3,000

2,506

2,601

Commercial Union

2,113

1,246

2,472

1,354

3,286

1,665

3,372

1,723

2,085

1,900

Phoenix

2,350

916

2,348

919

2,356

953

3,765

1,225

2,080

1,716

Royal

3,040

1,411

2,354

1,221

4,772

1,323

3,866

1,419

3,041

1,411

Norwich Union

2,500

1,350

1,929

1,335

2,712

1,580

2,257

1,684

1,984

1,877

Sun Alliance

5,736

507

5,680

548

5,618

823

5,628

1,014

5,584

1,205

Pearl

1,534

1,518

3,000

2,952

3,000

2,135

2,934

2,657

Provincial

909

1,636

1,882

2,312

3,083

2,495

5,455

2,907

3,259

4,373

Prudential

1,346

1,426

2,204

3,000

1,554

2,477

1,628

Co-operative

440

615

5,455

485

4,167

433

760

374

Legal & General

3,226

1,971

4,285

1,713

6,757

2,362

9,638

2,581

4,557

3,926

Guardian Royal Exchange

1,373

1,510

2,551

1,534

2,378

1,647

1,556

1,744

20,874

16,337

23,450

17,694

40,990

22,211

48,276

23,095

34,376

27,352

11 May 84

London Market Meeting: Asbestos Claims Facility

Paper presented by Robin Jackson of Merretts, chairman of the Asbestos Working Party to the Reinsurance Offices Association. Reported in Reinsurance of August 1984. When the wrangling must end. As we go to press the London Market Asbestosis Working Party is putting the finishing touches to its plans for coping with the avalanche of claims. Robin Jackson explains the problems the Working Party faced:

About 4 years ago, when asbestos was raising its ugly head and it became quite clear that it was going to be extremely expensive and perhaps even worse for some of us, a time-consuming proposition in the foreseeable future. It was suggested that there should at least be some co-ordination and liaison and passing of information on what was happening with a certain amount of speed around the market, so that everybody if they wished to could be informed of what was going on and, as we know, London with the UK companies, foreign companies based in London and with Lloyd's and others, that was important. We have a true market place and it is important, therefore, that everybody be aware of what is going on ...

As we were getting to a resolution of these meetings which had been going on for 18 months, and Keith Rayment and Jim Ayliffe, London Representatives of the US Asbestosis Claims Counsel had been going over almost every other two or three weeks now for nearly 18 months, it was important that we brought everybody up to date, so in March in London - rather like the provisional meetings in the States were to be with direct insurers - we had a meeting with the direct insurer representatives in London, where we had about 300 people present at two meetings ...

If I may, I would just like to say a few words as well. There is no doubt that this is the most serious claims problem ever encountered by our industry. The seriousness of it is not only actual quantum of claim but more so in the policy interpretation. As I said earlier, if we could have started at the beginning agreeing on our policies I do not think we would have had quite the same problems that we have had ...

The basic rule is quite clear it is to maximise coverage to the original insured. Already existing we have four decisions in different places giving different interpretations of how to maximise coverage, and let us not kid ourselves, we may not like what has gone on, we may not believe that our policies were ever supposed to be interpreted that way, but the Courts are so interpreting them.

Speakers

Agency

R A G Jackson

Merrett

K R Rayment

Sturge

13 May 84

Sunday Times: Sturge links to Posgate

14 May 84

The Underwriting Agents Byelaw (No. 4 of 1984, 14 May 1984). Provision was made for a system of registration specifying those underwriting agents at Lloyd's permitted to act solely as members' agents, those underwriting agents at Lloyd's permitted to act solely as managing agents and those underwriting agents at Lloyd's permitted to act as both members' agents and managing agents. The Byelaw defined a members' agent as being an underwriting agent which acted on behalf of a name but did not perform any of the functions of a managing agent and defined a managing agent as being an underwriting agent which performed for the name one or more of the following functions :

(i) underwriting contracts of insurance at Lloyd's;

(ii) reinsuring such contracts in whole or in part;

(iii) paying claims on such contracts

Lloyd's Explanatory Notes:-

Introduction

1. These Explanatory Notes should be read in conjunction with The Underwriting Agents Byelaw (No. 4 of 1984) ("the Byelaw"). The purpose of these Explanatory Notes is both to explain certain provisions of the Byelaw and to indicate the manner in which the Committee is likely to exercise some of its discretions under the Byelaw in normal circumstances. These Explanatory Notes are intended to serve as a guide only; each case would be considered individually whilst having regard to these Explanatory Notes.

2. (a) Terms defined in the Byelaw have the same meanings in these Explanatory Notes and terms which are defined in section 2 of Lloyd's Act 1982 have their defined meanings when used in the Byelaw and these Explanatory Notes. In particular, attention is drawn (i) to the wide definition of "director" in section 2 of the Act and to the fact that an alternate director would be regarded as a director for the purposes of the Byelaw and (ii) to the fact that the definition of "qualifying working member" for the purposes of the rules relating to directors of (or partners in) an underwriting agent and to shareholdings in a corporate underwriting agent, does not require such a working member to work full-time for that underwriting agent; it is sufficient that the working member works full-time for an underwriting agent (or, in the case of a members' agent, a Lloyd's broker).

(b) Paragraph references in these Explanatory Notes are references to paragraphs of the Byelaw, except as otherwise stated.

(c) References to applications for registration include applications by underwriting agents which at the date of the Byelaw are already entitled to act as such and which are applying for registration under the Byelaw.

Paragraph 1 - definition of "active underwriter"

3. In determining who is the active underwriter of a motor syndicate which does not have a regularly manned box, the Committee would normally deem the person with principal authority to accept risks on behalf of members of such a syndicate to be at the underwriting box.

Paragraphs 4 and 5 - registration

4. All underwriting agents are required by the Byelaw to be registered in accordance with the provisions of the Byelaw by the close of business on 22 July 1987, if they wish to be permitted to act as underwriting agents thereafter. Underwriting agents are urged to apply for registration as soon as possible. It should also be noted that it will be necessary for an underwriting agent which has been registered under this Byelaw to continue to comply with the requirements of, and to satisfy the criteria referred to in, paragraph 8 of the Byelaw.

5. An underwriting agent which has not been registered under the Byelaw by 31 May 1986 is required by the Byelaw to ensure that each of its underwriting members is notified of this. The underwriting agent concerned must ensure that its underwriting members are warned that if the underwriting agent has not been so registered by the close of business on 22 July 1987, it will cease to be entitled to act as an underwriting agent. When notifying underwriting members, an underwriting agent should also warn them of the consequences of the underwriting agent ceasing to be entitled to act as such, including that each underwriting member will cease to underwrite through that underwriting agent.

May 84

Agreement had been reached on all issues within the Resolution Group, and the "Agreement Concerning Asbestos Related Claims" was released throughout the Insurance Industry and to all the commercial concerns who had any involvement in the asbestos problem in the U.S. Two London Market representatives served on the Resolution Group, which over the past 19 months, met on 32 occasions, involving 58 days of intense and difficult negotiations.

May 84

In May 1984, the members of the ACC produced a first draft of an agreement entitled "Agreement Concerning Asbestos-Related Claims" and began intensive advertising for as many asbestos producers and liability insurers as possible to join. The original deadline for joining was 13 September 1984 and the purpose of this short deadline was to put pressure on the producers and insurers concerned in order to prevent endless discussion of the Facility rules. However, the deadline was extended because many producers and insurers needed much more time to weigh up the pros and cons of the Facility rules (liability share and insurance coverage for producers; obligations to provide coverage and problems in finding reinsurance for insurers). In later negotiations there were discussions on the possibility of including asbestos producers who had sought the protection of Chapter 11 of the Bankruptcy Act. A revised draft was presented on 10 April 1985 with additional rules to take account of the special concerns of these producers, especially Johns-Manville Corp., and to make it possible for them to participate in the Asbestos claims Facility. On 19 June 1985, the Wellington Agreement was signed by more than 30 firms in the US asbestos industry and 16 US insurers as well as Lloyd's together with London Market companies.

May 84

Mr. Robin Jackson of Merretts , as Chairman of the AWP, in a letter to underwriters at interest referred to the steadily increasing volume of Asbestos personal injury claims.

May 84

Lloyd's had settled about 6,500 asbestosis claims at an average cost of U.S.$89,000, aggregate total $578,500,000 (£72,950, aggregate total £474-175m. @ Rate of Exchange 1-22).

May 84

Sir Peter Green sent an inaccurate and incomplete letter to the Janson Green Syndicate Names in relation to his involvement in the Janson Green offshore rollovers placed with the Imperial.

25 May 84

Letter from Peter Miller, chairman of Lloyd's, to all PCW members

The Council of Lloyd's is very conscious of the problems faced by the Names on syndicates managed by Richard Beckett Underwriting Agencies Ltd., formerly known as P.C.W. Underwriting Agencies Ltd. Deficiencies must now be covered by those Names in order to meet Lloyd's statutory obligations under the Insurance Companies Act 1982. The entire Market is aware of the serious allegations that attach to those formerly responsible for managing the syndicates in question. There are also one or two other syndicates, under different managing agents, whose members may equally feel some disquiet at their losses although their affairs would not have attracted the same attention as the P.C.W. syndicates. It is to the Names on all these syndicates that this letter is particularly addressed in order to make clear to them, as well as to the membership as a whole, Lloyd's position in relation to losses such as these.

Lloyd's Acts 1871 to 1982 impose upon the Council of Lloyd's the task of managing and superintending the affairs of the Society and of regulating and directing the business of insurance at Lloyd's. In other words, the Council has a general duty to the membership at large to manage the Society and a specific duty to maintain an orderly market.

It is the role of the Council to ensure that there is a sound and well regulated framework within which individual underwriters can work and Names can subscribe to syndicates. From time to time syndicates and the Names on them can, and do, suffer from the results of poor underwriting judgements. In very exceptional cases, such losses may have been exacerbated by negligence or, in a rare case, by improper conduct on the part of the underwriting agents concerned: in such cases, the Council will act vigorously in the interest of Names through full and expeditious use of its investigatory and disciplinary powers. Furthermore, every assistance will be given to other authorities to enable them to instigate such proceedings as they deem appropriate. However, it may be that the damage and loss to Names cannot entirely be undone. The primary concern of the Council must be to safeguard Names from further damage, as well as to ensure that an effective underwriting agent is acting on their behalf: that of the underwriting agents will be to attend to and, if possible, repair the damage already done.

It may be that some of the affected Names will wish to discuss this letter with their underwriting agents. It is their agents who will be able to give them detailed advice on any matters of particular anxiety to them, including their legal position and Lloyd's requirements. It is also possible that individual Names or Agents would appreciate general advice and guidance from the Corporation staff, headed by the Deputy Chairman and Chief Executive, Mr Ian Hay Davison. In this event, the Name or Agent should contact the Members' Solvency and Security Department at Lloyd's (01-623-7100 Ext. 3299).

It is perhaps appropriate to remind the membership at large, that the Lloyd's Central Fund is maintained for the benefit of Lloyd's policyholders in order to ensure that valid claims are paid in the event of the default of an individual Name. The Central Fund is not available to mitigate any hardship suffered by Names in meeting their several obligations.

.

31 May 84

Letter from RAG Jackson, Chairman of the Asbestos Working Party to underwriters at interest.

(Mr Jackson described asbestos as the most serious claims problem ever encountered by the industry and added the following. The seriousness of it is not only the actual quantum of claims but more so in the policy interpretation. The basic rule is quite clear, it is to maximise coverage to the original insured).

I now wish to take this opportunity to advise you that over this period discussions between Producers and Insurers on the Resolution Committee continued, and a final document has now been prepared which was generally released to interested parties in the United States on Friday, 18th May... I cannot express too strongly the need for unity of approach within the London Market, for there is no question that no further opportunity will arise which can bring to an end the coverage litigation, and at the same time establish a rational and cost-effective way of dealing with the steadily increasing volume of claims that exist... With the increasing involvement of the London Market in asbestos related matters, the development of the Facility and the increasing number of property damage claims, the Asbestos Working party has reached the conclusion that it will be necessary to seek a revised Market Authority to enable us to perform the tasks that lie ahead... As I indicated to the Market in my letter of 31 January, 1984 asbestos related claims have produced the most serious situation ever confronted by the Insurance Industry.

7 Jun 84

The DTI Inspectors, Sir Robert Gatehouse Kt. and Ian G Watt FCA, appointed to investigate the Alexander Howden Group Plc state in their report, dated 30 December 1985, addressed to the Secretary of State for Trade & Industry that "substantial sections of this report in draft format were submitted (also under the provisions of Section 41) on 7 June 1984"; and "although we had completed most of our report - in draft - by mid 1984, we were missing certain information about Howden's principal Bermudan insurance company - Capital Marine. This stemmed in part from the fact that Peat Marwick Mitchell & Co, Bermuda, who were auditors of Howden's companies, did not extend their full co-operation to us, on legal advice and in the light of civil litigation in which they were defendants. And because they were outside UK jurisdiction, it was neither possible nor practicable to enforce the powers given to us. After some discussion, they agreed - through their senior partner in Bermuda - to meet our staff informally. In this way we were able to establish Peats' position in relation to matters under enquiry and learn more about the Howden activities in Bermuda. We were not however permitted to see the Peats' partner involved in the audit, whom we would, under normal circumstances, have called to give evidence; nor were we allowed to review Peats' audit files. Despite these restrictions in scope, we believe that we have established all relevant facts in relation to this part of our enquiry. We encountered no other similar restrictions during the course of our investigation.

11 Jun 84

Business Insurance: Citicorp acquires Lloyd's broker

New York - Citicorp, barred by federal laws from buying a US insurance brokerage or underwriter, entered the British property/casualty insurance marketplace last week by acquiring Lloyd's of London broker Grindlay Brandts Insurance Brokers Ltd.

"The purchase was made because world-wide and in the UK the development of Citicorp's business in the insurance industry has been highlighted as one of the objectives of the next decade," said a Citicorp spokesman in London.

Citicorp would not say how much it paid for the broker, which specialises in marine, construction, aviation, property and casualty risks. The bank holding company already owns a London-based credit and mortgage life insurer, Citibank Assurance Co. Ltd.

11 Jun 84

Business Insurance: Lloyd's sees brighter future: Miller

LONDON - Lloyd's of London is ready for a hardening in the world insurance markets that is beginning to take place, despite the dramatic changes that occurred at Lloyd's last year, says Lloyd's Chairman Peter Miller.

"These are exciting, if difficult, times at Lloyd's," he said. "There are serious problems in the market still to be overcome, but I am sure that we shall do so.

"I believe that the market is well-placed to take advantage of the upturn in insurance markets generally, which now and at last seems really to be taking place."

Mr. Miller delivered his view of Lloyd's and the world insurance market in the recently published Lloyd's Annual Report and Accounts for 1983.

Unlike the global results that are released in September, the annual report describes the activities of the Corporation of Lloyd's, which consists of 1,750 employees who either run Lloyd's market services like the Lloyd's Policy Signing Office or work in one of Lloyd's subsidiaries like Lloyd's of London Press Ltd. or Additional Securities Ltd., which provides for Lloyd's deposits overseas.

Last year, the corporation reported a net surplus of 15 million pounds ($22.05 million at year-end exchange rates), compared with 13 million pounds ($19.11 million) in 1982.

The corporation spent 63.4 million pounds ($93.2 million) in 1983, which included 15.8 million pounds ($23.2 million) spent in trustee and legal fees and taxes, primarily in the United States and Canada.

The annual report reads like a chapter out of Lloyd's 300-year history, because there were so many turning points in 1983.

For example, according to the annual report: ‘

  • The new Council of Lloyd's, the market's ruling body established by the Lloyd's Act of 1982, took up its duties in January 1983.
  • A deputy chairman and chief executive officer Ian Hay Davison, was hired for the first time to oversee the corporation.
  • The corporation's staff structure was reorganised to include six group heads responsible for regulatory services, external relations, finance, market services, corporation services and systems and communications. These group heads report to the Lloyd's chairman and three deputy chairmen.
  • Two working parties led by Alec Higgins and Ian Plaistowe finished their reports on how Lloyd's should restructure its underwriting agencies and its auditing and accounting practices, with particular reference to disclosure of reinsurance transactions and possible conflicts of interest.
  • Lloyd's began codifying new rules as proposed in the 1980 Fisher report, which led to the Lloyd's Act, as well as those proposed by Mr. Plaistowe, Mr. Higgins and other working parties.
  • In the United States, where more than 50% of its total net premium income is generated, Lloyd's acquired Toplis & Harding Inc., a Chicago-based adjusting firm. A new chief executive is yet to be appointed, but the report notes that the council already is considering how to develop Toplis & Harding into the company that settles Lloyd's claims in the United States.
  • Sir Peter Green retired after serving four years as chairman.

According to the report, Lloyd's increased its trust funds by 27% to a total of 1.4 billion pounds ($2.06 billion). The funds, which are held as part of the security underlying Lloyd's policies, include Lloyd's members' deposits, Lloyd's members' special reserve funds and Lloyd's central fund.

In addition to these funds, Lloyd's also maintains an American trust fund, which last year was increased 5% to 4.4 billion pounds ($6.47 billion).

But, Lloyd's was not without its hardships last year. The market had to cope with allegations of misconduct by underwriting members.

"The reports of the committees of inquiry provide prima facie evidence of wrongdoing in a limited number of cases," the report said. "It is expected that disciplinary proceedings will be initiated in a number of cases during 1984."

Also last year, Lloyd's completed civil litigation involving syndicates once managed by Sasse Turnbull Ltd. (BI, May 2, 1983).

Disciplinary proceedings may result from the 1979 suspension of underwriting at Syndicate No. 762, the report said. The Sasse syndicate stopped underwriting when it could not pay more than $51 million in claims from New York property insurance policies.

However, Lloyd's estimates that the corporation may be liable for approximately 10.5 million pounds ($15.44 million) resulting from its indemnification of 110 Sasse Syndicate members for losses incurred in 1976 and 1977 and a settlement made last year with five other names (BI, May 30, 1983). This figure excludes recoveries that may be made by Lloyd's and contributions made by Lloyd's members.

Also last year, Lloyd's relationship with the Inland Revenue Service was a source of "particular concern," the report noted. At the moment, the Inland Revenue is looking to see if there are any taxes owed on rollover reinsurance policies that syndicates placed offshore {BI, April 30).

11 June 84

Lloyd's Disciplinary Proceedings, case No 8301/8 Pearman published, involving J A Pearman and R S L Pearman and the Fidentia. This involves the non-co-operation of the Pearmans', Bermudan Attorneys and both Members of Lloyd's, with the Lloyd's appointed investigators into the Fidentia The penalties imposed were a reprimand. J A Pearman and R S L Pearman had costs payable £1,000 and £500 respectively.

11 Jun 84

Lloyd's forwards Part 1 of the Coleman Report to Brooks & Dooley Names.

12 Jun 84

Lloyd's Disciplinary Proceedings, case No 8401/4 brought against T R Brooks and T J Dooley.

14 Jun 84

Post Magazine: Nasty smells persist

To judge from their annual report and accounts the Lloyd's authorities have made tremendous strides towards self regulation so that the "scandals" of the seventies and early eighties will fade into City folk memory - eventually.

As Peter Miller the chairman of Lloyd's puts it, "These are exciting, if difficult times at Lloyd's. There are serious problems in the market still to be overcome, but I am sure we shall do so."

As if to prove the point the report reveals that the number of underwriting members reached almost 23,400 at the start of 1984, a net increase of almost 8% on the previous year. UK membership was up 7%, overseas membership up 13%.

Not a month has passed over the last year without Lloyd's chief executive Ian Hay Davison bringing forth new and hopefully enforceable regulations to prevent future scandals.

Major milestones include plans to make syndicate publish accounts, and more recently the tightening up of "umbrella arrangements", deals between Lloyd's and non-Lloyd's brokers, a move partly motivated by the unease over extended warranty business.

But not a month passes without further revelations about funds "lost" to syndicates in offshore tax havens, litigation, threats of prosecutions further rumours that "the worst is yet to come" and rumoured clashes between Lloyd's and the Inland Revenue.

The nasty smells will be around for some time yet as the Lloyd's authorities, the Fraud Squad and Department of Trade machinery grinds on. Often as not efforts by the Lloyd's authorities to minimise the damage rebound, amid accusations of "cover ups" and mishandled PR.

It's in this atmosphere and just as Lloyd's members hold their AGM at the end of the month that a controversial new book on Lloyd's recent history hits the bookshops. The title "Lloyd's of London - A Reputation at Risk" speaks for itself. The author, Godfrey Hodgson, has painstakingly analysed the market's problems and scandals. And his conclusion will be a talking point for some to come.

Self regulation, he maintains, is not enough. What is needed is a regulatory body set up by Parliament with the power to "send for persons and papers". But not, he maintains, massive government intervention.

In his view the business of Lloyd's is too important to be regulated like a private club, the more so since leading members of that club have been linked to the events that caused its problems.

Lloyd's of London - a Reputation at Risk, Allen Lane publications, £14-95. Publication date 28 June.

14 Jun 84

Policy Holder: Suspension renewed

The administrative suspension standing committee of the Council of Lloyd's has decided to issue Mr I. R. Posgate a further direction of administrative suspension for a period of six months to commence

at the expiry of the current direction at the end of June.

14 Jun 84

The Times: Alexander to head BIBA again

The British Insurance Brokers' Association: Mr A. V. Alexander, chairman of Sedgwick Group Underwriting Services, and a non-executive director of Sedgwick Group, has been re-elected chairman of the association. Mr Brian Denney, of Denney O'Hara, was also re-elected as deputy chairman, with Mr David Palmer, chairman and chief executive of Willis Faber, also being appointed a deputy chairman of the association.

15 Jun 84

Wall Street Journal: American Express Unit to buy remainder of Reinsurance firm

Novato, Calif. - Fireman's Fund Insurance Co. said it agreed to buy the 42.5% minority interest in its San Francisco Reinsurance Co. unit that is held by four foreign insurance companies. Terms weren't disclosed.

San Francisco Reinsurance will be operated as a subsidiary of Fireman's Fund, which is a unit of New York-based American Express Co.

Reinsurers assume part of the risk of an insurance policy issued by another company. In return, the reinsurer gets part of the premiums.

The minority interests are held by Baloise Insurance Co., Basle, Switzerland; National Insurance Co. of New Zealand, Dunedin, New Zealand; Nippon Fire & Marine Insurance Co., Tokyo, and Victoria Fire & Marine Insurance Co., Dusseldorf, West Germany.

Fireman's Fund said it is buying out the minority interests because it wanted to strengthen San Francisco Reinsurance financially, while the other companies were reluctant to put in additional capital. Fireman's Fund said it hopes to improve San Francisco Reinsurance's ability to compete in domestic and foreign reinsurance markets.

Fireman's Fund said San Francisco Reinsurance's net premium revenue last year was about $65 million. It declined to disclose profit figures for the unit. Fireman's Fund reported 1983 net income of $30 million on revenue of $3.78 billion.

19 Jun 84

The Neville Russell Report, commissioned by Clifford-Turner on behalf of RBUA, into PCW is completed and forwarded to PCW Names on 21 June.

19 Jun 84

OSHA Regulations

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. The proposed permanent reduction follows an emergency temporary standard, which was issued in November 1983, but 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.

21 Jun 84

Minet Holdings Plc (Minet) and Alexander & Alexander Services Inc. (A & A S) announce that the Minet subsidiary Richard Beckett Underwriting Agencies Ltd (RBUA) and its associated company WMD Underwriting Agencies Ltd (WMD) have today made an offer to Names on syndicates managed by those agencies to pay them £38. 17m. The offer is equivalent to the net premiums paid away from the syndicates as reinsurance during previous years which, have been under investigation by the Minet Group and others since November 1982. The Minet Group's investigation has been carried out with the assistance of solicitors Clifford-Turner and chartered accountants Neville Russell & Co. The offer is made up of £25. 03m from Gibraltar sources and a further £13. 14m provided by Minet and A & A S. Both companies are of the opinion that their respective shares of this £13. 14m will have no adverse financial impact beyond existing provisions made in their 1983 accounts. The offer is intended to be conclusive - as between the Names receiving it. RBUA, WMD, Minet A & A S and others - of all issues arising out of the past conduct of the underwriting for those Names by the underwriting agencies. The closing date for the offer is 19 July 1984. The offer documents include a letter from Clifford-Turner solicitors to RBUA and WMD and the Neville Russell report commissioned by Clifford Turner. (Both Neville Russell and Clifford Turner were not independently appointed to look after the interests of the Names as they were accountable ultimately to their client RBUA. Some £38.17m was transferred out of the syndicates in respect of years of accounts 1968 to 1982; some £38.17m was repaid, without any interest added.

The offer was originally accepted by 99% of the 1,524 Names to whom it was addressed. In 1984 and 1985, Steering Committees of Names on PCW Syndicates instructed accountants, Price Waterhouse, to investigate various matters in connection with the syndicates managed by the agency company. Reports were issued by the Committee in July 1984 and June 1985. In the light of the report issued in June 1985 certain Names have made allegations against the company concerning amongst others:-

(i)

the basis of the offer made to Names dated 21 June 1984;

(ii)

the method of allocation of recoveries potentially available under certain reinsurance arrangements between syndicates managed by the company;

(iii)

manipulation of certain syndicate accounts in respect of calendar years 1978-81 inclusive (underwriting years of account 1975-78).

Jun 84

Sturge Holdings Ltd: Obtains listing on the USM

During the last two years the number of Names' has more than doubled (from 2,296 to 4,601) and premium capacity has grown by 84%. Critics in the market have characterised this as headlong expansion in preparation for the share placing. £822,000 of ordinary shares were placed with nearly half being made available by four shareholders and the remainder in new capital. After the placing just under 25% of the shares will be held by underwriting "Names" on Sturge syndicat would increase these surpluses.

The Offer requires acceptance by 100 per cent. of Current Names (or such lesser number as Minet, A&AS and Citadel and Chiltern may jointly agree). For other conditions please see the Offer (Enclosure No. 5).

You would release all claims you may have against RBUA and WMD ("the Agencies") and the other parties referred to in the Offer (Enclosure No. 5), and assign all your rights of redress to a company, Jufcrest Limited ("Jufcrest"), jointly owned by Minet and A&AS but in which you will not be involved. You would not be faced with the enormous uncertainty, delay and expense of pursuing legal claims in the hope of recovering monies. If the recoveries from these assigned rights exceed the £13.14m that Minet and A&AS are offering, the excess will be paid to Names once the costs of pursuing these rights have been recouped and after any claims for contribution or otherwise by third parties.

You would, however, be giving up in return the right to pursue your rights of redress against anyone who might be liable to you.

HISTORY OF THE NEGOTIATIONS

The routes taken by the premiums paid in respect of the reinsurances described in my letter of 26th April were not fully understood until the beginning of this year but, in November 1982, the Gibraltar Trustees recognised from press reports that they owned shares in companies which held assets many of which may have been derived from the proceeds of premiums paid by RBUA and WMD Syndicates. In February 1983 they applied to the Gibraltar Court for leave to disclose to the investigation team all the information in their possession. That leave was granted.

In late 1983, when sufficient evidence had been gathered to make such an application possible, an order of the Gibraltar Court was sought for a declaration that the Gibraltar Trustees held the trust assets on trust for Names on the RBUA and WMD Syndicates or for such other persons as the Court decided. Certain companies of A&AS, which were concerned with the reinsurance contracts broked through Alexander Howden Insurance Brokers Limited, applied to the Gibraltar Court to be joined in the proceedings; one of their concerns was to ensure that they were given proper credit in any claim which might be made against them by RBUA, WMD or by Names under reinsurance contracts.

In January 1984 a compromise order was obtained from the Gibraltar Court. It provided for the method of return of the trust assets to be consigned to the English Court. This compromise order was acceded to by RBUA and WMD in order to avoid the cost and delay of entering into protracted litigation in Gibraltar, which we considered was not in the best interests of Names.

After the making of the compromise order intensive negotiations took place with all interested parties. These negotiations reached an impasse, and it became clear that a more radical proposal, extending beyond the simple return of the Gibraltar monies and providing for the settlement of the Names' potential claims against the parties in question, was necessary. Further discussions took place, and A&AS and Minet agreed between themselves, subject to the acceptance of a full settlement offer by Current Names, to pay an amount to them of £13.14m, which is the shortfall between the net amount of reinsurance premiums paid out by the Syndicates and the present value of the liquid d element of the Gibraltar assets. Citadel and Chiltern also agreed, so that the Offer might be made, to defer the prosecution of their claims against three companies owned by the Gibraltar Settlements pending the outcome of the Offer.

The preliminary step of transferring the control of the trust assets from the Gibraltar Trustees to RBUA was taken on 6th June 1984 in the Chancery Division, when a consent order enabling the Gibraltar Trustees to transfer the trust assets to RBUA subject to the existing trusts was made by the Honourable Mr. Justice Nicholls. Agreements have now been reached between RBUA, WMD, Minet, A&AS, Chiltern, Citadel and the Gibraltar Trustees on a basis which resolves the various claims and makes possible the release of the Gibraltar assets to Current Names if the Offer is implemented.

FINANCIAL IMPACT OF THE OFFER ON YOUR UNDERWRITING RESULTS

The enclosed personal statement shows you your own net underwriting profit or loss on each Syndicate for 1979 (insofar as it remains open) 1980 and 1981. It also shows you the impact of your share of the Offer on your underwriting results. Any Solvency shortfall of which you have presently been advised would be reduced or eliminated by the figure shown on your statement (Enclosure No. 1).

Enclosure No. 4, headed "Method of Allocation", explains how the £38.17m is allocated, given the fact that the issues of allocation are so complex. There is no single method which is necessarily right. In summary, what is proposed is that RBUA allocate the £25.03m of Gibraltar assets between Current Names as though the Syndicates which had contributed to the different reinsurance contracts involved were making claims on those reinsurance contracts. The £13.14m contribution from Minet and A&AS is offered by Minet and A&AS in a manner designed so far as possible to reduce any remaining deficiencies of Current Names. This is achieved by allocating the £13.14m to Current Names with deficiencies pro rata to their deficiencies calculated after crediting their share of the £25.03m .

FACTORS MATERIAL TO THE OFFER

I believe that amongst the considerable detail that we have now given you, the following points are likely to be the most material to your consideration of the contents of the Offer:

  1. The Offer is the only probable chance of crediting Current Names with £38.17m in the foreseeable future.
  2. The prospect of recovering as much or more (for example by way of lost interest) is in our view uncertain both in terms of the chances of success and the time it would take you to achieve it (even assuming that you were willing to fund the considerable expense of trying). In assessing this statement you should also look at the enclosed letter from Clifford-Turner, the solicitors we appointed to investigate this affair on our behalf (Enclosure No. 3).
  3. None of the Gibraltar assets can be used as a good asset for Solvency purposes if the Offer lapses.
  4. Our view is that the basis of allocation we propose is the best in that, as to the £25.03m, it reflects the Agencies' view of the proper way of dealing with this element and, as to the balance of £13.14m, it goes as far as possible to eliminate the remaining underwriting losses of Current Names.
  5. Whatever the Agencies' past conduct, you will be releasing them from any possible liability. You will also be accepting that you will not make any claims against, inter alia, Minet and A&AS. Also, to secure the agreement of all concerned to the release of the Gibraltar assets, it is a term of the Offer that, in return for the release o f their claims against three of the Gibraltar companies, you will also give releases to Chiltern and Citadel.
  6. The 1979, 1980 and 1981 Years of Account of Syndicate Group Nos. 810, X69, 157, 859 and 174 will be closed as at 31st December 1983. The 1979, 1980 and 1981 Years of Account of Non-Marine Syndicate Nos. 918 and 940 will remain open.
  7. If the Offer is declared unconditional with some Names not having accepted it, those who have not accepted will have to meet Lloyd's Solvency requirements from their own resources because they will not have received the benefit of the Offer. In other words, they cannot use for this purpose any part of the Gibraltar assets or of the monies being offered by A&AS and Minet. That part of the Gibraltar assets which has been apportioned to them under the Offer will remain held on trust by RBUA. Names who have not accepted will be free to make such claims to it as they can establish. Competing claims may also exist for those monies. Those who have not accepted the Offer will be free to take such other action as they wish.
  8. The Offer is conditional upon all Current Names (or such lesser number as Minet, A&AS, Citadel and Chiltern may in their sole and unfettered discretion determine) accepting it in the prescribed way before Noon on 19th July 1984.

MINET AND A&AS's ROLE IN THE OFFER

RBUA has no assets of its own with which to fund an offer to you, nor can it afford the enormous legal and other costs of continuing the pursuit of recoveries for you. Minet and A&AS, respectively the holding companies of the Agencies and of various Howden subsidiaries through whom some of the premium was paid, have been extremely concerned at the financial difficulties faced by Current Names. It is for this reason that Minet has provided the Agencies with funds in excess of £2m to date to pursue the investigation on your behalf and that Minet and A&AS are volunteering £13.14m to enable the Offer to be put to you. They will also benefit, if the Offer is made unconditional, by the releases that you give to the two Groups.

In considering their position both Minet and A&AS have had to take account of their responsibilities to their public shareholders.

In return for committing £13.14m to the Offer, Minet and A&AS would take over control of the process of trying to recover money from parties responsible. They would do this through Jufcrest, to whom you would be assigning your rights of action. As part of your acceptance of the Offer, that company would also take on the responsibility for realising the non-liquid assets of the Gibraltar Settlements for full value. The benefit would accrue to Minet and A&AS and would be treated as a recovery. If the Offer is declared unconditional with some Names not having accepted it, a proportion of the realisations of the non-liquid assets will be held on the same trusts as the remaining (undistributed part) of the Gibraltar assets. With the exception of that proportion, all other realisations and the proceeds of other recoveries by Jufcrest from parties responsible would go firstly to funding the cost of recoveries, and then to reimburse Minet and A&AS for their contributions to the Offer. Thereafter, any further net recoveries would be paid back to RBUA for Names after any claims for contribution or otherwise from third parties.

It has been agreed that, if the Offer becomes unconditional, the benefit of all releases given by accepting Current Names to RBUA, WMD, Minet and A&AS will be passed on to certain partners, employees and trustee companies of the firm of J. A. Hassan and Partner.

We consider that the chance of the recovery process recouping the expense to which Minet and A&AS would be committing themselves by the Offer to be small, and you should not count on recovering anything more than your share of the Gibraltar assets and the £13.14m comprised in the Offer.

You should also understand that it will be at the sole discretion of Minet and A&AS to decide how to pursue recoveries. They will not be accountable to Names for any decision they take in relation to the pursuit, or non pursuit, of claims that you would be assigning to them.

TAX IMPLICATIONS FOR NAMES OF THE OFFER

We have put forward proposals to the Inland Revenue and are in active discussion with some of their senior officials on the implications of these matters. We will advise you of their response as soon as we can.

OTHER ASPECTS OF THE OFFER

The Offer is not made to Mr. and Mrs. P. S. Dixon, Mr. P. E. J. Cameron-Webb, Mr. J. A. W. I. Hardman, Mr. A. G. F. Oldworth, Mr. J. Wallrock, Mr. B. C. Newman, Mr. D. B. Hill, Mr. C. E. Davies or Mr. A. A. Sampson, ("the Excluded Names").

Please also note that a number of our directors will as members of the Syndicates themselves benefit personally as a result of the Offer becoming unconditional. They are Mr. G. A. Haynes, Mr. M. Mountstephen, Mr. R. W. Pettitt, Mr. M. C. Snell, Mr. R. K. Webb and Mr. E. D. Armstrong (all directors of RBUA) and Mr. P. F. Fagan and Mr. J. E. Upton (both directors of WMD). Mr. Pettitt is, of course, also the Chairman of Minet. He has waived that element of the Offer made to him which is attributable to the £13.14m contribution made by Minet and A&AS.

As I have indicated to you in my previous letters, the extent of the underwriting deficiencies in the RBUA Syndicates is not solely attributable to the matters referred to in the Neville Russell Report (Enclosure No. 2). Those deficiencies have been exacerbated by apparent under-reserving in the past and by the past standard of underwriting. We have found that cash settlements on some of the reinsurances which have been investigated do not always reflect the premiums and claims recorded in the underwriting accounts. There is also some doubt over whether the cost of the past reinsurances to close of the RBUA Syndicates has been understated and profits overstated. This is a matter of great complexity on which we have not been able to reach any definitive view. We do not believe it to be in the overall interest of past or present Names, nor do we believe it is possible, to reopen the closed Years of Account.

The past affairs of the Agencies, and the matters referred to in the Neville Russell Report are enormously complex. We believe that we have uncovered everything that we are ever in practice likely to discover. We have done our best, but given the time that has elapsed since the Agencies first started, the complexity of what went on, and our lack of statutory powers to obtain information, we cannot guarantee to you that we have discovered everything there is to know, or that we have fully appreciated the import of the many, many details we now have. Please bear in mind, if and when you accept the Offer, that the releases you will be signing are required on the basis that they extend to any matters which are currently uncertain or which may come to light subsequent to your signing the Form of Acceptance (Enclosure No. 6).

This letter, and the documents referred to in it, are written on the basis that they do not constitute an admission of liability of any kind to any Names on the part of the Agencies, Minet, A&AS, Citadel and Chiltern.

HOW TO ACCEPT THE OFFER

TO ACCEPT THE OFFER, YOU MUST COMPLETE AND SIGN THE ACCEPTANCE FORM AND RETURN IT

(A) TO THE MANAGING DIRECTOR, RBUA, 52 LIME STREET, LONDON EC3M 7BS OR

(B) IN THE CASE OF ANY CURRENT NAME WHO IS RESIDENT IN THE USA, TO R PERKINS, ESQ, DEBEVOISE & PLIMPTON,875 THIRD AVENUE, NEW YORK CITY, NY 10022

YOUR ACCEPTANCE MUST ARRIVE NOT LATER THAN 12 NOON ON 19TH JULY 1984

The Offer will only become unconditional if every Current Name (or such lesser number as Minet, A&AS, Citadel and Chiltern may in their absolute discretion jointly agree) signs and delivers an unconditional acceptance of the Offer by 12 Noon, 19th July 1984, or such later date as Minet, A&AS, Citadel and Chiltern may in their absolute discretion jointly agree.

We will advise you as soon as possible after the closing date whether the Offer has become unconditional, or has lapsed, or has been extended.

Lloyd's must provide annually to the Secretary of State a certificate confirming that Lloyd's Solvency requirements have been met by each and every Member of Lloyd's. The normal deadline for this statement has now passed.

The Department of Trade and Industry had already agreed, in the case of Names on the RBUA and WMD Syndicates, that the deadline be extended. In view of the time it has taken to finalise this Offer, a further extension until 21st July 1984 has now been agreed at our request.

There can, however, be no further extensions and, in order that the revised date can be met, it is imperative that Members make provision, by 19th July, to clear any deficiencies disclosed by the Solvency Test as at 31st December 1983. This statutory requirement must be met whether or not the Offer is accepted.

You will probably wish to discuss the Solvency Test implications with your Underwriting Agent at the earliest opportunity.

THE VIEWS OF RBUA AND WMD

It will be obvious to you that RISUA and WMD have a major conflict of interest It is therefore difficult for us to give you a lead in this matter

The Directors have considered the matter at length and are satisfied that the Offer is the only alternative to substantial litigation. They see as the principal advantages and disadvantages of the Offer the following:

 

ADVANTAGES

 

DISADVANTAGES

1.

2.

 

3.

There is an immediate credit to Current Names of £38.17m.

Any 1979,1980 and 1981 Account deficiencies, and any existing Solvency shortfall, will be very substantially reduced.

The prospect of recovering as much or more is uncertain both in terms of the chances

1.

By signing releases and assigning your rights of action you reduce your chance of receiving more than your share of £38.17m to reimburse you for loss of use of any premium wrongly removed from the Syndicates.

4..

of success and the time involved.

If the Offer is not accepted, there is no likelihood of a distribution of the Gibraltar assets except pursuant to a Court

2.

The allocation of the contribution of £13.14m from Minet and A&AS is not in accordance with any contractual entitlement of Names.

 

Order made after an investigation into the precise way in which those assets should be allocated. Such proceedings would be very complicated. They would also involve decisions regarding who should bring and fund them.

   

5.

The damaging uncertainty which this affair has created for Names and the Agencies will be alleviated.

   

As stated above we do believe that the allocation method adopted, set out in Enclosure No. 4, is the best in all the circumstances.

You should also be aware that all the Directors of RBUA who are Current Names intend, with the unanimous support of the remaining Directors, to accept the Offer.

Members' Agents will be giving advice to their Names and no doubt you will wish to consult with your Underwriting Agent before making your decision. It is acknowledged that, because of the conflict of interest referred to above, there may be some Names, underwriting through RBUA and WMD Members' Agencies, who may not feel it appropriate to look solely to those Agencies for advice regarding the Offer.

With this in mind, the Chairman of Lloyd's has arranged that three well established Underwriting Agencies, all with Names on the Syndicates, will be prepared to share with the RBUA and WMO Direct Names, the advice which they are giving to their Names. RBUA and WMD Members who wish to avail themselves of such advice should, in the first instance, contact the Members' Solvency and Security Department (Tel. No. 01-623 7100 ext. 3124).

We have given advance notice of this offer to the Chairman of Lloyd's, and have discussed it with him.

The decision on whether or not to accept the Offer is ultimately one which each Current Name must make for himself or herself. Should you wish to talk to me, Graham White or Guy Norrie in order to discuss the Offer or any of the Enclosures, please do not hesitate to contact us.

22 Jun 84

Financial Times: Minet, Alexander & Alexander offer £38m in compensation

MORE THAN 1,100 underwriting members at the Lloyd's insurance market have been offered £38.17m to compensate them for funds allegedly misappropriated by former underwriting executives.

The offer, unprecedented at Lloyd's, is being made by interests of Minet Holdings, the large British Insurance broker, and Alexander and Alexander Services, the world's second largest insurance broker.

In return for receiving the compensations, underwriting members are required to assign their right to recovery of any further funds, which have been allegedly misappropriated, to a joint venture company formed by Minet and Alexander and Alexander. Members must agree not to take legal action against the two companies and subsidiaries and other parties involved in the recovery.

The move follows the disappearance of funds belonging to the underwriting members whose affairs are managed by underwriting agency interests of Minet Holdings. Minet's underwriting agency, PCW (now renamed Richard Beckett Underwriting Agencies) has alleged that former executives received "improper personal benefit" from the funds. The agency claimed that the money was channelled out of the funds belonging to the members to companies based in offshore centres which were controlled by the former underwriting executives.

Minet has found that the money was invested in yachts, a Jet, soft pornography film productions, "dry" oil wells, two racehorse syndicates and a variety of other business interests of the former executives.

The money was channelled out of the underwriting syndicates into which the members were grouped, in the form of "reinsurance" contracts. The money was routed to the offshore centres through companies controlled by Alexander Howden, which now forms part of Alexander & Alexander Services.

After a detailed investigation Minet has traced £25m of the missing money to Gibraltar. But over £13m has yet to be recovered as it has been invested in a number of "liquid" investments such as the racehorse syndicates and oil wells.

Members are to be returned the £25m and in addition Minet and Alexander and Alexander have reached agreement to fund the balance of £13m in a joint agreement.

Alexander and Alexander's share of the special funding arrangement is believed to be around 60 per cent, with Minet bearing the balance of the £13m payout.

Members of the syndicates, who include the Duchess of Kent, have yet to receive the full arrears of interest on the missing money. Mr Raymond Pettitt, chairman of Minet, said yesterday that any amounts recovered in excess of the £13.14m would be returned.

But in order for the offer to be made all members affected must accept the proposals.

Mr Richard Page, group chairman and chief executive of Alexander Howden, said yesterday: "It is not a perfect solution. It is the positive outcome of extensive discussions with Minet, Alexander and Alexander Services and others to reconcile the best interests of the members, the Lloyd's market and the companies concerned."

23 Jun 84

Financial Times:

Lloyd's members look at compensation offer

MEMBERS of the Lloyd's insurance market yesterday elected a 12 man steering committee to consider an offer of £38. 17m designed to compensate them for funds allegedly misappropriated by former underwriting executives.

Underwriting members held a 3½ hour meeting at the Mermaid Theatre in the City of London to consider the offer from interests of Minet Holdings, the large British insurance broker, and Alexander and Alexander Services the world's second largest broker

Members are split on whether to accept. In return for the compensation they are required to assign their right to recover any further funds, which have been allegedly misappropriated, to a joint venture company formed by Minet and Alexander and Alexander.

They are also concerned that they could not receive any interest on the funds which are claimed to have been diverted.

More than 1,100 members are affected and yesterday's meeting was organised by the Association of Lloyd's Members.

Professional advisers to underwriting members, solicitors and underwriting agents crowded into the theatre yesterday morning after receiving details of the offer, unprecedented in the history of the Lloyd's market

Some members who are individually facing underwriting losses of up to £233,000 wanted a quick settlement

The underwriting members affected had received details of how money is alleged to have been channelled out of their funds in an 18-page report with 13 appendices prepared by accountants Neville Russell.

The report claims that money belonging to the underwriting members was secretly moved abroad to benefit some former executives who ran Minet's underwriting agency, PCW.

According to Neville Russell the funds were used to buy houses, villas, yachts, an executive jet, an investment of 15 per cent in the Banque du Rhone et de la Tamise, films called "Let's Do It" and "The Last Horror Show," two oil-fields in Louisiana and a gas field in Oklahoma, a French orange juice company, a Dutch technology company, an investment in a small British public company, two racehorse syndicates in Kentucky and an interest in an associate underwriting agency.

A meeting of the steering committee is to take place tomorrow.

26 Jun 84

Meeting of the Board of Directors of Merrett Holdings PLC. Present: Merrett, Jackson, Hulme, Robson. It was decided to give provisional notice to the RHM Outhwaite (Underwriting Agencies) following the failure of the Underwriters Report on Syndicate 317 to resolve the concern about the liabilities of long- tail sections of the account.

Jun 84

New Bankruptcy Bill: In late June, congressional draftsmen, hurriedly putting together a new bankruptcy bill, slipped up in its final wording. The revised Bankruptcy Bill was supposed to apply only to future and not current cases. Instead, legislative draftsmen incorrectly applied the new Bankruptcy Bill to current cases, which means that all of the 16,500 asbestos-related lawsuits against Johns-Manville may have to be transferred to United States District Courts for handling.

28 Jun 84

General Meeting of Members of Lloyd's.: Statement by Mr Peter Miller, Chairman

Over the last four years it has become traditional that the statements of the Chairman at successive General Meetings should focus upon the Fisher Report, the Lloyd's Act 1982, and the work of the Council. While it is a tradition with which I could not break-even if I would-since our work on Lloyd's new constitution is not yet finished, I believe that in this period of intense activity by the Council, a moment should be taken to reflect on certain fundamentals which underlie that activity. I would like to take this opportunity to share with you, the membership, some of my thoughts on two of these matters.

I think that it may be fairly said that the underwriting agency system is one of the cornerstones of our Society. In particular that system governs the relationship between the Name, his agent and the active underwriter. I want to reflect on the responsibilities of the Council of Lloyd's in the context of that relationship. It is the Council's duty to ensure that there is a sound and well regulated market within which underwriters can work and Names can join syndicates; and the key to that sound and well regulated market is the underwriting agent. The Council must, therefore, do everything possible to see that the underwriting agencies are technically competent as agents to look after the affairs of their Names; and that they properly discharge their duties as agents, particularly in the field of accounting and disclosure. It should be emphasised, however, that it is no part of the Council's duty to substitute its judgement in underwriting matters.

This is a self-regulated society operating in a free country; and we believe that the Council must hold a proper balance between those who advocate a ‘Caveat Emptor' society on the one hand and a ‘Nanny Society' on the other. I do not use these phrases in any pejorative sense; indeed they are taken from a recent Times economic leader-if that makes them respectable. Perhaps I could borrow some words generally attributed to Abraham Lincoln the better to illustrate what I mean:

‘You cannot help men permanently by doing for them what they could and should do for themselves'.

Members and managing agencies are the agents of the Name and not of the Society. Having done all we can to ensure the competency of the agents, it is up to the Name to choose his agent with care and to look to that agent to protect his further interests. The Council cannot become involved in the taking of underwriting decisions. We have, of course, a continuing duty to monitor the proper discharge by the agent of his duties and the Council will shortly have the accounts and reports on related party transactions on a central file as a basis for supervision. Meanwhile, we are working, through our Accounting and Auditing Standards Committee under Mr Brandon Gough, towards a comprehensive and more stringent approach to the auditing of syndicates.

But what should the Council be doing when, as is inevitable from time to time, a syndicate experiences difficulties and it becomes apparent that Names will lose money, as a result either of poor underwriting judgement or other, deeper reasons, perhaps even arising from improper conduct by an agent? The hard fact remains that the incompetent or even wrongdoing agent, is still the agent of the Name. The Council will seek to ensure competence and prevent wrongdoing-but the consequences can only be faced by the individual Name for his individual share. This is not to say that the Council will be inactive in such circumstances. The Council has an overriding duty to the membership as a whole to see that the solvency of the Lloyd's policy remains unimpaired and that there is no threat to the annual Central Solvency Certificate, which is fundamental to our continued trading.

As far as the affected Names are concerned it will take positive steps as follows:

1. By using its disciplinary and investigatory powers quickly and vigorously to protect the interests of individual Names and those of the Society at large and punish any wrongdoer.

2. By ensuring, in consultation with the Names, where appropriate, that there is a competent agent to handle the continuing affairs of the injured Names.

3. By giving every assistance possible to that agent to limit the damage to the Name.

  1. By providing general advice and guidance to individual Names through the Corporation staff.

What cannot be done, in any future circumstances which I can now contemplate, is to use the Central Fund, which is a policyholders' protection fund, or indeed any other Corporation money to mitigate any hardship suffered by Names in meeting their several obligations.

The second fundamental point upon which I wish to reflect is our attitude towards disciplinary matters. We have been criticised for the lack of information which we give to interested parties; indeed, I am quite often asked why there has to be a long silence from Lloyd's during the conduct of an enquiry and subsequent disciplinary proceedings. As you know, we have a policy of public announcement of the appointment of Committees of Enquiry; but once eminent people have been so appointed we say nothing about the conduct of their enquiry, or about the consideration of their report, until the conclusion of any disciplinary hearing and of any appeal, when we make a formal statement on the disciplinary result. Let me explain the considerations that have led us to our present position.

Almost anything which the Council says about a body or an individual in the market, in a disciplinary context, is bound to be damaging by inference. We set up a Committee of Enquiry so that it shall be clearly independent of any influence from within the market-there must be no suggestion that an investigation of the facts of a case is anything other than impartial.

Reports of such Committees of Enquiry may well be defamatory of someone, and to be damaging by inference to his standing in the market. We do not wish to damage anyone's standing - and livelihood - in advance of a proper judicial process for establishing innocence or guilt-nor do we wish to invite writs for defamation.

You will recall that in one case we did ‘publish'-in the strictly legal sense-the report of a Committee of Enquiry. There were a number of reasons for that but one in particular influenced us-namely that there was an urgent and real commercial need for those affected by the affair to know where quite a lot of their money was believed to have gone. We were legally advised that there was sufficient community of interest with those people to justify communication of the report to them; but I am bound to say that I would take a great deal of persuading that such a course should be repeated. Reports from a Committee of Enquiry should be regarded as reports to Lloyd's for disciplinary purposes only, and not used for any other purpose at all. Given the arguments for confidentiality, I can understand why some question whether it is even right to announce the appointment of a Committee of Enquiry.

Another instance in which ‘secrecy' is alleged against us is when we actually prefer disciplinary charges against an individual. Why, we are asked, should that not be a public act - as, for instance, is a criminal charge? As a refinement on that point, I have been asked why the employer of someone who is accused should not be told? My answer is the same, and for the same reason. The view that we have taken is that it would be unfair for us formally to announce that he had been accused of improper or dishonest practices. Of course, anyone who is so accused ought to tell his employer, and if he does so, then his employer must decide what to do. It is not, I think, for Lloyd's to pre-empt or prejudice that which is the proper responsibility of the employer and employee.

I do not expect that everybody will agree our current practice-but I think it important that members should understand the reasoning that has led us to our present position. I would be interested, over the next few months, to know how members feel on this subject. There is obviously a very difficult balance to be struck between demonstrating convincingly to the outside world that proper action is being taken, and in avoiding unjustified damage to individuals or firms by associating their names with suspicions which may, in the outcome, prove to be unjustified.

I now turn to a review of some of the Corporation's activities since the last General Meeting. As you know, Lloyd's Log provides a regular update on Council activities and I will therefore be as brief as possible on that score. In parentheses and regarding the magazine itself, the very constructive readership survey conducted earlier this year confirmed that further improvements in its form and content are desirable. Changes in style and presentation are being introduced progressively and the format is being studied by the Public Affairs Advisory Sub-Committee under Dr Copisarow.

The main preoccupation of the Council has continued to be the erection of the new constitutional framework for Lloyd's through the promulgation of byelaws and regulation under the Lloyd's Act 1982. The task of laying down provisions for divestment was subsumed in the wider need for a comprehensive law on underwriting agents.

The byelaw passed on the 14th May 1984, therefore, embraced not only provisions for divestment but also provisions concerning the whole operation of managing and members' agencies alike (other than accounting procedures). It includes comprehensive rules on ownership and control, registration, corporate structure, character and suitability of agents and seeks not only to meet the requirements of the letter of the Act, but also, I trust, its spirit, particularly by the inclusion of various recommendations made by the Higgins Working Party.

Here, I should pause to say that the work of the working party has now been concluded. The various outstanding matters such as the agents' agreement, binding authorities, and solvency requirements are already in the hands of various other working parties, and the Council has decided that the Committee of Lloyd's will act as an annual review body to consider the impact of the changes we have made. I would also wish to record the debt of gratitude which the Society owes to Mr Alec Higgins, and his colleagues for their unstinting hard work; we have accepted many of their conclusions, where we have rejected them it has only been after careful thought and lengthy debate.

The Underwriting Agents' Byelaw gives me the opportunity to mention another, somewhat thorny topic, namely the degree of consultation proper to the rule making process. While we have largely, I think, got this right, I am not sure that this has invariably been the case. We shall continue to pay particular attention to this matter. There are, I believe, two fundamental points to the consultation process: the first stage which examines principles; and secondly, concern with matters of detail. I would urge the membership and the market to take an early opportunity in the consultation period on any given topic, to make their views known.

In this context may I specifically draw the membership's attention to our work on the proposed standard agency and sub-agency agreements. These documents are absolutely fundamental to the relationship between Name and agent and those who underwrite on the Name's behalf. The Council will shortly set out draft proposals on this subject. They are likely to include a revised agreement between Name and agents, parts of which will be mandatory on both parties. Rather than send a copy directly to each individual Name, which in itself would be lengthy, plus an explanation of the conflicting arguments (for example the inclusion or non inclusion of a mandatory deficit clause), which explanation might run to fifteen pages or so, we intend to make the consultative document available to the Name upon request, either centrally, or through the underwriting agents. Thus those who wish to do so will be able to take a direct interest and make direct representations, and those who prefer to leave matters to their agent, will not be embarrassed with yet another letter from Lloyd's. Let me again stress the importance of this matter; it is likely that in time for the 1986 underwriting year, each Name will be required to execute a fresh agency agreement in a form approved by your Council. While the agreement is likely to be based on forms in common use already, nevertheless it is likely to contain fresh provisions of great importance. We are anxious to hear all voices that wish to be heard, and the consultative process adopted will be announced shortly.

Other noticeable aspects of the Council's work have been concerned with the reports of syndicates and the disclosure of interests in line with our general philosophy of increased disclosure between agent and Name. Matters on the agenda for completion during the next twelve months include a byelaw for the monitoring of premium income, binding authorities and the agency and sub-agency agreements. Still further ahead, we will introduce byelaws on the so-called umbrella arrangements, rules for brokers generally, market agreements, and arbitration procedures, among several other subjects.

I should also like to refer to election procedures. The objections to the present system are well known, though not apparently widespread; namely that the voter is forced to record a vote for enough people to fill all vacant places. The Council studied various alternatives of which the only real possibility appeared to be the system known as the single transferable vote. However, amongst other considerations it was clearly impossible to introduce the necessary change in rules, given an adequate consultation period, for this year's election when an unusual number of places, four external and four working members, will become vacant. The Council has decided that there should, in all the circumstances, be no change in the present electoral system. Again, this is the sort of matter where the electorate might wish to make its views known directly to me, or to their underwriting agents.

I now turn to market matters and, without attempting a comprehensive review, I would like to focus on one or two items of particular interest.

Policy Review Advisory Committee

As part of our responsibility to sustain and enhance the market's commercial success, the Policy Review Advisory Committee has undertaken a study to establish what makes Lloyd's attractive as a market. There has been a most enthusiastic and gratifying response from Lloyd's Brokers. Complementary work to ascertain the views of underwriters and Corporation staff is already in hand.

New Building

I am often asked when the new building will be ready. I am happy to confirm that it is on time and within budget. Perhaps it would be helpful if I summarised the present position on cost.

Cost

In 1982, as reported to the November General Meeting, a number of additions and changes were approved including the enhancement of air conditioning and other services; use of stainless steel instead of aluminium and additional conference rooms. These, together with unforeseen difficulties in the construction of the' foundations, resulted in the £75m building cost being increased to £90m. Again, if the cost of demolition, fees, fitting out etc. and the effect of inflation are included, one arrives at the estimated final cost of £157m to which my predecessor referred, plus a further estimated £2.25m if, as it seems likely, we find demand requires the use of the fourth gallery for underwriting space.

For those concerned with the history of Lloyd's, I can confirm that the 1928 rostrum will be included in the atrium of the new room; for those of a peaceable turn of mind, that the Library and members' writing room and terrace will be on the tenth gallery; and for those of a warlike turn of mind, we have not yet decided where underwriters will sit. Whatever the decision, I intend that it shall be taken before your Chairman goes on his annual holiday. As we move towards occupation in 1986 it is intended that consultation with the market on matters that affect the building will increase.

May I remind you that the Fine Arts Panel under the chairmanship of Sir Peter Green, will advise the Council on the hanging of pictures in the new building. Our silver treasures are superb, our furniture more than passable, our pictures, with honourable exceptions, abominable. The Fine Arts Panel would, I have no doubt, be happy to provide advice and guidance to any group or individual member who, wishing to present something to the new building, might take this broad hint and consider a picture.

As to this, the 1958 building, the Property Committee will shortly be putting forward recommendations to the Council. On a very preliminary view it appears that the most appropriate course is refurbishment and that it is inadvisable either to demolish the building or to dispose of the freehold.

As you know, the Council is committed to the introduction of an extensive data processing network within the Lloyd's market by 1988. This will form an integral part of the new building. I am very pleased that Mr Peter Hermon, who played a formative role in the introduction of computerisation to British Airways, has recently joined us as Head of Systems and Communications. He will be responsible for the design and implementation of new systems, including computing and telecommunication services, to the departments of the Corporation and market customers; and for the development of strategies for the use of information technology at Lloyd's. The Systems & Communications Committee under the chairmanship of Mr Ivor Binney, is responsible for making recommendations on these matters to the Committee of Lloyd's.

Training of Inexperienced Substitutes

A further matter, which you may find of interest, concerns the training of inexperienced substitutes.

At the first meeting of the 1984 Training Committee, it was felt that the level of knowledge amongst inexperienced substitutes could and should be improved. To this end more formal training programmes are under active discussion.

The Committee of Lloyd's has asked the Training Committee to prepare a detailed training syllabus in consultation with market associations.

I now turn to various regulatory matters.

Membership Working Party

The Working Party, chaired by Mr Patrick Bird, which is reviewing the long term requirements for members of Lloyd's is expected to issue its report within the next few weeks. The report will be reviewed before its recommendations are submitted to the Council for approval. In order that underwriting agents may be aware in good time of the requirements applicable to members in 1986, the new provisions will be advised to the market by no later than the autumn of this year.

The working party has been considering a wide variety of subjects. These include such matters as the nature of the security provided by members, the ratios of deposits and means to premium limits, the temporary franchise to compensate for the discontinuation of the reinsurance allowance, and the procedure under which all members will be required to comply with current membership requirements. The objective is to establish a rule book which will be enduring and recognises the commercial and security needs of both members and marketplace.

The number of underwriting members at 1st January 1984 was 23,438 and the signs are that more than 4,500 applications will come forward for membership in 1985. At the same time, approximately 5,500 existing members increased their underwriting commitments with effect from 1st January 1984, at which date the total of members' deposits and Special Reserve Funds amounted to £l-289m. This amounted to 38% of overall premium income limits and may be compared favourably with the figures ten years ago when the corresponding amount represented 17.1% of premium income limits.

Premium Income Early Warning System

The ‘premium income early warning system' for the entire market was introduced earlier this year. Under its provisions, syndicates are required to provide formulae showing the expected growth at quarterly intervals of their gross premium income over the thirty-six months of each underwriting account.

Where excesses are projected, explanations will be required and, if considered appropriate, managing agents will be required to take action to prevent or restrict the overwriting. It must, however, be appreciated that the projections are based on the premium income advised to the syndicate after the business has been accepted. The control of the underwriting at the box is the responsibility of the underwriter appointed by the managing agent to act on the Name's behalf.

Sasse

I had hoped to have been able to put before you a final statement on the financial consequences of the Sasse affair. Regrettably, this is not possible although I shall very much hope to be able to do so by the next meeting in November. At the moment I can do no more than repeat what is already stated in the Annual Report and Accounts, to which I accordingly draw your attention.

The Council has decided that its disciplinary action against Mr Frederick Sasse should not proceed under the Lloyd's Act 1871 but should now be pursued under the new disciplinary procedures laid down by the 1982 Lloyd's Act and byelaws.

External Relations-Roll-overs

In the Review of the Corporation's Activities in the Annual Report and Accounts for 1983, brief mention was made of Lloyd's relations with the Inland Revenue being a matter of concern, with particular reference to so-called roll-over policies of reinsurance.

It was not appropriate to comment further in that review as the issue is not essentially one for the Corporation; tax is personal to the taxpayer and, so far as roll-overs are concerned, the Corporation is not the taxpayer. I should like, however, to take this opportunity to comment more fully.

First, I must make clear that the transactions with which we are here concerned have nothing to do with allegations of self-enrichment made against certain managing agents. You are all aware that formal investigations into alleged malpractices by a number of individuals are in hand. Some of these allegations concern misuse of roll-over reinsurance funds. There is, however, no necessary link between roll-overs and misappropriation.

One of the basic roles of reinsurance is to offer protection against the fluctuation of the annual aggregate claims around a mean. In the mid to late 1960s and in the 1970s, many Lloyd's underwriters became concerned that they were not able to find suitable reinsurance markets to achieve this end at an acceptable rate of premium. This could have imperilled Lloyd's position in the international insurance and reinsurance markets and, as a result, some underwriters entered into what are now colloquially referred to as roll-over reinsurance.

The broad nature of these agreements is characterised by the syndicate paying premiums against an ability to make recovery when required, the amounts recoverable being clearly related to the premiums paid, plus in most cases, interest thereon. This is a highly complex area where there is a considerable range of individual variations.

In relation to all these policies, however, it has been made very clear to me that underwriters believed-and still believe-that when they entered into these arrangements the policies were effected as valid reinsurance for proper commercial reasons in the best interests of the members of the syndicates they managed. In this connection it is noteworthy that substantial recoveries have in fact been made in past years on many, if not all, of these policies and that syndicate results have benefited accordingly.

None the less, roll-over reinsurances have become a subject of interest to the Inland Revenue. Indeed, its interest goes wider than the roll-over arrangements I have described earlier and extends to some other forms of reinsurance. The question which would appear to be in the Revenue's mind is whether these reinsurance policies are of such a nature that the premiums should not be deductible in computing profits for tax purposes and, whether their effect was not to set up a general and, therefore, non-deductible reserve.

It would normally be the case that such matters would be left for resolution between the Revenue and the taxpayer. However, at Lloyd's, the individual Name is the taxpayer, but it is the underwriting agent who enters into the insurance and reinsurance arrangements on the Name's behalf and who prepares the accounts from which the Name's profit is determined. It is, therefore, underwriting agents to whom the Revenue has directed its enquiries and it is from his agent that any Name who wants to know details of his particular situation must seek that information.

Having considered the issue most carefully, the Council and I have concluded that this matter is such that, without derogation from or interference in the relationship between the Name and his agent, the interests of the Names as a whole might be best served by some central discussion with the Revenue. The purpose of this exercise has been, and remains, to obviate, if at all possible, the need for a protracted and possibly disputatious examination of settled tax accounts.

I must emphasise that there is in this, no question of offering to the Inland Revenue any payment by way of settlement, either out of the Central Fund or out of the general resources of the Corporation. But I have put forward for consideration the proposal that roll-over funds might be brought into account currently for tax. I am uncertain whether I shall be able to persuade the Revenue to proceed along these lines. I have also proposed that we should seek to identify-with the Revenue's approval-surer guidelines for the future as to what is, or is not, acceptable accounting and taxation treatment of reinsurance. These discussions are continuing. Speculation on the outcome would be ill-formed and premature. It is a complex issue and, much as I would like to set all minds at rest, I am unable to do so. Certainly I cannot comment on how individual Names might be involved and for information on that I must direct the Name to his agent.

EEC

The continuing failure to agree a liberal Freedom of Insurance Services directive in the Council of Ministers has forced the European Commission to try to secure legal enforcement of free trade rights enshrined in the Treaty of Rome, through the European Court in Luxembourg. Two cases, against France and Denmark, for failing properly to implement the Co-insurance directive, are already before the European Court.

One further case, involving a Bavarian insurance broker, the so-called ‘Schleicher case', has all the hallmarks of becoming an important test-case to establish whether EEC rules apply to trade in services as well as goods. We will be watching the outcome of this, and other cases, very closely. At the moment, they appear to be the best hope of attaining what the Treaty promises, namely freedom of services in Europe. There appears to be little hope of success on the political front.

Toplis & Harding Inc.

The acquisition of Toplis & Harding Inc. as a service arm in our major market, the United States, is being integrated according to plan. A new management structure is being established and a new Chief Executive is being selected. Our aim must be to make it acceptable to the market by the efficiency of its service, since only by that means will Lloyd's and domestic insurers come to use it with confidence and, therefore, with regularity.

Recently I made a short visit often days to Canada and the United States on behalf of the Society. Two of the impressions gained on that visit, during which I was able to meet very many of the leaders of the US insurance industry, are relevant to what I now have to say. First, results from virtually every company, save for personal lines business, are frankly dreadful. Unhappy though these results are, they must bring us nearer to a general turn in the market-and the signs are there that this is happening.

Secondly, I am encouraged that the business producers in Canada and the United States continue to hold Lloyd's in very high esteem, particularly for the strength of the policy we offer.

As the market turns, Lloyd's is therefore well placed to take proper commercial advantage of that turn. I ask you to remember who will be responsible for that success which lies within our grasp. It will not be the Council; it is not the activity of regulation which creates wealth but rather the activity which is being regulated. Looking ahead, I believe that the main benefit from divestment will be somewhat different from that which Parliament had in mind. Benevolent and beneficent though the brokers' rule has been, I look forward to the coming independence of our managing agents as a factor which will greatly strengthen Lloyd's in the long term.

Strong and active underwriters, supported by a membership having proper confidence in their underwriting agents, the whole operating in a well ordered market, well supported by the brokers-this must be our goal. Then, and only then, can Lloyd's take full advantage of the sound policy we offer, of the wealth of underwriting experience which enables us to respond to the many insuring needs of the public, and of the low expense ratios which enable us to provide competitive rates.

In all these matters of which I have spoken, I cannot conclude without bringing to your attention as forcefully as I am able, the dedication and hard work of the Council and our staff. So much depends on their efforts; it is their pride in a great institution which leads, I believe, to the enormous efforts they make. The members of Council are all deeply involved in the work of the numerous committees which form the basis of Council decisions. Their universal willingness to put in the long hours, which have the inevitable concomitant of such work, deserves the gratitude of the Society. Our staff continue to run the routine affairs of the Society with their usual calm efficiency and, at the same time are developing rapidly as the highly professional executive arm of Council decisions. My gratitude on a personal and formal level is shortly expressed, but deeply felt. On your behalf, I thank them-I thank them all-and I thank you, Ladies and Gentlemen, for listening to me so patiently.

29 Jun 84

Meeting at Merretts between SG Hill of Ernst & Whinney and S Harrison, P McCann and R Ghassemi for a provisional discussion on the 1984 audit of their syndicates.... A lengthy discussion followed on the subject of reinsurance to close schedules and it was agreed by Merretts that the current arrangement whereby Ernst & Whinney carried out an internal control procedure and even calculated the reinsurance to close figures for Underwriters was totally unsatisfactory. There was a lack of understanding, and therefore commitment, within the agency as to the requirements of this work... .it was agreed that Hill would return to Merretts on Friday 6 July 1984 with examples of the various documents ... to review the contents thereof with Merretts. ... With regard to reinsurance to close I propose to go through one of the reinsurance to close sections on an over-view basis to identify the types of information and documentation which are required. It was clear from the discussions that Peter McCann and Stephen Harrison are very concerned with the nature of certain activities we have to perform on our audit. This is not taken as a criticism of our audit but of the agency in not carrying out these tasks themselves. [Memorandum from S G Hill to K P McNamara dated 3 July 1984.]

1 Jul 84

Buckeye Union Insurance Co. -v- Liberty Solvents and Chemicals Co., 17 Ohio App. 3d 127, 477 N.E. 2d 1227, 1 July 1984.

Ohio Court of Appeals rejected insurer's "pollution", "completed operations", and "products hazards" exclusion defences to insured's demand for a defence in an action seeking clean up of a hazardous waste site. "Construing the words ‘sudden and accidental' most favourably to the insured and in accordance with the interpretation afforded to the polluters exclusion clause by other jurisdictions, we conclude that the [hazardous waste] release and resultant property damage could be found to be ‘sudden and accidental.'"

5 Jul 84

Financial Times: Sellafield discharge too high, says report

Sellafield discharge too high, report says

Radioactive discharge into the sea from the Sellafield nuclear plant has been "unduly high," according to a report by the Radioactive Waste Management Advisory Committee.

Sellafield compares unfavourably with other plants in Europe and its radioactive discharge is easily the highest, the report says.

5 Jul 84

Financial Times: Judge bars capital gains tax scheme

ANOTHER TAX avoidance scheme failed yesterday when the High Court dismissed an appeal by two brothers against capital gains tax assessments

In 1979 David and Ian Young. who were resident in the UK hut domiciled in South Africa, were advised to "export" to the Channel Islands their interests in three private UK companies they owned. The purpose was to avoid the impact on the companies of the capital transfer tax provisions in the 1965 Finance Act.

A scheme was devised to avoid the capital gains liability that would have arisen on a direct sale of shares in the companies.

The first step was the creation of two companies, Davian Investments and Davian Properties, in Jersey.

The authorised capital of the UK companies was then increased by the creation of new preferred shares, which were issued on renounceable letters of allotment to the Youngs.

The Youngs were appointed directors of the Davian companies and issued with Davian shares. Arrangements were made for their letters of allotment in the UK companies to he bought by the Davian companies.

That sale was completed by the brothers going to Sark, where they renounced their entitlement to the preferred shares and handed the letters of allotment to a Davian representative.

Mutual cash transactions were carried out through bank accounts in Sark opened and closed on the same day.

The Youngs borrowed money, which was debited in favour of the Davian companies, in payment for the Davian shares. The same sum was then re-credited to the Youngs as payment by the Davian companies for the preferred shares. The original loan was then repaid.

Mr. Justice Nicholls said the Youngs argued that. since they had not received the proceeds of the sale of the preferred shares la the UK, no tax liability arose from the disposal of their assets. The issue, the judge said, was the identity of those assets and their situation at the time of disposal.

The Inland Revenue argued that the assets were shares in UK companies situated in the UK.

The Youngs contended that the assets were not the shares but the rights under the letters of allotment, which they renounced and disposed of in Sark.

The judge said that, assuming the Youngs were correct, the rights had been situated in the UK at the date of renunciation and disposal.

There were no grounds for concluding that the letters of allotment could have been sold for money wherever they were. There was no evidence of the existence of a market for such letters.

The judge said it was to be noted that the "sales" of the letters in Sark had not been "arm's length" transactions. They had been sales to purchasers wholly under the Youngs' control, which had been pre-arranged even before the letters had been issued.

The letters were documents evidencing rights against UK companies, enforceable in the UK, the judge concluded.

5 Jul 84

Financial Times: International fraudsters ‘a threat to City's reputation

INTERNATIONAL commercial crime investigators are taking up an increasing amount of the Metropolitan and City Police company fraud squad department's time, Commander Graham Stockwell, head of the Department, said yesterday.

"In time this must affect the reputation of the City of London," he told a seminar on international crime in Cambridge.

London Fraud Squad officers dealt with 679 cases in 1983, an increase of 185 over 1982, while 383 enquiries were started in the first six months of this year.

year. These investigations led to 139 arrests, 20 higher than in the same period last year.

London's growing attraction as a centre of international crime results partly from the Director of Public Prosecution's policy of not prosecuting cases which fall outside the jurisdiction of British law.

London has attracted large numbers of German and Belgium fraudsters in recent years carrying out commodity swindles on their fellow countrymen, while Americans have specialised in advance fee frauds promising loans which do not materialise in return for the payment of an advance fee - on other Americans.

London fraud department officers called on the help of foreign police forces 144 times last year, but themselves helped out in 1,500 cases put to them by overseas forces.

The DPP's office and Department of Trade and Industry investigators and the police have collaborated closely on specific major cases on six occasions in the past few years, and have cut the time taken to bring important cases to court to between seven and nine months, Mr Stockwell said.

Such collaboration will be made permanent with the setting up of a Fraud Investigation Group, plans for which were announced by Mr. Nigel Lawson, the Chancellor on Tuesday.

Mr John Hazan QC a member of Lord Roskill's fraud trials committee which is reviewing trial procedures, called for a number of changes to be made in the way they are run.

Speaking at the seminar in a private capacity, he said that trials could be simplified by requiring defence counsel to disclose the line of their argument at the start of a trial, by only charging the most important suspects in a case, and by abolishing the right of the defence to challenge jurors without giving a reason.

Cases should not be allowed to drag on for six months and juries should be spared a

judge's summing up lasting several days, he said.

The conference was organised by the Commonwealth Secretariat's Commercial Crime Unit, the International Maritime Bureau and the Centre for Commercial Law Studies of Queen Mary College, the University of London.

5 Jul 84

Financial Times: Minet offer finds support

MORE THAN 500 members of the Lloyd's insurance market have indicated they are likely to accept the offer of £38. 17m to compensate them for money which has allegedly been misappropriated from their funds

The offer is being made by Minet Holdings and Alexander and Alexander Services following the discovery that more than £38m of funds of more than 1,000 underwriting members of insurance syndicates under the management of Minet's interests had gone missing.

Minet has alleged, along with its underwriting interests, that funds belonging to the underwriting members have been channelled out of members funds to secretly benefit former underwriting executives.

Minet has traced £25m of the funds to Gibraltar and has found that the diverted money was routed through companies which form part of the Alexander Howden group, now part of Alexander and Alexander Services.

Minet and Alexander and Alexander Services offered to return the money providing underwriting members waived their rights to further recovery of funds and did not sue the two groups. They also offered to provide funds of £13.14m in addition to the $25m found in Gibraltar, as compensation for the balance of the missing money.

Members of the syndicates have been given until July 19 to accept. The Association of Lloyd's Members representing more than 2,000 members of Lloyd's has been attempting through a steering committee to gain an extension of the deadline.

The underwriting members have been hit by insurance claims in the course of trading at Lloyd's and individuals have loses of up to £250 000. They are seeking money to help meet the underwriting losses.

Members who have indicated their acceptance of the offer include the chairman of Lloyd's Mr Peter Miller who has a place on the stricken syndicates.

5 Jul 84

Lloyd's: Letter from P N Miller, Chairman of Lloyd's to Mr. Crosthwaite of Ashurst, Morris Crisp & Co: Re: Richard Beckett Underwriting Agencies Ltd - PCW

At our meeting on the 29th June which you attended together with Mr. Deal and Mr. Lawson, two Names on syndicates currently managed by RBUA Ltd., you made two requests. The first request was that Lloyd's should extend the deadline by which Names on these syndicates must comply with the Lloyd's Solvency Test.

After careful consideration of your request, I regret that we cannot agree to any further extension. I appreciate that Members on these syndicates need time to consider certain offers put forward by RBUA Ltd., and that certain deadlines have been imposed on those offers. These deadlines are irrelevant to the position which Lloyd's must take in this matter.

One of the central duties laid upon Lloyd's is to ensure that all Members trade in a solvent position. We monitor this by an audit and require Names to meet our Solvency Test each year. It is clearly our overriding duty to see that any uncovered deficiencies are remedied as soon as possible after they have come to our notice; given the deficiencies facing some of the Names on these syndicates, we have already extended the normal deadline. Our responsibilities to the policyholders of Lloyd's do not permit me to grant any further extension and the Committee of Lloyd's at its meeting yesterday morning confirmed that no further extension could be allowed.

Your second request concerned the possibility of the £25m in the so-called ‘Gibraltar Fund' being made available as an asset in audit to the Names on the syndicate. Mr. Randall will be writing to you further on this subject but I understand that careful consideration has already been given to this possibility and that, regrettably, efforts so far to bring this about have proved fruitless.

I am sending a copy of this letter not only to RBUA Ltd., and Members' Agents with Names on the RBUA syndicates but also, in view of the public comment which followed our meeting last Friday, to the press.

6 Jul 84

RBUA: Letter to PCW Names

We refer to our letter of 21st June 1984 and in particular to the passage headed "Tax Implications for Names of this Offer" in which we said we would advise you of the Revenue's attitude as soon as we could. In our letter we referred to our having put forward proposals to the Inland Revenue and our discussions with some of their senior officials on the implications of the various matters referred to in the Offer. We had made contact with the Revenue at the outset of the negotiations with Alexander and Alexander Services leading to the Offer, and submitted two memoranda to the Revenue dated respectively the 4th May and 1st June 1984 in which we stated the method of allocation we proposed and the implications thereof. The reference in our letter of the 21st June to the tax implications for Names of the offer was approved by the Inland Revenue prior to our letter being despatched to you.

During the last two days, it has become clear that the Revenue have hardened their attitude. They believe that they can re-open the tax assessments of the various years of account out of which quota share premiums were paid. This would remain their view whether or not the Offer is accepted. The Revenue's view is that the quota share premiums were not a proper deduction in computing the profits of the Names for tax purposes in the years in question (1970 to 1980) and the taxable profits were thus understated. They consider that the circumstances give rise to an interest charge on the tax involved.

The Revenue, however, have tentatively discussed with us the possibility of some form of global taxation settlement in relation to the Quota Shares to be met out of the sums on offer to the Names. We believe that we need to consider the implications of any such proposals with the Revenue in considerable depth. We would not have power to agree on your behalf without your express consent, but in the event of settlement discussions taking place we would certainly wish to obtain a commitment by the Revenue to early repayments of tax due to you in respect of the 1979, 1980 and 1981 accounts.

You will appreciate that a settlement would be necessarily take some time to conclude. It is unlikely that agreement would be reached in the short term.

The Agencies do not accept the contentions which are being advanced by the Revenue and the Revenue is aware of the Agencies' position.

We understand that the Revenue will write formally to us in the early part of next week. We will immediately thereafter let you have any further details.

10 Jul 84

Lloyd's: Letter from P N Miller to a PCW Name

Richard Beckett Underwriting Agencies Ltd - PCW

Thank you for your letter dated 6th July. I note you] comments regarding representation on Jufcrest which I have brought to the attention of those making the offer under consideration. May I make it clear that Lloyd's is not in any way using the solvency requirement as a lever to procure acceptance of the RBUA offer. Our position is quite clear, namely, that we have an overriding duty to see that Names trade in a solvent position at all times. Perhaps it would be helpful if you had a sight of the letter which I wrote to Mr. Crosthwaite who is advising the Steering Committee of Names on this particular point.

You mentioned the possibility of tax implications. There has now been an important reaction from the Revenue which RBUA will immediately be bringing to your attention.

11 Jul 84

Financial Times: Lloyd's refuses further audit delay

Lloyd's underwriting members who are trying to recover more than £38m of their missing funds will not be granted a further extension to meet Lloyd's audit deadline, Mr Ian Hay Davison, the insurance market's chief executive, said yesterday.

He gave the Lloyd's position while a group of members continued to seek an extension on the deadline for the Lloyd's solvency test, which has been set for July 21. So far, the members have been given a seven week extension of the solvency deadline, so as to consider plans by which more than £38m of their money would he eventually returned to them.

The plans form part of what Minet Holdings, and Alexander & Alexander Services describe as an offer, by which the members are to receive their funds which are alleged to have been misappropriated by former executives of the Minet Holdings group.

More than 1,000 underwriting members, whose funds are alleged to have been misappropriated, face losses of £37m through trading in Lloyd's and are relying on the recovery of the missing money to meet underwriting losses.

But the Lloyd's solvency test is imminent. In that test, underwriting members have to satisfy Lloyd's that they have enough funds to meet underwriting losses. Individual members of Lloyd's, affected by the latest problem, face losses of up to £250,000 each.

Mr Davison said yesterday that, unless underwriting members were to meet the losses with funds from their resources, they would be declared in default at July 21, and the market would be notified. He said that in the event of a default, the central fund of last resort would be brought into action so that policyholders would not suffer.

Underwriting members who defaulted at that date would be suspended from underwriting, an their underwriting arrangements within Lloyd's would be the subject of further discussion.

A steering committee of 14 members of Lloyd's, whose affairs are managed by the Minet underwriting agency interest, is attempting to secure further extension of the audit deadline, while it considers the terms of the Minet offer for the recovery of the funds.

11 Jul 84

Financial Times: Audit practice and agency reforms set out

Lloyd's the insurance market, yesterday announced the first stage in the reform of the audit practices of its syndicates as well as plans for a new underwriting agency agreement.

Both sets of proposals are contained in consultative documents which are being sent to interested groups for comment.

The proposed audit reform formalises and in some cases strengthens previous practice. It calls for the annual reports of syndicates to be subject to audit by firms registered on an approved list. Registered firms will have to give a written undertaking allowing the Lloyd's council to obtain information from the auditors.

Syndicate auditors will he expected to meet qualification requirements relating to the experience and training of their staff, over and above membership of a recognised accountancy body.

The proposed arrangements would bar an auditor from acting for syndicate where a partner or employee of the auditors had a financial involvement in a syndicate.

They also define the single source from which auditors may not derive more than a stated share of their fees as syndicates managed by one agent or by connected agents.

Lloyd's announced plans for a standard underwriting agency agreement rather than the requirement for agreements to contain a limited number of mandatory clauses, to be introduced from January, 1986.

Agents would not be allowed to insert clauses exempting them from liability for any negligence or permitting them unilaterally to vary the terms of the underwriting agreements.

The "names," the wealthy individuals who pledge their wealth to Lloyd's. would not be allowed to breach the agreement by abruptly leaving a syndicate. Nor would a name be allowed to withhold payments to policy holders if the name were in a dispute with the agents.

A set of model terms should be provided to allow the calculation of commission payable to agents though an agent could vary the terms in accordance with his own business practice.

If an underwriter or an agent reduces, terminates or reinsures his participation in the name's syndicate the name should be informed immediately.

In a separate development, Lloyd s announced the appointment of Mr Ian Michael Winchester as chief executive of Toplis and Harding, the U.S. firm of loss adjusters acquired by the market in January.

12 Jul 84

Financial Times: Lloyd's underwriters face £30m tax bill

MORE THAN 1,000 underwriting members of the Lloyd's insurance market face a £30m tax bill, arising from the alleged misappropriation of at least £38m of their funds by former executives in the Minet Holdings group.

A big row has now broken out in the Lloyd's community among underwriting members who have been seeking to recover more than £38m, which was channelled out of their funds over 14 years, from 1968 to 1982, by former underwriting executives in the Minet Holdings group.

The Inland Revenue is taking a tough line. It has argued that the money, which is alleged to have been diverted for the personal benefit of the former underwriting executives, moved from the members' funds through commercial business contracts.

Minet has alleged that the diverted funds were channelled out of the insurance syndicates, in which the members were grouped, in the form of "reinsurance premiums" to companies controlled offshore by the former underwriting executives. The Revenue has been allowing reinsurance premiums to be treated as a tax-deductible expense.

In this case, the Revenue has said that reinsurance premiums were not a proper deduction for computing the profits of the members, for the tax periods from 1970 to 1980, and has concluded that the taxable profits were understated. The Revenue is also seeking to recover the arrears of tax and also intends to charge interest on those arrears.

It is understood that the Revenue is seeking to tax £19m of funds in past underwriting accounts, which were shown as "reinsurance premiums," and is also seeking to tax £19m of funds in accounts which have not been closed, as well as a further £7m in roll-over funds which the Revenue is regarding as a device designed to reduce the level of tax liabilities.

On the closed accounts the Revenue is seeking £15m in tax, which includes a £3m interest charge, and about half of the other funds could he liable for further tax charges.

The Revenue's attitude has alarmed underwriting members who were preparing to accept a £38m offer of compensation from Minet for the missing money. Because of the tax treatment, many of the 350 members who had indicated that they were prepared to accept the offer are now withdrawing their acceptances before the offer expires on July 19.

A steering committee, representing more than 125 members of the Syndicates under the management of Minet, was openly critical of the offer made by Minet, which did not spell out the likely attitude of the Inland Revenue, the committee said. "The Inland Revenue aspect has stunned them," said Mr Geoffrey Lawson, chairman of the committee.

Underwriting members in the Minet syndicates face underwriting, losses of £37m and were hoping that the compensation money would help them meet insurance claims falling on the syndicates.

Mr Jeremy Norman, a member of the steering committee said yesterday: "No member should be embarrassed at being posted a defaulter because their money has been alleged to have been misappropriated by members of the market."

If members affected by the latest troubles decide not to accept the offer and not to meet the Lloyd's solvency test deadline on July 21, up to 5 per cent of the Lloyd's underwriting capacity might be lost to the market.

12 Jul 84

Financial Times: The growing difficulty of catching international fraudsters

"INTERNATIONAL economic crime has to be the smartest game in town. The growth of management skills teaches us that the avenue for profit opportunities and divestment is international. And the facilities available for business are being increasingly used for crime " - Prof. Richard Blum, a leading U.S. criminologist said.

For example:

  • A British businessman with his own company on the continent spent $40,000 (£30,770) flying a Swiss "financier" around Europe in an attempt to set up a complex deal involving oil, maintenance contracts and money for Indonesia. The businessman concerned was to have earned a fee of $250,000.

With no sign of the deal coming to fruitier he grew suspicious and discovered many of the documents to be worthless. He now says the costs he ran up are endangering his whale business and that threats have been made against his life by associates of the Swiss.

  • A project management company in Southern England, attempting to raise finance for a construction project, also in Indonesia, was offered funds by a West German businessman who claimed to have access to offshore trust funds running. into "trillions of dollars" and also to be a close personal friend of members of the Saudi Arabian royal family. He wanted a 0.1 per cent advance fee on the sum to be raised.

The project management company became suspicious when the West German refused to reveal more details about the source of the funds and dropped his initial demand for bank guarantees to support the loan - apparently fearing close scrutiny of the scheme by bankers.

According to Dr Barry Rider, head of the Commonwealth Commercial Crime Unit: "We are talking about fraud on a scale which can undermine governments. The sums that are being earned can buy up countries, or at least a lot of protection in the judicial system."

Authorities are becoming belatedly aware of the threat. Mr Nigel Lawson, the Chancellor, announced last week that a special Fraud Investigation Group (FIG) is to be set up to co-ordinate the work of the Department of Trade, the office of: the Director of Public Prosecutions, and the police.

Hong Kong and Australia have both introduced recently legislation aimed at making life more difficult for the fraudster.

Whether the 25-30 extra lawyers: and accountants to be recruited by the FIG will do much to stem the growth of fraud and other commercial crimes which cross national boundaries is another matter.

Differing lethal Systems, restrictions on police collecting evidence in a foreign country and the growing sophistication of the criminals all mean little can be done in many cases to bring international fraudsters to justice.

This was the message of a three-day symposium held at Cambridge last week. Prof. Blum and Dr Rider were speaking to police officers, lawyers and government officials from the Commonwealth, the U.S. and Europe.

The event was organised by the Commonwealth Crime Unit, the International Maritime Bureau which combats shipping and insurance fraud, and the Centre for Commercial Law Studies of Queen Mary College, University of London.

The unit and the bureau were set up independently of each other in 1981 to fight the growing problem of commercial crime. Neither has law enforcement powers but each provides a clearing house for information on international fraud.

Agencies such as these, as well as large companies, have built up large dossiers on commercial crime. But, although they frequently co-operate with each other and with the police, through Interpol, the police could make much greater use of their information, private investigators believe.

The police are reluctant to send documentary evidence abroad - even to certain other police forces - in case it is stolen, mislaid or even, in some countries, passed on to criminals by corrupt officials.

Law enforcement agencies are unwilling to start expensive and time-consuming investigations when there is little chance of persuading the accused. witnesses or even the victim to attend the trial. Much serious commercial crime slips through the gaps between national legal systems and law enforcement agencies.

Police officers investigating the sinking of an oil tanker, the Salem, off the coast of Senegal in 1980, travelled to Liberia only to be given just four minutes to interview an important witness. British police officers frequently find witnesses may only be interrogated by local police who have no knowledge of the case.

The legal authorities in foreign countries are often unwilling to co-operate when no crime has been committed under local law, even if serious offences are believed to have taken place elsewhere. Because much legitimate business is carried out by letter, telex and telephone, economic crime can be committed from a distance. Local lawyers and accountants can be used, willingly or not by criminals thousands of miles away.

The confidentiality which surrounds banking and taxation in most countries means investigators are denied access to potentially incriminating records, even when offences are suspected.

The growth of international commercial crime has been made easier by the proliferation of "shell" banks based in tax-free havens around the world. These banks may turn a blind eye to illegal transactions or might even have been set up by the criminals themselves.

The U.S. Treasury has been campaigning in recent years to persuade authorities in offshore financial centres to regulate the banks based in such places - with mixed success. A number of administrations in the Caribbean have tightened controls but new havens are now springing up in the South Pacific.

Investigators do net put all the blame on the tax havens. They are critical of banks in the main trading nations for not questioning more thoroughly some of their business with offshore banks. Even if the shell banks were more tightly regulated this would not prevent fraudsters creating phantom banks whose only physical manifestation is an impressive letterhead.

Popular forms of commercial crime now under investigation include: .

  • Advance fee fraud. Governments in the developing world and companies in main trading companies are offered large loans in return for an advance fee. Once the fee has been paid the fraudster disappears and no loan materialises.
  • Laundering criminals' funds. Criminals often need to legitimise embarrassingly large sums obtained from drug trafficking, the arms trade or fraud. This money may be lent to governments - giving the criminals influence with the borrowers.
  • Counterfeiting currencies or negotiable bonds. Fraudsters arrange an extra print run of legitimate securities for their own benefit. Sometimes elementary precautions are not taken. When Spain printed new bank notes a few years ago, it proudly announced details of the security features incorporated.
  • Maritime fraud. Twenty-eight of the 48 ships which sank in the South China Sea during a two-year period went down in suspicious circumstances, an insurance investigation found.
  • Owners have been suspected of having scuttled vessels to hide the theft of the cargo or to claim insurance money on ageing ships valued at much more than their market worth.
  • Cargo diversion. Cargo vessels have been diverted by their owners to small Greek ports where the cargo is either auctioned before the customer is aware of the diversion, or the latter is persuaded to pay an additional fee to avoid time-consuming litigation in local Courts.
  • Forged bills of lading. Blank bills of lading - to be taken as proof that goods have been loaded on to a vessel and thus free funds from the buyers' bank account - can be bought for a few pence. Entries on such hills are frequently forged.
  • Product counterfeiting. A Bulgarian tobacco factory, which had been producing cigarettes under licence for two U.S. companies, resumed production shortly after the licence deal had ended. Cigarettes in similar packs to the originals were shipped via West Germany Italy.
  • Piracy of audio and video tapes and computer software. Many developing countries regard the pirate recordings as economic and cultural sabotage, which can destroy their local music industries. In countries such as Nigeria, India and Saudi Arabia, illicitly recorded tapes account for more than 80 per cent of all pre-recorded tapes sold.
  • Container fraud. Criminals have become more adept at breaking container seals. The loss is usually discovered when the container reaches its ultimate destination. Investigators have difficulty discovering where the contents were removed.
  • Computer fraud. The increasing use of electronic transfer of funds by banks is creating new opportunities for fraud.

"We have been looking for organised crime in the wrong places," said Dr Rider. "Today the criminal it likely to be in a financial rather than a street, setting. He adopts corporate structures controlling the money but never getting near the drugs or the frauds. Sooner or later, we will have to pay more regard to attacking the wallet of international crime."

15 Jul 84

The Asbestos Claims Council invited interested insurers and asbestos producers to conditionally subscribe to the Facility by 15 July 1984. Final subscription was originally scheduled for 13 September 1984, but was extended indefinitely to allow insurers additional time to consult with their reinsurers.

18 Jul 84

Recovery of Monies Paid Out of Lloyd's Central Fund or the Funds and Property of the Society Byelaw (No. 5 of 1984, 18 July 1984).

19 Jul 84

Accountancy Age: Lloyd's acts on auditors' conflicts of interest

Plans to keep auditors at Lloyd's of London under a tight rein were unveiled last week as the 300-year-old insurance market attempts to improve self-regulation and put the recent scandals behind it.

The proposals of Lloyd's own Accounting and Auditing Standards Committee were set to be published this week after the ruling Council approved a plan to tighten up standards on the exclusive panel and ensure the auditor is independent and free from market manipulation.

And behind the scenes, as part of its review of conflicts of interest, the Lloyd's authorities have completed a check on partners and employees of all present auditors to see if any had a financial interest in any of the syndicates they audited.

Secretary of Lloyd's Audit and Accounts Committee, Mike Stephen admitted last week: "We had to discuss one or two situations". But he refused to elaborate.

Now proposals up for discussion between the market, and 16 firms on the panel and by the English ICA itself will spell out in the form of a Lloyd's Byelaw that this interest is not allowed. Syndicate auditors also will not be allowed to keep the books for the syndicates they audit, nor will they be allowed to audit both the syndicates and the managing agent which runs the syndicate for the "Names" whose wealth is pledged to meet the insurance claims.

The proposed ban on a dual bookkeeping and audit function by a firm may meet some resistance from the firms. In particular, Neville Russell, the top-20 UK firm with more Lloyd's clients than any other, will be hard hit by this proposal. They share the audit of many of their bookkeeping clients but even joint audits seem set to disappear for these clients.

Splitting the audit of the managing agent from the audit of the agency which runs the underwriting syndicates could also cost audit firms dear. Already since the scandals of 1982, audits of syndicates and agencies have been changing hands at a fair pace and this would hasten it.

With divestment of agencies by brokers also underway, and in turn more audit changes, the Lloyd's authorities are keen to avoid an unseemly scramble in Lime Street by the big eight.

Lloyd's regulator Mike Stephen said: "Where there is a change of ownership an independent managing agent may not wish to necessarily have the same auditor". So rules will be "introduced on a timetable to reduce disruption of a change of auditor".

Another reform on the way and discussed in the consultative document is to cut audit firms' dependence on one source of fees. Lloyd's hopes it has clarified the English Institute's ethical rule that no firm may earn more than 15% from one source. This won't become a Lloyd's Byelaw but the Institute has yet to be consulted on the Lloyd's interpretation. So firms may still query Lloyds's view.

Lloyd's has steered a middle line on the issue. It has not said firms cannot derive more than 15% of their income from all Lloyd's work, nor has it said income from one syndicate is the measure for the 15% test. Lloyd's has chosen connected syndicate and management units as the measure for the test.

Some firms will no doubt be doing their sums before replying to the document as they may be perilously close to the limit.

In the long term other proposals to regulate the audit standards of the firms on the panel may encourage new firms to join. But the need for experience married to abolition of any probationary period (as happens now) for new panel auditors is not as radical as the other proposals.

Responses are sought by the end of September and Lloyd's hopes to introduce some limited reform for 1984 audits but most will arrive next year.

19 Jul 84

Accountancy Age: Lloyd's audit crackdown

Lloyd's of London is seeking tighter supervision of auditors' ethical standards than is possible through the professional internal procedures.

Lloyd's Chief Executive, Ian Hay Davison, insists that Lloyd's must set its own mandatory standards and be able to enforce them through disciplinary action.

Davison is determined to outlaw all possible conflicts of interest in the audit of Lloyd's syndicates.

New proposals for the market's self-regulation include a ban on dual bookkeeping and auditing and a ban on membership of a syndicate by any employee or partner of the firm which audits it.

Davison believes that the profession's ethics rules are too vague to meet the full needs of Lloyd's. And he argues that there must be disciplinary rules that leave Lloyd's in complete control.

19 Jul 84

Accountancy Age: Revenue attack PCW questioned

Inland Revenue ability to reopen assessments back to 1970 on hundreds of members of Lloyd's of London underwriting syndicates run by PCW Underwriting Agencies was being questioned last week.

Accountants handling the affairs of ‘names' on the troubled syndicates - now run by Richard Beckett Agencies, at the same time as negotiating a deal to return £38 million in diverted reinsurance premiums - don't believe any names had committed wilful neglect or fraud.

And it is this test that allows reopening of assessments beyond six years. One advisor commented last week: "There has been fraud no doubt but has the name committed fraud? It is the Revenue turning the rules around."

The Revenue has moved hastily with assessments on a global basis to ensure it receives its share of monies recovered from the reinsurance premiums diverted to Gibraltar, now being offered to names.

It has computed the assessment "at a composite rate for the relevant years 1970 to 1979, based on a statistical sampling exercise".

A letter from the Revenue's special investigation section adds: "The interest on (£13 million) would be £3.07 million and there is also the question of penalties to be considered."

20 Jul 84

RBUA advise that the PCW Offer of acceptance has been extended to 24 July. To date some 87% of current Names have accepted.

20 Jul 84

Financial Times: Minet extends offer deadline

A £38.17m offer by Minet Holdings, the insurance broker to compensate 1,525 Lloyd's insurance underwriting members for the alleged misappropriation of their funds by former executives within the group has not been accepted by 190 underwriting members.

Legal action is being considered by the 190 members in an effort to recover their money. Minet executives met yesterday to consider the implications of the rejections. Minet had said that the offer was conditional on all underwriting members accepting the deal.

A noon deadline had been set for acceptance of the offer yesterday but soon after it passed, and the level of acceptances became clear, Minet extended the deadline to 5 p.m. next Tuesday. Until this deadline the 1,335 members who have accepted can withdraw from the deal.

Minet has made its compensation offer with Alexander & Alexander Services, the insurance broking group which owns Alexander Howden. Minet has alleged that some of its former executives used Howden companies secretly to channel the underwriting members' funds offshore to companies owned by former executives.

Lloyd's moved to strengthen its regulatory systems yesterday. Mr Ian Hay Davison, Lloyd's chief executive, said that Lloyd's would not extend its own deadline of July 21, by which time underwriting members must show they have enough funds to meet underwriting losses.

Underwriting members whose affairs are managed by Minet's agency interests face losses of £37m and are seeking the recovery of their missing money to help them meet the losses.

Although the level of acceptances appears to be running at 87 per cent, big investors in the Minet underwriting insurance syndicates are holding out for a better offer.

Mr Davison said yesterday that 350 underwriting members affected by the troubles at Minet could have a solvency problem at Lloyd's and could be forced to suspend their underwriting operations. Lloyd's has strengthened its by-laws to deal with suspensions arising from the Minet situation. It has said that where a member's assets are insufficient to meet liabilities, he will be required to explain the circumstances to the Lloyd's ruling council in writing.

Mr Davison estimated that there could be a £15m deficiency arising from possible defaulters among the Minet underwriting members and a £134m central fund of last resort, designed to protect the policyholder, would be brought into operation. The Lloyd's council would retain the right of legal recovery against underwriting members to make up the amounts paid out of the central fund.

20 Jul 84

Guardian: Lloyd's ‘names' get more time to decide

Lloyd's "names" on the PCW syndicates were given an eleventh-hour reprieve yesterday as Minet and Howden granted a surprise extension to their offer for the return of £38 million of the syndicates' money.

The offer had been due to close at noon yesterday but will now be held open until 5pm next Tuesday. A key reason behind the unexpected move is that so far only 87 per cent of the 1,500 names have accepted the terms of the deal which attempts to compensate them for alleged misappropriations by former PCW executives over a 14-year period.

Minet and Howden, the two broking firms which put the deal together, have said they need 100 per cent acceptance but reserve the right to declare the offer unconditional if fewer names accept.

A major consideration is the extent of the liabilities of names who hold out against the offer. Those who have only minimal losses were among the first to accept the deal

Lloyd's is still holding firm to its own deadline of Saturday for names to pass the solvency test, but Minet says it anticipates that names will be given a breathing space in which to lobby against being suspended if they cannot meet their liabilities.

Lloyd's meanwhile chose yesterday to unveil a byelaw under which names must pay back any sums drawn from the central fund to cover their losses. The fund, which currently contains £134 million, may have to be used if PCW names hold out against the offer, and have insufficient personal resources to fund their liabilities.

20 Jul 84

Times: Deadline extended for PCW names

Minet and Alexander & Alexander Services have extended their deadline for acceptances of their £38.17m compensation offer to Lloyd's names from noon yesterday to 5pm next Tuesday. The new deadline is final. they say.

By yesterday's deadline. acceptances had reached 1,335, or 87 per cent of the total number of PCW syndicate members. However. this was not high enough and Minet and Alexander hope more acceptances will come in during the next five days.

Lloyd's is sticking to its Saturday deadline for names to produce their solvency audit certificates. Mr Ian Hay Davison, chief executive of Lloyd's, said yesterday that 350 PCW names had not yet filed certificates and, if they did not by Saturday, Lloyd's central fund would be faced by deficiencies of £15m. The net fund stands at f 134m.

Lloyd's intends to suspend from underwriting all names who do not meet Saturday's deadline.

20 Jul 84

Economist: Amnesty at Lloyd's

Is the office of Britain's director of public prosecutions (DPP) innumerate or just plain spineless in not throwing the book at financial fraudsters? Theft on a huge scale has taken place in the Lloyd's of London insurance market over many years. A slew of recent internal investigations at Lloyd's suggests that $200m-500m may have been looted from syndicates by their managers and others. When Mr Ian Davison was appointed chief executive of Lloyd's on St Valentine's Day last year, he pledged that reports would be passed to the authorities f any inquiries showed a prima facie case of criminal activity. He has been as good as his word. Dossiers, each compiled with a view not only to disciplinary action at Lloyd's but also to criminal prosecutions, have been sent to the DPP. One, on the PCW syndicates where it is alleged that two Lloyd's underwriters took £38m over 14 years (and deprived names of another £30m-40m in lost interest), has been with the DPP for six months. Why no action?

Section 41

In late 1982, the department of trade appointed inspectors to investigate Minet Holdings, the to members' problems. Indeed, we drew attention to the fact that it was not perfect. We stated that in our opinion - an opinion derived from 17 months of international investigation followed by three months of intensive negotiation - the offer presented each member with a clear choice on how to deal with an extraordinarily difficult and complex situation. We have coerced nobody to accept it. Any member wishing to decline it and to resort to litigation has been free to do so. A member who accepts the offer, however, has to agree that no further claims will be brought. Rights of recovery are passed to the parties offering the settlement. Anyone who has ever been involved in a legal dispute will know that this is perfectly normal practice.

Lex also criticised the June 21 offer document by stating that the tax implications " were not spelled out." On the contrary, as you were aware, we specifically told members of' the syndicates that: we had sought guidance from the Inland Revenue on their stance in the matter. We pointed out that, at the time we made the offer, we had not received the Inland Revenue response.

As you were also aware, when we finally clarified the Inland Revenue position on July 6 we immediately communicated the information to all the members and announced it publicly on the same day. Under the circumstances, all members were informed in the same communication that any acceptances of the offer previously submitted could now be withdrawn. As you so rightly point out, the tax will be payable whether or not the offer becomes unconditional assuming the Inland Revenue's position is sustained.

Without the offer, names would have been faced with highly complex and costly litigation over a period of many years. I r e-emphasise that the objective of the offer has been to offer them a choice between an immediate settlement and a legal battle. The very widely reported levels of acceptance during the closing stages of the offer illustrate quite graphically how it has been perceived by the names to whom it was addressed. At the time of writing it is probable that the ultimate acceptance level will be 95 per cent.

The vast majority of names have gladly accepted the offer, and have congratulated us on the resolution of a massive problem. Similarly, our shareholders have constantly endorsed our handling of what will now always he known as "The PCW Affair". I think. with the greatest possible respect, that we have not done too badly.

R. W. Pettitt.

26 Jul 84

Financial Times: Minet offer refused by 163 Lloyd's members

MORE THAN 160 underwriting members of the Lloyd's insurance market have refused to accept their share of a £38. 17m offersize and unprecedented nature of the rescue package, Treasury officials said yesterday it would be surprising if they had not asked for outside legal advice. However, bankers who had been summoned to the FDIC last Friday, had been told the package would be announced on Tuesday. Yesterday they were speculating that the Treasury's last minute intervention had caused the delay.

Nevertheless, most bankers appeared confident the rescue package would be approved, since the only real alternative would be to liquidate Continental, which would be long and messy.

Some members of the U S Administration are worried by the Government's role in what looks like amounting to the nationalisation of Continental Illinois. Mr. Regan said some weeks ago, for instance, that he expected a private sector solution to be worked out.

Mr. Paul Volcher, chairman of the Federal Reserve, the U.S. central bank, told the Senate Banking Committee yesterday he believed a "more lasting arrangement for Continental Illinois would be announced shortly". He said the arrangement would provide a firm base for a "healthy, but considerably smaller bank".

26 Jul 84

Post Magazine: Lloyd's sticks to solvency deadline

A TOUGH line is being taken by Lloyd's authorities against those underwriting members who did not file their annual solvency certificates by 21 July.

Last week Lloyd's passed two new bye-laws which tightened up existing procedures to be followed when members are in default.

Those who do not meet the deadline will now face administrative suspension and will not be able to take part in their syndicates' underwriting until they have shown the authorities that they can meet the solvency requirements.

The second bye-law makes it easier for Lloyd's to recover funds from those Names in default whose underwriting liabilities needed to be met from central funds. It will give Lloyd's the power of recovery through the courts.

The moves come at a time when about 350 Names on syndicates managed by companies in the Minet Group have refused to accept a compensation deal worth £38m for 1,525 Names made by Alexander & Alexander and Minets.

The offer was refused by the Names because they objected to its terms which included that they accept the money as a final settlement for past scandals involving the siphoning of syndicate funds to companies controlled by former employees of the two firms.

The compensation offer also spelled out that Names would have to undertake not to sue Minet and Alexander & Alexander over the affair.

But the Names' refusal has meant that they now do not have enough funds to meet their Lloyd's solvency requirements which hive to be fulfilled annually. Those in default will need to make representations to the Council in writing.

Normally these have to be submitted by Lloyd's to the Department of Trade at the end of June. But because of difficulties over the PCW and Howden scandals this was extended by five weeks, although the new deadline of 21 July was a voluntary one imposed by Lloyd's.

Deadline for the compensation offer was 19 July but late last week Minet said they would be extending it until this Tuesday. About 87% of the affected Names, totalling 1,335 have decided to accept the offer. It is thought that more will decide to accept the offer this week, so in the end even less than the 350 Names may actually be in default.

The majority of the Names did not have to rely on compensation funds to meet their solvency requirements as they have other resources.

In a joint statement, Minet and A & A said the extension has been agreed to allow them to evaluate the acceptances so far received and that the extension will enable further Names to accept.

It is emphasised by the two firms that there will not be any amendment to the offer itself. Nor will there be any further extension. Minet and A& A will announce the results of their offer at the earliest opportunity, and no later than 28 July.

27 Jul 84

The Times: Lloyd's puts aside £9m over audit certificates

The failure of 120 Lloyd's underwriting members to file audit certificates by last Saturday's solvency deadline has caused Lloyd's to earmark £9.5m out of its central protection fund - the largest amount in the corporation's history. Mr Ian Hay Davison, Lloyd's chief executive, said the central fund was much more than adequate to meet the problems.

Lloyd's also has to decide by August 20 whether to suspend from underwriting the 120 names who failed to file.

The £9.5m represents 7 per cent of Lloyd's net fund of £134m, but it is extremely unlikely that this full amount will have to be paid out. Late filing of solvency certificates is expected following Tuesday's implementation of Minet and Alexander & Alexander Services' £38.17m compensation offer to Lloyd's names on PCW syndicates.

A total of 100 of the 120 names, who have not filed, are PCW syndicate members, but only 40 of them rejected the compensation offer. The other 60 will therefore now have the benefit of the offer money. The 40 who rejected have deficiencies at Lloyd's of £12.25m, and a few are expected to meet their solvency requirements, Mr Davison said.

The £9.5m earmarked will be reduced as names file their audit certificates. Lloyd's will only have to pay up if names refuse to file certificates and refuse to meet their liabilities when asked. Lloyd's will take legal action against names who do not meet their liabilities.

If a large number of PCW names are suspended after Lloyd's Council meets on August 20, it could jeopardise syndicates run by Richard Beckett Underwriting Agencies (formerly PCW). Any decision on the suspension of Beckett syndicates will wait until after August 20, Mr. Davison said.

27 Jul 84

Financial Times:

Lloyd's, the insurance market, has set aside £9.5m to cover the potential underwriting liabilities of up to 120 members of the market who have not proved their solvency.

27 Jul 84

Financial Times: Lloyd's earmarks £9.5m for potential debts

.Authorities at Lloyd s insurance market have set aside £9.5m from a £34m central fund of last resort to cover the potential underwriting liabilities of up to 120 members of the market who have refused to prove their financial solvency.

The number of underwriters with a potential solvency problem is more than 10 times the usual figure and Lloyd's is making the highest ever provision to cover underwriters' liabilities. Of the underwriters who have not demonstrated to Lloyd's, in the form of an audit certificate, that they have enough assets to meet their liabilities, 100 are members whose affairs are managed by Richard Beckett Underwriting Agencies, the troubled underwriting agency, which forms part of Minet Holdings.

Some 40 are understood to be those who refused to accept their share of a £38. 17m compensation offer from Minet designed to provide the equivalent of funds allegedly misappropriated by former executives of the Minet group.

Members - who refused to accept the offer were meeting yesterday with their lawyers and advisers to plan an extensive legal campaign to fight for a better deal.

Lloyd's ruling council meet on Wednesday to consider the problems surrounding the Minet agency and the implications for the market of those who refused to complete the solvency test requirements.

Lloyd's is understood to have considered whether one of the Minet Lloyd s underwriting syndicates - a non-marine insurance syndicate which accepts general business - is solvent and whether it should be allowed to continue to trade.

The Richard Beckett underwriting syndicates face £37m of losses and the council wonders what level of support Minet will give to the syndicates if the trading trend continues further.

Moreover, Lloyd's is discussing with Minet the future running of the Richard Beckett agency. Underwriters affected by the problems have complained about the conflicts of interest that surround the running of the agency while it is controlled by Minet and Minet interests.

Lloyd's utilisation of the central fund means claims by policyholders will be met. Lloyd's has warned the 120 members that they may be suspended from underwriting unless they complete the solvency test.

27 Jul 84

Lloyd's List: Lloyd's earmarks £9-5m over solvency defaulters

LLOYD'S has been forced to earmark a record £9.5 million from its Central Guarantee Fund to cover the underwriting deficiencies of members who have failed to meet the annual solvency test

About 100 of the l20 names in default of Lloyd's solvency requirements are members of the Minet underwriting agency formerly known as PCW.

However, only about 40 are known to have refused to accept their share of the £38-17 million offer from Minet and broker Alexander & Alexander. The offer, which remains open for almost four weeks, is intended to compensate members of syndicates managed by PCW for funds allegedly misappropriated by former Minet group executives.

All 120 defaulting names now face suspension from underwriting, said Lloyd's chief executive Mr Ian Davison yesterday. But, he expects that many will submit the necessary documents to pass Lloyd's solvency teat by Aug 20 when the council meets to decide formally upon suspension.

Members in default were advised yesterday they were entitled to make written representation to the council before 12.00 hrs Aug 10.

Only a handful of names are usually suspended each year for failing the solvency audit; and never before has such a large sum been set aside from tile central fund to cover defaulters.

Mr Davison said it was three times last year's total and also several times larger than the funds set aside to cover Sasse syndicate losses. The Central Guarantee Fund has total funds of about £134m.

The steering committee of PCW names opposed to acceptance of the Minet and Alexander & Alexander offer met yesterday afternoon. Although the steering committee was wound up, having completed its duties, an action committee is expected to he formed to co-ordinate the activities of those names who intend to start legal proceedings.

Mr Geoffrey Lawson, who chaired the steering committee, said last night that he expected between 60 and 70 people to sue for general damages. Action could he taken against a number of interests, including PCW, individual members agents, Alexander Howden broking firms, auditors, Minet and Lloyd's.

The Minet and A&A offer had been accepted by 92% of the PCW names by July 24.

27 Jul 84

The Guardian: Lloyd's suspension threat

One hundred and twenty underwriting members of Lloyd's face suspension from the insurance market next month for failing to meet last week's annual solvency test. As a result Lloyd's has made the largest-ever transfer of £9.5 million from its central compensation fund to meet their liabilities.

The Council of Lloyd's has written to the names, giving them two weeks to show they can meet their underwriting losses. If they fail to do so by August 10 the council will move to suspend them indefinitely at a meeting on August 20.

All but 20 of the names involved are members of the troubled PCW syndicates where £38 million of premium income has disappeared. The majority of the PCW names on the council's list have failed Lloyd's solvency test, despite agreeing to a compensation offer from the syndicates' owners, Minet and brokers Alexander Howden. Names w ho have a solvency problem because they rejected the offer account for 40 of the 120 and have collective debts of £12.25 million.

Lloyd's has set up a special fund for the £9.5 million debited from the market's £134 million fund of last resort to meet names' losses. But chief executive, Ian Davison, said yesterday that he expected that many names on the list would make arrangements from their own resources.

27 Jul 84

Financial Times: Record lows for merchant fleet

THE UK merchant fleet has fallen to record lows in the number of companies and ships operating, the volume of world trade handled and the contribution made to invisible exports, the General Council of British Shipping says in a report today.

The fleet made a direct contribution to invisible exports of £548m last year - less than half the £1. 15bn of 1980. It marks a continuation of the decline in world trade carried in British ships, which fell from 8.8 per cent of the total in 1975 to less than 3 per cent by the end of April this year.

"This sharp fall in our contribution to the balance of payments inevitably reflects the substantial fall in the size of the UK fleet. the severe world shipping recession, the high level of idle tonnage and low freight rates " Mr. Bill Menzies-Wilson, council president says.

The size of the merchant fleet fell below 20m tonnes dead-weight for the first time in 30 years. The 729 ships owned in the UK now totals 19. 6m tonnes.

Without a sustained upturn in world trade, the fleet could fall to between 400 and 500 ships by the end of 1986, halving the tonnage to only 10m to 12m dwt, the council forecasts.

The fleet comprised 1,614 ships making up 50m tonnes dwt nine years ago.

Over two decades, the number of British companies owning or managing ships has halved to about 170, the council says.

Total receipts of these companies last year came to £2-199bn, compared with £2-778bn in 1981.

27 Jul 84

Financial Times: Increase in insider inquiries

THE STOCK Exchange's quotations committee authorised 59 investigations into possible insider dealings last year, eight more than in the previous 12 months.

These figures appear in the quotations department's second annual review, covering the year to last March. It says information from 20 inquiries into the improper use of price sensitive information was passed to the Trade and Industry Department for further investigation.

The quotations department has referred 76 such investigations to the Department of Trade since insider dealing became a criminal offence four years ago. Inquiries into 48 cases have been completed.

During the year, 119 companies were suspended from the Stock Exchange, the same number as in 1982-83. That includes 11 companies on the Unlisted Securities Market which were temporarily suspended, while 12 fully listed companies and one unlisted company were suspended after going into liquidation or receivership. In the previous year, 23 fully listed companies were suspended after going into liquidation.

28 Jul 84

Lloyd's List: Gulf lines raise surcharges

Despite a fall in hull war insurance rates to the Gulf, a major conference line operating between Japan, India, Pakistan and the Gulf is increasing its surcharges from Aug 1.

The Japan/India-Pakistan-Gulf Conference said it is raising surcharges for shipments to Iranian and Iraqi ports except Bandar Abbas from a minimum of 10% to at least 13%.

Shipments for Bandar Abbas, the main Iranian cargo port, will remain at a minimum of 10%, but journeys to Gulf ports other than Iran and Iraq will rise to a fixed 13% from a minimum of 10%.

Members of the conference include Kawasaki Kisen Kaisha, Maersk Line, Mitsui OSK, Nippon Yusen Kaisha, Overseas Containers, Pakistan National Shipping Corporation and the Shipping Corporation of India.

On Tuesday, hull war underwriters in Lloyd's announced a variety of reduced rates for destinations in the Gulf ranging from a drop of 20% for the Iranian oil terminal at Kharg Island to a fall of half for Lavan and Sirri Islands.

Cargo rates seem to have hanged less but brokers hope a quiet weekend will produce a softening next week. However, insurers are giving war premium refunds on major cargo accounts.

Transhipment of oil cargoes from two tanker casualties of the Iran-Iraq war the Tiburon (260,150 tonnes dead-weight) and the Alexander the Great (325,645 tonnes) was yesterday understood to be nearing completion.

The Sea Island ultra large crude carrier jetty at Iran's big Kharg Island oil terminal is expected to reopen shortly following repairs necessitated by an Iraqi air attack five weeks ago.

30 Jul 84

Financial Times: Names not glad to accept

Sir, - Mr. Pettitt (July 25) the chief executive of Minet Holdings states that Minet has not done too badly and that the vast majority of names have ... congratulated it on the resolution of a massive problem.

At the time of his letter with the offer extended and therefore not unconditional there was no resolution of a problem. Names did not gladly accept the offer. They did it with the very greatest of reluctance and many in anger albeit perhaps tempered with relief. They did it in great ignorance of the facts in an unreasonably tight time-frame despite that Minet had been considering the matter for two years.

The clear and unequivocal responsibility for what Mr. Pettitt describes as a massive problem is Minet's. It owned the managing agency, substantially profited by it, and was ultimately responsible for the misappropriation of names funds.

In these circumstances Mr. Pettitt's shareholders should do more than endorse his handling of the situation, they should congratulate him. I certainly believe that many, if not most of the names, do not.

30 Jul 84

Financial Times: Utmost good faith

Sir, - Ray Pettitt's letter (July 25) is both excellent and reassuring and goes a long way towards restoring the Lloyd's image.

What must, however, be quite clearly understood by everyone, but everyone, is that we, who have been brought up in insurance, believe in the inviolable doctrine of uberrima fidei -utmost good faith. Unless and until all parties in these sad and sorry affairs are seen to act with that concept uppermost in their minds, criticisms of events at Lloyd's will continue.

I would suggest that the professional demands of that doctrine override responsibilities to shareholders and to this end we shall judge the final outcome, in its broadest sense, of all these affairs. It would, of course, be appalling if Minet's shareholders were to make a profit at the final reckoning.

The Lloyd's community has a long way to go to restore its tarnished image - both of itself and to the profession as a whole. To that end some of us expect all actions and decisions to reflect utmost good faith and nothing else.

30 Jul 84

Financial Times: Sellafield Nuclear plant - The high cost of storing waste

CAN SEILAFIELD he forced to eat all its own radio-active wastes? The Government is currently considering this question in light of last week's report by Sir Douglas Black on leukaemia in children living close to the Cumbrian nuclear factory, and another report from British Nuclear Fuels proposing ways in which it can greatly reduce radio-active discharges in the next 10 years.

Sellafield, to quote the Black report, "contains a nuclear operation which is unique in the United Kingdom in terms of scale and complexity." Far from abandoning its activities the Black report gives little comfort to those who want it to do so - the Government is aware that its dominant activity will continue for longer than was previously expected.

This is the reprocessing of nuclear fuel from the Magnox nuclear stations. The average book life of these first-generation reactors has just been formally extended from 20 to 30 years. That means fuel processing, at a rate of 1,000-1,500 tonnes a year, will continue into the next century.

In addition, the factory stores the used fuel from second-generation reactors in Britain and abroad, to await completion of a new reprocessing plant for this fuel. It stores used fuel from the Navy's nuclear submarines, its capital ships of the 1980s, which some-day will need a reprocessing plant of its own.

Sellafield also makes plutonium fuel for Britain's 250 Mw fast "breeder" reactor and refines plutonium for nuclear weapons. It is custodian of Britain's plutonium stockpile -currently about 20 tonnes. In addition, it has been designated by the Government as the interim store, for 50-100 years, for Ingots of highly radio-active glass made from its most deadly reprocessing effluents. Eventually, when cool, these ingots will be buried deep in the ground.

In short, Sellafield, as the sketch shows, is the hub of all activities of the nuclear industry in Britain other than the medical ones.

"We've been looking continuously at getting our discharges down but we've certainly sharpened our pencils over the last few months," says Mr. Con Allday, chairman and chief executive of British Nuclear Fuels. Sellafield is BNFL's biggest factory and biggest source of revenue, earning about £350m last year.

What drove Mr. Allday's engineers to sharpen their pencils was the incident last November when a discharge of radioactive effluent to sea washed back to contaminate Cumbria's beaches. As a result, they have offered the Government a number of options for further investment in radio-active effluent treatment at Sellafield.

The options range from an expenditure of around £100m to about £1. 5bn at current prices. They are not designed to save lives - the Black report confirms the company's unwavering claim that it operates well within internationally accepted limits on discharges.

The extra investment would be spent on making Sellafield "socially acceptable,'' in Mr. Allday's phrase. The target, in terms of future levels of radioactive discharges to sea and air, will be set by the Government. The cost will fall mainly on the electricity industries at home and abroad.

But the options are not simply a matter of the more money spent, the less radioactivity discharged. If it is not discharged it must be concentrated and stored somewhere, either at Sellafield or in a new "nuclear dustbin" in Britain.

As Mr. Trevor Moulding, head of chemical plants at Sellafield, sees the challenge, "zero discharge" is an unrealistic goal. "But we don't want to be worse than anyone else."

Sellafield, nearly 40 years old as a nuclear factory, is acutely conscious of being compared unfavourably for its housekeeping with the corresponding factory of Cogema at Cap la Hague near Cherbourg, built in the 1970s.

Since the late 19705, Sellafield one of Britain's biggest industrial investments, has undergone a facelift. Some 3,000 to 4,000 of the 10,000 employed there are working for contractors on reconstruction. BNFL spent nearly £200m at the factory last year and expects the rate of investment to rise to £300m a year if the 10-year, £3. 5bn investment programme is to stay on schedule.

Much of the new construction is wholly or partly concerned with radio-active effluent problems. The site ion exchange effluent plant (Sixep), for example, is a six-storey building the size of a football pitch, which will take almost all the activity out of the water used in ponds storing used nuclear fuel, before it is discharged to sea.

By any standards, Sixep is "a pretty complex piece of chemical engineering," Mr. Moulding admits. Designed for remote operation, the £110m plant contains 40 kilometres of stainless steel pipework and 1,600 instrument loops. It has been under construction for over four years.

Sixep will treat its first effluent later this year. Its complexity and novel technology leads Sellafield to expect a long learning curve. High availability is not forecast before 1986, when it will be cleaning up to 4,000 tonnes of water a day.

Also nearing completion as a major investment is a technology more familiar to the factory. Like Sixep, the new £15m evaporator was begun in the late 1970s as a means for concentrating fairly radio-active effluents from the Magnox reprocessing operations. As construction progressed, its role in cleaning up factory effluent expanded, delaying completion until later this year.

The new evaporator will concentrate medium-strength radio-active liquors by a factor of about 50, allowing them to be stored rather than discharged to sea. Sellafield expects it to be performing close to full capacity next year.

The evaporator will also concentrate effluent from the plutonium "finishing" plant, a new installation which converts the plutonium nitrate solution recovered from reprocessing into plutonium oxide fuel for the Dounray fast reactor. Even without the evaporator, this new plant - based on French technology also used at Cap la Hague - has already brought radio-active discharges down dramatically, Mr. Moulding says.

Another major investment in effluent control, about £200m, is committed to vitrifying highly radio-active reprocessing effluent. Again BNFL has adopted French technology and is adapting it to the particular liquors produced at Sellafield.

In a biscuit-coloured building on high ground at the edge of the factory, Mr. Bill Smith is operating a full-scale but "cold" demonstration of the continuous glass-making process that turns a hot acid effluent into a stream of jet-black glass at 1,000 degrees C. His aim is to perfect every detail of the operation, maintenance and replacement of a complex chemical plant, entirely by remote control, before the first tranche of the "hot" facility is ready in 1987.

The glass-making operation is designed to "eat its own tail," as Mr. Smith puts it, leaving no radioactive emissions or effluents to be discharged.

These commitments to a cleaner factory, costing about £900m, were all made before the discharge which contaminated Cumbria's beaches last November. According to Trevor Moulding, the 1983 figures for Sellafield discharges to sea are about 400 curies of alpha radiation and 70,000 curies of beta-gamma radiation. Currently, the Department of the Environment permits the factory to discharge up to 6,000 curies of alpha and up to 300,000 curies of beta-gamma. "We are operating well within the current authorisations," he says

The new effluent technology is expected to get the discharges much lower, down to about 200 alpha and 25,000 beta-gamma. With Sixep at peak performance and other planned changes, the target for the late 1980s is 150 alpha and 15,000 beta-gamma.

Sellafield's authorised discharges have always been tailored to what BNFL could reasonably be expected to achieve within the internationally - permitted levels. BNFL now confidently expects the Government to lower its limits in response to public pressure.

How much and how soon are the crucial questions. But the Black report foreshadows the pressure. Recommendation 9 reads: "There should be a critical review of the necessity for discharges of alpha as well as beta-gamma emitters in discharges from BNFL Sellafield site to be significantly in excess of those from similar plants in other countries."

Cogema's reprocessing factory at Cap Ia Hague last year reported discharges of 14 curies of alpha and 32,000 curies of beta-gamma. The company has undertaken to keep discharges down to these levels as its reprocessing activities continue to expand.

Once Magnox reprocessing ends at Sellafield, and BNFL is using only its £1-3bn thermal oxide reprocessing plant (Thorp), contraction of which has just started, discharges should fall dramatically, says Dr. Jack Clarke, BNFL's chief reprocessing engineer. He estimates that the factory will then be discharging as little as 5 curies of alpha and 2,000 curies of beta-gamma. But that date recedes with any extension in working life of the Magnox reactors.

So the BNFL study just submitted to the Environment Department offers several options for further investment in Magnox reprocessing, These range from matching the French figures by the early 1990s to achieving "near-zero" discharges.

For example, it believes Sellafield could match the Cogema figures for a further investment of about £100m-£200m. For this price the factory would buy some enhancement of its new Sixep facility (about £30m) and much new pipework to recycle waste streams

At the other end of the scale of options BNFL has presented to the Government a scheme for a giant evaporator that dwarfs the one now being commissioned. This evaporator would need to boil down some 7,000 tonnes of effluent a day, Dr. Clarke says. He warns that it would need its own power station.

Such a scheme, at a cost of perhaps £1. 5bn, could bring Sellafield close to zero discharges of radio-activity into the Irish Sea. There will be those who, by adherence to the principle of using the best available technology, will argue that nothing less will do.

Unfortunately, it will not be an end to the problem. The giant evaporator will boil Sellafield's effluents to a sludge that can be encapsulated in concrete. But Britain will then need to find a big burial ground, at least 200 metres deep, for all the radio-active concrete.

30 Jul 84

Lloyd's List: Decision today on Posgate injunction bid

High Court judge Mr Justice Neill will decide today whether to lift the injunction blocking the assets of suspended Lloyd's underwriter Mr Ian Posgate.

The court spent three days last week hearing his application to have the Mareva injunction removed. It was vigorously opposed by leading counsel for broking group Alexander and Alexander.

A & A is the parent company of the major British broker Alexander Howden of which Mr Posgate is a former director. It has a lawsuit outstanding against him.

Under a Mareva injunction a block is put on the assets of a defendant in a legal action so they can be available to meet a judgment. However, Mr Posgate is allowed a substantial allowance for his living expenses.

A & A reached a settlement with four other former Howden directors named in the lawsuit shortly before it was due to go to arbitration in May but Mr Posgate was not part of that agreement.

He has resigned at least temporarily as a director of the underwriting agency Posgate and Denby but, together with his wife, remains the major shareholder.

Lloyd's is continuing its internal disciplinary proceedings into problems at both Alexander Howden and the broking group Minet.

30 Jul 84

Sunday Telegraph: All's well in Miami

Sitting this weekend in his Florida club apartment, with his yacht moored nearby, Peter Cameron-Webb, the insurance underwriter at the centre of a £38 million dispute at Lloyd's of London, has particular reason to feel content.

Although he is considering shifting operations away from Florida for business reasons, I understand he is now free from the prospect of having his peace disturbed after months of British police investigations into his conduct of the former PCW underwriting syndicates.

Short of a mayor last-minute change of heart by the Director of Public Prosecutions, the official view is that the affair is too complex for any jury, and no charges will be laid against him or his associates.

Less fortunate is the Richard Beckett Underwriting Agency, created out of the old PCW and owned by insurance broking group Minet Holdings.

The Beckett agency last week lost an estimated £30 million of professional indemnity cover (to make up for mistakes by underwriters) when its £50.000 cheque for the premium of its "errors and omissions" policy was returned by Lloyd's underwriters.

Ninety-two per cent of the members of the Beckett agency had accepted an offer of £38 million compensation from Minet and another insurance broking group, Alexander and Alexander for alleged misappropriations during the PCW era. Some of the remainder are planning to sue.

Cameron-Webb, meanwhile, has made noises about using some of his assets, including a £2 million mansion on Long Island, to help compensate members - but. say his lawyers, the mansion is conveniently in his wife's name and cannot therefore be made available.

0 Aug 84

Reinsurance: When the wrangling must end

As we go to press the London Market Asbestosis Working Party is putting the finishing touches to its plans for coping with the avalanche of claims. Robin Jackson explains the problems the Working Party faced

ABOUT four years ago, when asbestos was raising its ugly head and it became quite clear that it was going to be extremely expensive, and perhaps even worse for some of us, a time-consuming proposition in the foreseeable future. It was suggested that there should at least be some co-ordination and liaison and passing of information on what was happening with a certain amount of speed around the market, so that everybody if they wished to could be informed of what was going on and, as we know, London with the UK companies, foreign companies based in London and with Lloyd's and others, that was important. We have a true market place and it is important, therefore, that everybody be aware of what is going on.

A number of us therefore were approached and, forgetting what we had been taught in the army, volunteered to start a Working Party, and today, there are probably l4 of us or so made up of what I think is really a truthfully all sections of the market - we have four Lloyd's non-marine syndicates, and a Lloyd's marine syndicate represented by their underwriters, we have the same type of syndicates represented by their claims people, we have companies represented by either their claims people or by their underwriters or managing directors, and we have an ILU - specifically ILU company member - and we have representatives of a managing agency in London, representing a number of companies. I think we have got a very good section and that was the intention. We wanted everybody to feel - all sections - that they had a vote (that is not the right word, but at least somebody was looking after their interests).

Some months ago it became dear that we were coming to a crunch point and it was important that we call some meetings like this rather than settle things through the mail, really so that - and this is an important point of the meeting as far as I am concerned - those of you who would wish to ask questions can do so, and it was felt that we had to do this by meeting.

If I may go back a little: about two years ago, …. in the United States together with London representatives formed the Asbestos Claims Facility which is a facility to meet with representatives of our original insureds – …. were representing direct insurers, we talked to reinsurers in the beginning and said: "Would you like to come into these meetings?" and it was felt by the reinsurer representatives in the United States that it really had to be done one stage at a time and it was the direct insurers who had issued polices to original insureds who had asbestos claims against them who should be dealing with any policy problems, ……

….. kept informed of what was going on - and I think did attend one of the meetings at the beginning, but really the emphasis was on the direct insurers dealing with their problems. And as you will recall, the problems and the reason that we had this Council formed was two fold: one - for goodness sake can we stop all this litigation between the original insures and the insurers about: is it exposure? is it manifestation? is it pro-rata? or is it any other version of claims trigger we are talking about. We had to stop all this nonsense and as I am sure you are all aware we did not do it quick enough and the courts started to do it for us.

It was also felt that it was no good having only insurers talking to each other to try and find out if we could agree amongst ourselves we had to have representatives of insureds, and they were represented. Most of the major defendants in asbestos litigation were part of the Asbestos Claims Council meetings which were chaired by the Dean of Yale Law School. There have been now something like two or three hundred hours of meetings and they have gone on and on endlessly.

True enemy

The plaintiff's bar - the true enemy - also have met with the insurer and insured's representatives and so while it could not exactly be described as a nice sort of troika, certainly the other side have been kept aware of what is going on and, perhaps more important, that the insurer and the insured's representatives were able to talk to the plaintiff's bar so that they would not come out with something that would never fly at the end of the day.

The aim, primarily as I have said, was to stop all the litigation, to start to get some sense into how the claims should be handled, under which policies should they be, and how on earth are we going to handle the claims. It is all very well to say "we will pay claims under this policy", but how are we going to handle the hundreds of thousands of claims that may need handling.

The feeling was that we had to find some way amongst ourselves, and amongst the main parties - the original insureds and the insurers to form a facility for handling these claims. And bear in mind that eventually at some stage, some people rather quicker than others, will run out of insurance coverage and how are the original insureds going to handle and pay their own claims in the future, and it was felt that some form of facility was needed.

As we were getting to a resolution of these meetings which had been going on for 18 months, and Keith Rayment and Jim Ayliffe London representatives of the US Asbestosis Claims Council had been going over almost every other two or three weeks now for nearly 18 months, it was important that we brought everybody up to date, so in March in London - rather like the provisional meetings in the States were to be with direct insurers we had a meeting with the direct insurer representatives in London, where we had about 300 people present at two meetings. We explained to them that day, as it is still, I emphasise, a round of confidentially on this has been agreed upon by all parties, and I think the amazing thing is how well this secret has been kept (we obviously do not have any civil servants on our staff).

We have managed to keep this confidential because one of the reasons was that if the thing falls flat on its face and never takes off we do not want any side to have thrown back against them what they agreed during those meetings as part of their policy, it was done on the basis of no official reports. London was unique so we had, as the Asbestos Working Party, to tell people who were accepting risks in this market what was going on.

Subsequent to those meetings, there were meetings in the States with insurer representatives on an informal basis, to bring them up to speed on where we are. Subsequently there was a meeting, with the Reinsurance Association of America to bring them up to date by a group of people from the Asbestosis Calms Council.

That is the background. Now, if I may, I would just like to say a few words as well. There is no doubt that this is the most serious claim problem ever encountered by our industry. The seriousness of it is not only actual quantum of claim but more so in the policy interpretation. As I said earlier,

if we could have started at the beginning agreeing on our policies I don't think we would have had quite the same problems that we have had. And I believe it is this point that is the most important one, and it can be said that our historic interpretation and our normal claims handling attitudes will never be the same again.

New ball game

It is no good saying: "I have never done that before", we are going to have to recognise we are in a new hall game here. There is no doubt the insurance Industry was too slow in the realisation that from the point of view of coverage the courts, if asked, will continue to give an increasingly broad interpretation of how policies will apply.

The basic rule is quite clear, it as to maximise coverage to the original insured. Already existing we have four decisions in different places giving different interpretations of how to maximise coverage, and let us not kid ourselves, we may not like what has gone on, we may not believe that our policies were ever supposed to be interpreted that way, but the courts are so interpreting them.

The facility offers the only opportunity to provide a radical form of handling which effectively means all the insureds - irrespective of whether they have their day in court, will be given the coverage on the same basis.

The immediate advantages from the insured's point of view are these: the co-ordination of defence will become viable under one central handling facility. Central handling will enable cases to be negotiated without, as a prerequisite, law suits being filed, and a reduction in excessive levels of defence costs which will maintain the insurance assets, the insurance policy limits, for a longer period of time. It will give co-ordinated defence handling on behalf of all producer insures which will considerably strengthen the producers' defences on cases that have to be fought through the courts.

Let me make one thing very clear, this is not some great social hand-out system. If people do not have a good case they will not get much money. It is not that everybody comes up and we throw money at them.

The following benefits come to mind for the insurers, we cease the amount of time and effort and expense being expended on absolutely futile coverage litigation, I don't think anybody could say that what we have achieved in coverage litigation has done a bit of good for this business. It will enable. cash to flow properly to settle legitimate claims. Another point: the sword of Damocles of punitive damages against insurers for not paying their claims to the original insureds because of their policy interpretation, will no longer be held over our heads.

One chance

The proposed facility is likely to be the one chance we are going to have to get the asbestos problem on to a rational basis. Domestic companies have expressed interest in the facility but if London's insurers and reinsurers can take the initiative and develop all out support it will add a tremendous persuasiveness to those domestic companies who would otherwise sit on the fence.

It has become quite dear during the negotiations that London is more important than one might presume.

One must remember that during a significant period of the time involved, in which the policies that these claims will fall under, this market was playing a greater part in both the direct and excess umbrella market than we do today, and therefore London's share of the polices involved is substantial, and more substantial than it would be if all the claims would be under 1983 or 1984 policies for example.

In addition, London obviously has a significant role to play in the reinsurance arena. I think we should be proud of the fact that on numerous occasions during these negotiations it has been made clear by the original insureds, the domestic insurance industry, and particularly the independent chairman, of the absolute importance of London's participation in getting a resolution to this problem.

As a responsible market, it is essential that we get 100% support for the facility from the London market. We intend to circulate to all participants of this market, on the basic details. At that stage it is going to be a bit late for people to raise too many objections, probably too late now, but what I know is that obviously something is not going to come up and everybody is going to say "whoopee" and go ahead. There is going to be continuing discussion, negotiation, argument on one or two minor points.

The lawyers, as usual, can never let go. When they have got almost everything they can conceivably want they go away with smiles on their faces and come back the next meeting saying they want a bit more.

I think it would be appropriate for me to say on behalf of the London Working Party that the amount of work we have put in by Jim Ayliffe and Keith Rayment, as I have said it has meant trips almost every other week over the last 18 months, very long meetings which start at breakfast time and go on until midnight, and some of them have not been particularly pleasant, they have got acrimonious at times, which is what you would expect. You should realise that all the individuals on the Council have made a commitment that they will recommend to their companies acceptance of this facility.

In conclusion, we must address the fact that as a facility operation there will inevitably have to be some delegated authority. This places in doubt the adequacy of the existing market authority that we have for direct insurers, and therefore clearly indicates the need to have reaffirmed in a new document which I hope will be distributed shortly.

Clearly from the Working Party's point of view, if we are to protect the market's interests we must have 100% support and authority, you may think that we have not fought very hard for this market. I can assure you we have - not only for this market, but much more important for the insurers. Unfortunately, every time we made a bit of progress some judge came in and kicked it away from us.

In simple terms which we can all understand, one of the accounts – GAF - already asking London to handle its claims, its primary insurer having exhausted its limits. There are approximately 16,000 of those claim outstanding, growing at the rate .of 400 per month, and they are only one of the insurers. I genuinely believe and I hope you will agree with me when you have heard the presentation, that there is really no alternative to the facility along the lines being proposed.

As I said at the beginning we are going to have to make a very dramatic and emotional change in our thinking. Not only as to how our policies are to be interpreted, but as to how claims will be handled on this market.

If I could just finish on a personal note. Almost regularly every month as the negotiations were going along I used to say: "I have had enough, this is ridiculous, we will have to see there in court." And then we would have another court decision that would make it clear that that was not going to be any good. It became quite clear to me, distasteful though I found a lot of the things that we had to agree with, I really came to the conclusion that there really was no alternative.

This matter is big, it is large, and not only in ultimate dollar terms expended by the insurance industry, but what I believe to be more important, as money is a commodity which presumably we can replace, but the time, and the effort that is going into this is absolutely out of all proportion. And the most important thing is that if you really have a social conscience, which is difficult to find these days, that you know there are thousands of people out there who are probably entitled to some money, there are some out there who are going to get money who are not really entitled to it, but there are some out there who are entitled to it, particularly those workers who are involved with Johns Manville Products, who are not being paid, and it is important that we get money flowing.

And so, as I said, whenever I have gone to the brink of saying to Jim

Ayliffe: "That's it Jim. As far as I am concerned we'll have a Working Party Meeting and we'll say we'll call you out of the meeting, and call the whole thing off".

Grotesque legal fees

The grotesque size of our legal fees is continuing this internal wrangling is out of all proportion to what we are achieving and quite frankly the logistics of this market to handle hundreds of thousands of claims – and it would be hundreds of thousands because generally each original claimant sues seven or eight insureds, and so you may only have 30 – 40,000 claimants but you can multiply by 6 or 7 if you take each of these separately and have a separate defence each time.

Co-ordinating the settlements

January 1, 1985, has been named as the day the asbestosis claims facility is opened to plaintiffs. Keith Rayment outlines the history of asbestosis cases and explains how the facility is expected to work

IF I could just go back and relate just where the Courts currently stand. The first major decision I think involving asbestos was 48 Insulators v INA which came down to an exposure concept, which in itself was thought somewhat novel, somewhat far-reaching. That was following a Court of Appeals decision American Optical v Porter which followed along the lines of 48 Insulators. So they are two exposure decisions. Eagle Picher came along with a suit a suit against Liberty Mutual and because of their own coverage profile the exposure concept was certainly not satisfactory to them, they basically had no products coverage so they went forward on a manifestation approach. This was the first real indication that the courts were giving us that they were going to pretty much bend the over backwards and give a producer what he needed, and that was as much coverage as possible.

So the producer Eagle Picher went to the courts for manifestation and the court agreed to manifestation and that was the decision handed down by the trial court. This was than appealed and during the course of the appeal various other decisions came down, as a result of that Eagle Picher could then see that there was another alternative, apart from exposure, which they could obtain more coverage and make the best the of the coverage. So they amended their complaint – it was not accepted in full but the judge thought "well, perhaps there is more than one way of looking at the manifestation approach".

Various medical experts were asked to look into the situation (Dr Selikoff of Mount Sinai Hospital was one of them) and the court came down with a decision amending the manifestation to read: "the date when the claimant could have been diagnosed" which then left us all in a dilemma as to what really that meant. We have ended up with, in effect, a roll hack situation from the day of manifestation by at least three years. In fact in Eagle Picher at the moment we are in a roll back of 5 years.

Triple trigger view

During the course of the court in Washington DC Judge Basilon, on appeal, came down with the famous triple trigger view, which is exposure plus the exposure in residence plus manifestation.

We probably thought that nobody now could think of any worse way of interpreting how our polices respond. Unfortunately somebody has done something slightly worse than that. Various decisions have been handed down since - some have been pure exposure, but we have Armstrong Contracting & Supply which came down in Pennsylvania which gave a Keene type approach but also maintained that the primary insurance carriers who issued their comprehensive general liability policies prior to 1966 had an ongoing duty to defend their producer – a lifetime duty.

This followed on that had already been handed down in Pennsylvania involving Pittsburgh & Corning where a similar decision was reached that the Primary carrier's duty was ongoing.

If I could move on to the facility now. The concept of the facility was started by a small group of major insurers. This started I think in October 1982. We were not invited to that initial meeting but Jim Ayliffe, a member of the London Market Asbestosis Working Party, and I, who had been in the States on various occasions, had met with some of the major insurers previously and they felt that there was no way that they were ever going to talk constructively about resolving this problem unless London was represented. Jim and I were asked if we would attend, which we duly did, and we attended our first meeting in November 1982.

By that time approaches had been made to the major manufacturers requesting if they were prepared, in a totally unofficial confidential environment, to sit down and see if we could resolve this problem, with the main objectives being:

  1. the resolution of the coverage issues
  2. dismissal of all pending DJ actions - and I think this is probably the most important problem that we were confronting in that all our energies were being directed especially to the West Coast litigation and that we could never ever come to any agreement with producers unless we had a certainty that current litigation was going to overturn what we were trying to do
  3. the dropping of all punitive demands against either party
  4. a co-ordinated handling both for negotiated settlement and defence. It has certainly been a case that the money is really not necessarily getting to the right place when it eventually gets there. The claimant is receiving possibly in the region of about 35% of the actual award that may be given.

Also it was for the prompt disposition of meritorious claims. There are a lot of claims out there that are meritorious claims; there are a lot of serious injury claims; claims for Mesothelioma which is a cancer and basically within a very short period of time the person would die, and at this meeting we had representatives of the plaintiffs' bar. They were a group of about five who were there representing 150 plaintiff's law firms throughout the US and one particular – a chap by the name of Paul Gillenwater out of the deep South - said that this facility has got to come about, he has got clients out there who well never ever see the court room, they well die before their claim is ever heard in the courts, and he wanted to have the ability of a fair and equitable solution to his dilemma.

Paper of intent

The current situation on the facility agreement, coverage agreement is that the major manufacturer and insurer representatives serving on the Council have committed themselves to the facility and have signed a paper of intent to recommend it to their own management. So certainly the people who are involved, have been involved in these discussions have given a commitment.

The facility agreement itself will required that all signatories are obliged to offer all the terms of the agreement to all their insureds or all their insurers, so anybody that signs up cannot pick and choose which manufacturers ha would like to offer it to, similarly manufacturers do not have a choice as to which of their insurers it should be offered to.

The process of the dismissal of the DJ action well be implemented immediately, but within the facility there will also be an alternative dispute resolution procedure whereby controversies that still remain unresolved by the terms of the current agreement will be decided within the facility by a distinguished disinterested panel, probably of retired judges.

All claims asserted against subscribing insurers for bad faith and punitive damages well be waived. However, still preserving rights for either the producer or insurer for compensatory damages without any breach of the coverage or facility agreement.

All interim funding arrangements in existence at the time of sign up well be reallocated in accordance with the terms and conditions of this coverage agreement. What has happened is that a lot of insurers over the recent past who perhaps were staunch manifestation supporters or staunch exposure supporters have decided that the courts, the way they are currently going at the moment, are not going to give much relief and they should get into agreements with their producers to fund them on a temporary basis.

As we have seen by various Chapter II proceedings, already three producers have filed under Chapter II for bankruptcy and obviously one of their reasons is that their insurance carriers could not agree on how to respond to them.

There will he a provision for a producer or an insurer to plead a case for recovery of their declaratory judgment costs through the dispute resolution procedure where a case of equitable relief exists. This we maintain will only be applied in extreme situations. As far as we are concerned, everybody bears their own costs, that is the end of it. We have no intention of paying a producer's costs, but we had to have the ability there that where a producer could produce a real hardship case if he was forced into litigation that put a great strain on his financial corporation then his case would be heard.

In-house costs

A subscribing producer will not be reimbursed for allocated or unallocated expenses that have been incurred in fulfilling his duty of assistance and co-operation under his insurance policies. In-house costs claimed by subscribing producer to be in excess of those incurred in fulfilling that duty under its policy, in the absence of any agreement with the subscribing insurers, may be submitted to alternative disputed resolution.

Basically, some producers have said: "In view of the fact that we have had to defend our own claims, that the carrier has not stepped forward, we have been forced to increase our in-house staff far beyond what we would normally have required to respond under the terms of the policy." Similarly claims by subscribing producer for co-ordinating counsel in the absence of any agreement may also be submitted to alternative dispute resolution.

Certain producers that have been left on their own have set up regional counsel, they have also had to employ co-ordinating counsel to ensure that arguments that they are maintaining various jurisdictions around the US, and so on are consistent, and anything ….. and the producer said: "Well you have come up with this schedule of multipliers, that will apply to the excess". Jim Ayliffe and I did not take too kindly to that, counting up the dollars as fast as we could, and we started negotiating, arguing, caucusing (I have never caucused so much in my life until I went there I did not know what it meant) and we said: "We will come in with half multipliers, we are one or two stages removed, we will come in with half multipliers".

That did not go down too well and they quite rightly pointed out, if you had an excess occurrence policy sitting on top of the primary aggregate policy that in due course our policy was going to drop down to replace that of the primary when it was exhausted and that we would be in exactly the same sort of situation as the primary who was there forever and a day.

Important battle

So we backed down on the application of multipliers and we went along but we did win one battle - I think it is a important battle - we will be subject to these multipliers but we would never come back in, the excess carrier would never come back in. If I can give you an example, let us take the $100,000 excess policy, it is written above primary aggregate $1m, whatever, when the million is exhausted this $100,000 policy steps in and it will pay $1m and that is it. It then go up to the excess carriers and if necessary straight to the top, and that will be the end of that.

Also, and this was only resolved as of last week, any other occurrence polices that are written in the same period excess of occurrence policies will only be applied once. So if you had a situation where the primary was $1m aggregate, they will pay that $1m. If the first excess was $100,000 occurrence they will pay according to the tables $1m. If there is a layer above that - $200,000 occurrence, excess of $100,000 - it will only pay $200,000.

The producers maintain: "Oh no, that was not our understanding". In fact the whole discussions have been trying to resolve the ambiguities that the courts have read into our policies. Each time we come up with a draft agreement we end up with more ambiguities than we started off with. And they said: "Oh no, this table of multipliers applies to every occurrence policy, it does not matter where it sits, it could be excess of $50m, the occurrence policy has a table of multipliers". This is where Jim Ayliffe and I made it quite clear to them that you have got a generous package here, we and insurer as a guideline and there will not be a unilateral decision. It was said that the information should be available for one to establish as to what the intent was behind the exclusion and that hopefully it would be done by negotiation, it would be done account by account, policy by policy, so that there would not be a broad sweeping of the problem and that if there is still ambiguity as to intent it would then be referred to the dispute resolution for resolvement of the problem.

Another subject that had to be confronted where limits and deductibles were for less than or greater than one annual period. This problem probably affects London more than most. It is almost the odd policy that is written for a 12-month Period, with nothing happening to it. Where the policy runs for less than one year both the annual limit and the deductible will apply. If it is in existence for just six months the policy will not be cut in half.

For policies that were extended, if this was at the request of the producer then it will be pro rata in addition. Where the insurer requested it two full annual limits will apply. So if there was a policy for 15 months and it can be established that the insurer, for whatever reason, requested that extension then there will be two annual limits for the 15 month period, albeit exposure dates of the claims will still be slotted in their reserve areas. It won't be just taking 15 months and saying there are two limits for it; the first 12 months will have its annual limit and the next three months will have annual limit available. Similarly deductibles, if they are there, will apply.

Facility gaps

It is quite likely that upon subscription to the facility gape in coverage will be created by non-subscribers. These will temporarily be covered by subscribers, provided they are few and far between, providing that the subscribing insurer will never pay more than his limit. Obviously if there is a gap there is the chance that he is going to pay his limit a little more quickly. Also the producer sues that non-subscriber through the courts. We are not going to make it attractive for people not to sign up, the producer is going to go after, through the courts, those who do not sign up. That money, assuming the producer wins his case against the non-subscriber, will be reallocated within the facility based upon who ought to pay what out.

The other type of gap that could be created is by insolvency and if. there is one thing that we have maintained throughout it is that insurers wilt not pick up the tab for an insolvent company, carrier, and the producer will have to pay for insolvencies. We are currently trying to fine tune how we are going to put that into the agreement. There are various guarantee funds within the States in America, they are all slightly different, and …. To be up and running as soon as possible then London's databank would have to provide the core or information. This should then ensure a smoother dove-tailing of systems. Alexander Grant who are system designers for the London data base have been asked to sit in on both computer sub-committees to assist with the building of the system.

In conclusion I would just now like to emphasise the viability of the facility will centre around the ability to promptly fund claims and expenses, and hopefully London's presence on the cost allocation committee, and various other committees, will ensure that the procedures and mechanisms acknowledge London's unique situation wherever possible

Chart A



Claim A
 

Exposure period 1940-1980

         

 



Claim Y
 

Exposure period 1960-1984

           



Claim A
 

Payment 1950-1974

           



Claim Y
 

Payment 1970-1974

           
   

1940

1950

1960

1970

1975

1980

1984

           



   

Band of coverage

           
       

Day of Enlightenment

         



   

Old policies

New policies

         

Chart B

Face amount of per

Occurrence/accident limits

Up to $ 100,000

Next $ 200,000

Next $ 200,000

Next $ 500,000

Above $1,000,000

Multiplier

10

5

3

1-5

1

Cumulative

Maximum

$1,000,000

$2,000,000

$2,600,000

$3,350,000

(Mr. Jackson referred to the avalanche of asbestos claims and to the fact that generally each original claimant sues seven or eight insureds - you may only have 30 to 40,000 claimants but you can multiply by 6 or 7 if you take each of them separately and have a separate defence each time). "

When the wrangling must end:-

(147) The Asbestos Working Parry is putting the finishing touches to its plans for coping with the avalanche of claims. Mr Jackson explains the problems the Working Party faced:-

About 4 years ago, when asbestos was raising its ugly head and it became quite clear that it was going to be extremely expensive, and perhaps even worse for some of us a time-consuming proposition in the foreseeable future. It was suggested that there should at least be some co-ordination and liaison and passing of information on what was happening with a certain amount of speed around the market, so that everybody if they wished to could be informed of what was going on...

(148) ... the reason that we had this Council [the Asbestos Claims Council] formed was two fold: one - for goodness sake can we stop all this litigation between the original insureds and the insurers about: is it exposure? is it manifestation? is it pro rata? or is it any other version of claims trigger we are talking about. We had to stop all this nonsense, and I am sure you are all aware we did not do it quick enough and the courts started to do it for us.

It was also felt that it was no good having only insurers talking to each other to try and find out if we could agree amongst ourselves we had to have representatives of insureds, and they were represented. Most of the major defendants in asbestos litigation were part of the Asbestos Claims Council meetings which were chaired by the Dean of Yale Law School [Professor Wellington].

True enemy:

The plaintiffs bar - the true enemy - ....

As we were getting to a resolution of these meetings which had been going on for 18 months, and Keith Rayment and Jim Ayliffe London representatives of the US Asbestos Claims Council had been going over almost every other two or three weeks now for nearly 18 months, it was important that we brought everybody up to date, so in March in London - rather like the provisional meeting in the States were to be with direct insurers - we had a meeting with the direct insurer representatives in London, where we had about 300 people present at two meetings. We explained to them that day, as it is still, I emphasise, a round of confidentially on this has been agreed upon by all parties, and I think how well this secret has been kept. ...

We managed to keep this confidential because one of the reasons was that if the thing falls flat on its face and never takes off we do not want any side to have thrown back against them what they agreed during those meetings as part of their policy, it was done on the basis of no official reports.

... There is no doubt that this is the most serious claim problem ever encountered by our industry. The seriousness of it is not only actual quantum of claim but more so in the policy interpretation. As I said earlier, if we had started at the beginning agreeing on our policies I don't think we would have had quite the same problems that we have had. And I believe it is this point that is the most important one, and it can be said that our historic interpretation and our normal claims handling attitudes will never be the same again.

New ball game:

It is no good saying: "I have never done that before", we are going to have to recognise we are in a new ball game here. There is no doubt the insurance industry was too slow in the realisation that from the point of view of coverage the courts, if asked, will continue to give an increasingly broad interpretation of how policies will apply.

The basic rule is quite clear, it is to maximise coverage to the original insured. Already existing we have four decisions in different places giving different interpretations of how to maximise coverage, and let us not kid ourselves, we may not like what has gone on, we do not believe that our policies were ever supposed to be interpreted that way, but the courts are so interpreting them.

The facility offers the only opportunity to provide a rational form of handling which effectively means all the insureds - irrespective of whether they have their day in Court, will be given the coverage on the same basis.

The immediate advantages from the insured's point of view are these ...

The following benefits come to mind for the insurers, we cease the amount of time and effort and expense being expended on absolutely futile coverage litigation, I don't think anybody could say that what we have achieved in coverage litigation has done a bit of good for this business. It will enable cash to flow properly to settle legitimate claims. Another point: the Sword of Damocles of punitive damages against insurers for not paying their claims to the original insureds because of their policy interpretation, will no longer be held over our heads.

One chance:

(150) The proposed facility is likely to be the one chance we are going to have to get the asbestos problem on to a rational basis. Domestic companies have expressed interest in the facility but if London's insurers and reinsurers can take the initiative and develop all out support it will add a tremendous persuasiveness to those domestic companies who would otherwise sit on the fence.

It has become quite clear during the negotiations that London is more important than one might presume. We must remember that during a significant period of the time involved in which the policies that these claims will fall under, this market was playing a greater part in both the direct and excess umbrella than we do today, and therefore London's share of the policies involved is substantial and more substantial that it would be if all the claims would be under 1983 or 1984 policies for example.

In addition, London obviously has a significant role to play in the reinsurance arena. ...

Grotesque legal fees:

The grotesque size of our legal fees in continuing this internal wrangling is out of all proportion to what we are achieving, and quite frankly the logistics of this market to handle hundreds of thousands of claims - and it would be hundreds of thousands because generally each original claimant sues seven or eight insureds and as you may only have 30 - 40,000 claimants but you can multiply by 6 or 7 if you take each of them separately and have a separate defence each time.

Co-ordinating the settlements: -

1 January 1985 has been named as the day the asbestos claims facility is opened to plaintiffs. Keith Rayment outlines the history of asbestosis cases and explains how the facility is expected to work:-

(152) ... we have Armstrong Contracting & Supply which came down in Pennsylvania which gave a Keene type approach but also maintained that the primary insurance carriers who issued their comprehensive general liability policies prior to 1966 had an ongoing duty to defend their producer - a lifetime duty.

This followed on a decision that had already been handed down in Pennsylvania involving Pittsburgh & Corning where a similar decision was reached that the primary carrier's duty was ongoing.

If I could move on to the facility now. The concept of the facility was started by a small group of major insurers. This started I think in October 1982. ...

0 Aug 84

Lloyd's Global Accounts 1983:

Statement by Mr. Peter Miller, chairman of Lloyd's (1981 Year of Account)

Introduction

I am pleased to report Lloyd's Global Results for 1981, the latest closed year. You will remember that my predecessor presented Lloyd's Global Returns for 1980 in a new and improved format This included more detailed information on the nine classes of business under which we make our statutory returns, a five year summary of business activity, separate figures for the reinsurance to close and an analysis of the security behind a Lloyd's policy. As you will see, we have adopted much the same format this year, with one or two minor, but I hope helpful, alterations; for example, a supplement will be available containing separate figures for "UK Motor" only, since the motor figures on the statutory basis include overseas motor business.

There are three aspects of our business to which I would specifically like to draw your attention, namely profitability, level of activity and the security behind a Lloyd's policy.

Profitability

As to the first, and bearing in mind the general lack of profitability in the world-wide insurance industry, it is pleasing to be able to record a substantial profitable result for 1981 of almost £ 152 million. This figure needs some qualification. On the one hand, the figure would have been substantially higher, approximately £ 190 million and the second highest in our history, if the recovery of certain monies by one of our largest syndicate groups had been finalised in time to have been included. On the other hand, the figure includes, for the first time in many years, a pure overall underwriting loss of some £43.5 million. We must also remember not only that Lloyd's closes each year's underwriting account two years after the end of the year, but also that our competitors all over the world are currently reporting results which are frankly ghastly - with, in some cases, overall losses even after taking into account investment income. In these circumstances I welcome the views of my market colleagues that premium rates are hardening somewhat. If we are to have a healthy, competitive, and, above all, financially secure insurance industry, then rates must increase. To take but one example from many, what other overhead faced by a shipowner will have reduced in actual money terms by one third in the last decade? - which is probably true of his hull insurance premium.

To turn to the actual figures of our results, you will see that the total year of account income for 1981 compared with 1980 increased from £4.1 billion to £4.9 billion, premiums increased from £1.9 billion to £2.3 billion, while the reinsurance to close increased from £2.1 billion to £2.7 billion. Claims increased from £ 1.5 billion to £ 1.8 billion, while syndicate expenses as a percentage of premium income dropped from 7.4% to just below 7%. The higher figure for reinsurance to close is a reflection of the increase in business and the continually extending time over which claims arise occasioning the need for still greater funds to be set aside to meet future claims.

Level of Activity

The level of activity, measured by calendar year income, continued to increase during 1983, from £2.9 billion to £3.3 billion, while the number of members increased on 1st January this year by still have to go through the troughs of 1982 and 1983, Lloyd's will emerge having avoided the worst of the losses now being reported by so many of its competitors, particularly in the US market.. I predict a future in which Lloyd's will maintain and improve its position in the insurance industry.

1 Aug 84

The UK Asbestos (Licensing) Regulations came into force.

2 Aug 84

Financial Times: Davison tries to clear the mist - Reforming Lloyd's insurance market

THE STRUGGLE to reform the troubled Lloyd's insurance market is entering a crucial phase and poses the greatest challenges so far for the market's two principal regulators, Mr. Ian Hay Davison, the chief executive, and Mr. Peter Miller, two racehorse syndicates, and an interest in a Lloyd's underwriting agency. These deals were carried out, it is alleged for the personal benefit of the executives.

Other executives of a number of Lloyd's underwriting agents are said to have channelled money out of their underwriting members' funds for their personal benefit to companies which they control offshore in tax havens such as Bermuda.

Over the years, particularly since the 1970s, many underwriting agents formed offshore insurance companies in tax havens around the world. Unknown to the underwriting members whose affairs they looked after, the agents and their families controlled these companies,

Professional underwriters, acting on behalf of the underwriting membership, were actively encouraged by the agents who they worked for to trade in the course of business with the offshore companies which the agents controlled. Money belonging to the underwriting members flowed freely to these offshore companies without the membership's knowledge.

The companies, said the agents, had been established in tax havens because the Inland Revenue had taken an unsympathetic attitude to the build-up of extensive onshore reserves, which, the Revenue regarded as little more than a tax avoidance device designed to mask the true level of taxable profits. So the money was channelled out of underwriting members' funds in the form of " reinsurance premiums," which were tax-deductible, to offshore companies in tax havens, including companies owned by the agents.

Enormous amounts of money were built up offshore. The agents, through their shareholding and controlling interests in the companies, took out dividends, expenses, and made " investments " from the funds lodged with their personal companies.

4 Aug 84

Financial Times: Underwriters refuse to pay out on Minet agency

Lloyd's insurance underwriters are refusing to pay out on a £20m policy covering the business practice of the Richard Beckett Underwriting Agencies of Minet Holdings, the insurance broker.

The policy was to cover the agency company against losses due to errors by staff, unintentional omissions in the work of the agency or possible internal irregularities.

Minet has alleged that former managers of the agency, previously known as PCW, had misappropriated more than £38m of funds belonging to 1,525 underwriting members.

Underwriters, which insured the agency are resisting any claims on the grounds that full information required under the policy's terms had not been disclosed by the former managers, who had arranged the policy.

Minet has funded underwriting members with £38.17m, with the help of Alexander and Alexander Services, whose Howden companies were used by Minet's former executives to divert the underwriting members' funds.

6 Aug. 84

The Syndicate Premium Income Byelaw (No. 6 of 1984, 6 August 1984).

6 Aug 84

Financial Times: Support sought in Fidentia case

Mr Christopher Moran, the expelled Lloyd's underwriting member, is attempting to gain the support of 350 members of an insurance syndicate under the management of the Brooks and Dooley (Underwriting) Agency company in a legal action over the controversial Fidentia affair.

Mr Moran has written to the members of the insurance syndicate notifying them ha has begun civil proceedings over the Fidentia affair.

He has told them, over the weekend, that he has just issued a writ against Mr Raymond Brooks and Mr Terence Dooley, who ran the Brooks and Dooley underwriting agency company in connection with transactions carried out with the Fidentia, and a range of Bermuda insurance groups, by the two men.

Mr Moran has alleged that transactions carried out by Mr Brooks and Mr Dooley with Fidentia, a company which the two controlled, was carried out without the knowledge of the syndicate members or their permission.

Mr Moran is seeking an account of all underwriting and investment profits made in relation to transactions carried out for the syndicate with Fidentia, and payment of the share of such profits which are due to him as a member of the syndicate.

Mr Moran's legal advisers have said that other underwriting members on the syndicate have a common interest and grievance in his action against the agency. He has been advised that he should not only sue on his own behalf but on behalf of the other members of the syndicates as a representative underwriter.

Mr Moran has warned underwriting members in his letter that, should they not wish to participate in his action against the agency and a range of brokers who he is also suing, they may be joined as "defendants" in the action.

The surprise legal move poses a new challenge for the Lloyd's insurance community. It could mean that in the future, although legal actions are contained, they may be widened by action by any individual underwriter along the lines attempted to be established by Mr Moran.

Mr Moran, under the points claimed in his litigation, is alleging breach of contract and/or fiduciary duty by the syndicate's underwriters and managing agents; assistance by the brokers Bellew, Parry and Raven; assistance by the brokers Alexander Howden and Swann; assistance by the brokers, Granvill Enthoven and Co; assistance by Clarkson Puckle Marine Holdings the insurance broking group and assistance by H Clarkson Marine (Holdings), another Lloyd's broker.

He has also alleged that Mr Brooks and Mr Dooley, Brooks and Dooley Underwriting, Dugdale Underwriting, Brooksgate, Bellew, Parry and Raven, Alexander Howden and Granvill Enthoven or two or more of them fraudulently or wrongfully conspired to divert the money.

The action is being defended by those involved.

6 Aug 84

Financial Times: Lloyd's opens financial disclosure list to public

A central register revealing financial details of some of the main business units of the Lloyd's insurance market is to be open to the public from today.

The register is designed to improve standards of accountability and disclosure of financial information in the wake of a series of scandals which have rocked the Lloyd's community.

A number of Lloyd's professional underwriters and insurance brokers are alleged to have misappropriated more than £80m of funds belonging to the 18,735 underwriting members of Lloyd's who do not work in the market.

The register, showing the records of 430 insurance syndicates into which Lloyd's members are grouped, is designed to disclose full financial information about underwriting members' affairs and any possible conflicts of interests by the managers who look after their business at Lloyd's.

The register requires Lloyd's professionals to make public any interest they have in offshore or other companies, and the extent to which these companies have traded with Lloyd's insurance syndicates under their management.

The register shows that a former member of the Lloyd's ruling council, Mr Edward Nelson, had indirect shareholding links with a number of companies which traded with Lloyd's insurance syndicates under the management of an agency where he is an executive.

A disclosure report by his agency company, K F Alder, which forms part of the Bellew, Parry and Raven group of Lloyd's interests, shows Mr Nelson to have had an indirect contingent interest of 14 per cent in the Bermuda Reinsurance Company. Insurance syndicates under the management of K F Alder traded with the Bermuda Reinsurance Company.

Other companies which traded with the K F Alder syndicates are the Chester Insurance Company, where Mr Nelson held an indirect contingent interest of 35 per cent and Surplus Reinsurance Management, an investment and management company which received commissions from the Bermuda Reinsurance Company. Bermuda, in turn, underwrote reinsurance contracts for the K F Alder syndicates. Mr Nelson and/or related parties held an indirect contingent interest of 35 per cent of the equity of Surplus Reinsurance Management.

Earlier this year, Lloyd's launched a major investigation into the Bellew, Parry and Raven companies including K F Alder. Lloyd's appointed Sir Edward Singleton, a former president of the Law Society, to carry out a wide-ranging inquiry into the group and the flow of funds under the group's management to companies controlled by Mr Arthur Grattan-Bellew, Mr John Parry and Mr Frederick Raven, directors of the main agency company.

16 Aug 84

Letter from Richard Beckett Underwriting Agencies Ltd to PCW Names

As you are aware, the Offer to Names of 21st June was declared unconditional on 25th July. By that date, as you may also be aware, 89 per cent of the Names to whom it was addressed had accepted it.

Minet and Alexander & Alexander Services Inc. subsequently confirmed that they would none the less continue to receive further acceptances until 5 p.m. on 24th August.

We have since continued to receive further acceptances of the Offer and I shall let you know the final level of acceptance as soon as possible after 24th August.

I am pleased to report that, following representations made by Names and Agents during the past few weeks:-

  1. £250,000 is being made available jointly by Minet and Alexander & Alexander Services Inc. specifically for the purpose of helping resolve the difficult taxation questions which, of course, we are still pursuing on your behalf.
  2. Minet and Alexander & Alexander Services Inc., who jointly own and control Jufcrest (the company set up to pursue recoveries from those involved in the matters in question) have agreed that a wholly independent person should be appointed to attend Jufcrest's Board Meetings and to be privy to all decisions as to what recoveries should or should not be pursued. This appointment should greatly assist in:-
  1. Appraising Names fully of the progress of recoveries, and
  2. Advising Jufcrest of any representations Names may wish to make in this regard. Steps are now being taken to make such an appointment .

Minet and Alexander & Alexander Services Inc. have asked me to assure you that Jufcrest will be pursuing all realistic avenue of recovery as vigorously and swiftly as possible. The independent appointee to the Jufcrest Board will assist achieving these objectives.

18 Aug 84

Times: PCW names offered tax assistance

Minet and Alexander & Alexander Services are making £250,000 available to Lloyd's names on former PCW syndicates for professional advice to help them resolve their tax difficulties.

The 1,500 names face claims by the Inland Revenue for £15.8m back tax and interest as well as possible penalties. The Revenue believes the names' profits (premiums on quota share reinsurance) between 1970 and 1979 were understated and it wants to reopen names' tax assessments for these years.

If it succeeds, the names could stand to lose most of the benefits from the £38.17m compensation offer from Minet and Alexander & Alexander. Acceptances to the offer which closes next Friday, are still drifting in and represent over 90 per cent of names.

The offer was made to compensate names for money channelled offshore by former executives of Minet subsidiary Richard Beckett Underwriting Agencies (formerly PCW) through Alexander Howden companies (owned by Alexander & Alexander).

Minet and Alexander & Alexander have also backed up their earlier promise of appointing an independent person to the board of Jufcrest, the company they set up to pursue recoveries of names' money which is still missing. The independent person will liaise between names and the Jufcrest board.

20 Aug 84

Times: PCW names will swell tally of Lloyd's suspensions

The Council of Lloyd's meets today to suspend a hard core of "rebel" underwriting members with uncovered deficiencies as a result of the PCW affair.

The tally of 120 members, or names, who had deficiencies at the July 21 solvency deadline looks likely to be more than halved, which will be a great relief to Lloyd's. The chairman Mr Peter Miller, was facing the problem of earmarking a record £9.5m out of its total net central fund of £134m.

The exceptionally high number of members failing solvency requirements - about six times normal levels - was due to the losses incurred by PCW syndicate members. Since the deadline, PCW names have had the benefit of the £38.17m compensation offer made by Minet and Alexander & Alexander Services and many have filed solvency certificates. A total of 100 of the 120 who failed to file were PCW names, 60 of whom had accepted the offer and were waiting to receive their money.

Several of the 40, who had not accepted the offer, have now done so and filed solvency certificates.

There are, however, still a small, hard core of PCW names who have not accepted the offer and are refusing to meet solvency deadlines because of dissatisfaction both with the terms of the offer and with the attitude taken by Lloyd's. They felt the threat of the solvency deadline imposed by Lloyd's attempted to force names to accept the offer before they had had proper time to consider it.

Lloyd's will decide on the suspension of these names today and will then have to pursue them for the money to meet their liabilities. If they refuse to pay, Lloyd's will take legal action.

Minet and Alexander & Alexander's offer closes on Friday. More acceptances have drifted in since the offer went unconditional on July 24 with 89 per cent acceptances, including three more from the members of the steering committee of PCW names formed to consider the offer in June.

Of the original 14-man committee, eight are holding out for a better deal and are expected to issue writs soon. The targets are the Minet subsidiary Richard Beckett Underwriting Agencies (formerly PCW) and Alexander Howden companies (owned by Alexander & Alexander) through which the names' £39m was channelled offshore between 1970 and 1982.

26 Aug 84

Sunday Times: Lloyd's profits; now for the really bad news

GLOBAL profits in the Lloyd's of London insurance market are expected to show a sharp fall when they are announced next month, according to projections by the Association of Lloyd's Members.

Well, we have news for the association, which represents several thousand non-working names at Lloyd's. When the global figures - which consist of all the combined returns from the individual syndicates - are published this time next year, they, too, will show a sharp fall.

Lloyd's has a peculiar accounting system which adds up the figures three years in arrears, a practice which had some validity in the marine market when communications were slow but is now an anachronism in a market where some risks such as personal lines can be assessed within weeks of a year-end and others such as asbestos and pollution risks may take a lifetime to run off.

So the figures being presented next month are for 1981 and it takes a particular arrogance - of which Lloyd's still has plenty despite the spate of reinsurance scandals - to assume that it can perform differently from the company market.

In 1980, the quoted composite insurance companies lost £208m in underwriting. In 1981, as rates softened, that figure more than doubled to £452m. This trend was not bucked at Lloyd's.

But where Lloyd's has shown itself incompetent, has been in its investment of its premium flow. In 1981, the company market pushed up its overall income from £747.5m to £981.7m - wiping out all but £4m of the increased underwriting loss. Lloyd's has not done so well investing its income, however.

And when the 1982 figures are disclosed next year. they may well see their earnings fall by another 40%. For the company market's results in 1982 showed underwriting losses soaring again - this time to £853.5m and despite the skills of fund managers, the gain in investment income failed to keep pace. Pre-tax profits fell by 38%.

Lloyd's is not a company and the global figures hide a wide are range of performance. One of best syndicates in 1981 - the last year before the Lloyd's scandal - was Posgate & Denby where the return on a £l0,000 line was £2,590. The underwriter at Posgate & Denby was Ian Posgate - whose skills are now excluded from the market because of his alleged role in the Alexander Howden affair.

28 Aug 84

Meeting of the Board of Directors of Merrett Holdings PLC. Present: Merrett. Hulme, Emney, Robson. Agency with RHM Outhwaite (Underwriting Agencies) Limited. The Chairman (Merrett) reported that further investigation had revealed that very substantial losses were expected on the non-marine element of business due to asbestos-related claims. In view of the fact that Merrett Names already had a substantial exposure to asbestos-related losses through their participation on syndicate 799 and 417, it was resolved that the provisional notice be confirmed.

28 Aug 84

Financial Times: Lloyd's reforms lead to wide variation in accounting standards

The programme of reform within the Lloyd's insurance market has begun to demonstrate its strengths and weaknesses in the last few weeks as the market's working members follow new rules for accounting and disclosure procedures set out by the Lloyd's authorities.

Towards the end of last year, Lloyd's set out provisional policies and practices for the preparation of accounts for underwriting members. Because Lloyd's felt the underwriting agents had not had enough time to adopt the requirements for the underwriting account, which closed at the end of last year, it said the proposals would not be made mandatory.

This has resulted in a wide variation in the standards of accounting practices in the market.

Some underwriting agencies are providing very little information about the type of business which is being accepted for the syndicates (into which underwriting members are grouped), about reinsurance arrangements, or about profit commissions and how they are shared between agencies in the Lloyd's market.

In fact, few agencies are providing the wider membership with enough information for them to assess the underlying underwriting performance of the syndicate.

There appears to be equal variation in the standards of disclosure applied by individual underwriting agencies. At the beginning of this month, Lloyd's opened its central register, for the first time making possible public scrutiny of the report and accounts of syndicates and giving access to greater disclosure of conflicting interests within the market.

Lloyd's charges £5 for each set of syndicate accounts studied, a move designed to disclose full financial information about underwriting members' affairs and any possible conflicts of interests by the managers who look after their affairs.

The register requires Lloyd's professionals to make public any interest they may have in offshore or other companies and the extent in which these companies have traded with Lloyd's insurance syndicates under their management.

Some underwriters are providing in their accounts which say that they have no interest in related companies. Others are providing highly complex disclosure statements which in some cases, while revealing extensive interconnecting relationships with a range of companies, are providing no indication of the domicile of the companies with which their syndicates have been trading.

Moreover, most underwriting professionals are not showing what personal benefit they have derived from these networks or related companies.

Underwriting members would have to piece together all the related shareholdings to work out just how much the working underwriting are making from managing members' affairs.

Lloyd's has yet to indicate the sort of penalties it will impose on those not disclosing the required information, although its authorities plan a review of all syndicates.

In further moves to reform the market, Lloyd's has recently produced a consultative document on the underwriting agency agreement system within the community. This agreement, which all members of Lloyd's enter into, formalises the legal relationship between underwriting members and the agents who manage their affairs.

The document has been prepared by three working members of the market, two members of the staff of the Corporation of Lloyd's, and a representative of Lloyd's legal advisers.

While the consultative document recommends standardising underwriting agency agreements, which currently differ widely in terms and conditions, more contentious issues are left open for discussion.

For instance, various working parties have heard evidence that it is wrong for underwriting agents to take commissions on a profitable underwriting year if the preceding year had shown losses and the overall result to the underwriting member was a loss.

Sir Henry Fisher, in the 1980 report on self-regulation at Lloyd's, concluded that it should be mandatory for every agreement to contain a deficit clause relating underwriting agents' remuneration to the losses as well as the profits of the syndicate, which they managed.

The latest consultative document has again raised the subject of the deficit clause and has prescribed methods in which it may be implemented.

In an effort to reassure the market, it has said that given the cyclical nature of the insurance business, agents might be "moved to alter their rates and manner of charging their salaries and fees."

The implicit suggestion is that agents might be able to use this device to offset the effects of any deficit clause.

3 Sep 84

Letter SR Merrett to M Hussey of the Outhwaite Agency informing him that Merrett Names would no longer support the Outhwaite syndicates 317/661 and saying:

"As you are aware our concern has focused upon the ‘run-off contracts protection written which we believe will throw up losses for which reserves will have to be established at the closing of the 1982 account. We are concerned that should there be a further significant deterioration in this part of the account, it will mirror a deterioration in the share of the original business that was written in our own Non-Marine and Incidental Non- Marine syndicate during the 1960s and early 1970s and that the combination of your exposure and ours is too large for the Names concerned to be comfortable with."

6 Sep 84

Lloyd's Global Accounts 1983: 1981 Year of Account

Statement by Mr Peter Miller, Chairman of Lloyd's

Introduction

I am pleased to report Lloyd's Global Results for 1981, the latest closed year. You will remember that my predecessor presented Lloyd's Global Returns for 1980 in a new and improved format. This included more detailed information on the nine classes of business under which vie make our statutory returns, a five year summary of business activity, separate figures for the reinsurance to close and an analysis of the security behind a Lloyd's policy. As you will see, we have adopted much the same format this year, with one or two minor, but I hope helpful, alterations; for example, a supplement will be available containing separate figures for "UK Motor" only, since the motor figures on the statutory basis include overseas motor business.

There are three aspects of our business to which I would specifically like to draw your attention, namely profitability, level of activity and the security behind a Lloyd's policy.

Profitability

As to the first, and bearing in mind the general lack of profitability in the world-wide insurance industry, it is pleasing to be able to record a substantial profitable result for 1981 of almost £152 million. This figure needs some qualification. On the one hand, the figure would have been substantially higher, approximately £190 million and the second highest in our history, if the recovery of certain monies by one of our largest syndicate groups had been finalised in time to have been included. On the other hand, the figure includes, for the first time in many years, a pure overall underwriting loss of some £43. 5 million. We must also remember not only that Lloyd's closes each year's underwriting account two years after the end of the year, but also that our competitors all over the world are currently reporting results which are frankly ghastly - with, in some cases, overall losses even after taking into account investment income. In these circumstances I welcome the views of my market colleagues that premium rates are hardening somewhat. If we are to have a healthy, competitive, and, above all, financially secure insurance industry, then rates must increase. To take but one example from many, what other overhead faced by a shipowner will have reduced in actual money terms by one third in the last decade? - which is probably true of his hull insurance premium.

To turn to the actual figures of our results, you will see that the total year of account income for 1981 compared with 1980 increased from £4. 1 billion to £4. 9 billion, premiums increased from £1.9 billion to £2. 3 billion, while the reinsurance to close increased from £2. 1 billion to £2. 7 billion. Claims increased from £1.5 billion to £1.8 billion, while syndicate expenses as a percentage of premium income dropped from 7. 4% to just below

7%. The higher figure for reinsurance to close is a reflection of the increase in business and the continually extending time over which claims arise occasioning the need for still greater funds to be set aside to meet future claims.

Level of Activity

The level of activity, measured by calendar year income, continued to increase during 1983, from £2. 9 billion to £3. 3 billion, while the number of members

A substantial increase in rates is clearly necessary in order to restore a pure underwriting profit but, whilst the competitive atmosphere prevails, it would be realistic to anticipate that UK private car and commercial vehicle premiums will rise by approximately seven and a half to ten percent during the latter part of this year.

The recession, over-capacity, extreme competition for business and lower interest rates have had a serious impact on the UK motor market during the past three years. There was a virtual standstill on rate increases until late in 1983 when some market leaders published modest increases in private car premiums. These have since been followed by most insurers.

It is too early to predict whether the compulsory wearing of seat belts by drivers and front seat passengers will have a significant effect upon the cost of fatal and serious injury claims but preliminary statistics are encouraging. Court awards however, continue to escalate. The cost of excess of loss reinsurance protection is hardening and inflation, which is often higher in the vehicle repair industry than the retail price index might suggest, continues to take its toll. Many manufacturers and importers, while attempting to keep new car prices low, appear to balance their accounts by expensive replacement parts and repairs-a cost largely borne by the insurance industry. The LMUA have recently given evidence to the Monopolies Commission on this subject, together with the Accident Offices Association.

There has been an alarming rise in both numbers and costs of theft, vandalism and other auto-crime related incidents. Many fire and theft claims arise in dubious circumstances, requiring detailed investigation to a far greater extent than previously. Active consideration is being given to the establishment of a national theft bureau by the whole motor insurance industry. Rates for fire and theft cover, particularly when added to third party only premiums, are rising and must continue to harden, especially for risks in the conurbations and other areas affected by high unemployment, and for vehicles not kept in locked premises overnight.

Meanwhile, we are gravely concerned at the increasing contribution which insurers are having to make to the Motor Insurance Bureau to compensate victims of uninsured and untraced motorists. Penalties imposed by the Courts on those convicted of failing to effect statutory motor insurance cover are woefully inadequate, and more positive deterrents are essential. It is contrary to natural justice that the law abiding citizen should have to subsidise by higher premiums this increasing minority who flout the law. In this connection it is imperative that a greater number of convictions are obtained by the police.

Other markets in Lloyd's underwrite overseas motor business, in addition to some of the 44 motor syndicate members of the LMUA, whose main activity is the insurance of a substantial portion of the nation's cars, vehicles and motor cycles, many covered under special schemes for which Lloyd's is well known. A number of motor syndicates also participate in the important UK fleet market and there is evidence of a fragile hardening of rates by the major insurers in that sector, although some are still apparently prepared to undercut premiums to a remarkable degree. Collectively Lloyd's now writes the largest share - approximately 14% of the total UK motor premium.

In order to avoid high City rents, motor syndicates' offices are scattered over a wide area of the Home Counties. Many contain computer systems to cope with the considerable administrative burden of a legislation controlled class of business. Unlike the other markets in Lloyd's, motor syndicates are identified by a trading name, and each issues individual contracts of insurance, deals with its clients' claims and collects premiums direct from Lloyd's brokers. This includes the business supplied by the large network of provincial brokers and intermediaries whose accounts are guaranteed by Lloyd's brokers under the successful direct dealing system. The latter source of business now accounts for more than 70% of premium income. The motor market uses Lloyd's central accounting for certain types of overseas motor business only, and is not involved in the other central facilities for policy signing and issue, claims settlement and surveying. Expense ratios therefore have to be seen in a different context to the other markets.

The Notes of the Financial Facts on "Security - Financial Facts" as at 31 December 1983

1. The average deduction for brokerage and commission across all markets has been estimated at 18.7% per cent

The Global results as announced by Lloyd's to the General Public

Year of Account

 

Year of Account

1981

 

1980

£ 151,880,000

Declared post-tax profits

£ 263,821,000

The undisclosed additional expenses, being agents' profit commission

£ 66,500,000

Agents Profit Commission

£ 82,000,000

£ 85,380,000

Received by Names

£ 181,821,000

£ ?

Central Fund Earmarking

£ ?

(This excludes additional earmarkings of members unencumbered ‘Funds at Lloyd's' for Solvency Purposes.)

7 Sep 84

Financial Weekly: Right time to join Lloyd's

IF you are both rich and brave enough to want to become a member of Lloyd's, now could be the time to start preparing for it. Lloyd's chairman Peter Miller believes that the years 1982 and 1983 may well turn out to be the ‘trough' of the insurance cycle, which means that results for underwriting years 1985 and 1986 ought to be on the way up again. Throughout the first half of next year Lloyd s will be assembling and interviewing new ‘names' for the 1986 underwriting year

The Lloyd's global returns announced yesterday cover the underwriting year 1981. Unlike the composite insurance companies Lloyd's sits on its figures for three years.

For 1981 the figures were well down on 1980. The £151m profit shared among the 19,000 names gave an average profit of £8,000 per name. Some names, of course, made losses and that £8,000 figure is swollen by the vastly rich individuals who underwrite on a great many more syndicates than average

1982 and 1983 are going to be worse years than 1981. In the first year of the 1981 account 20 per cent of premium income was taken up by claims. The first year of the 1982 account saw a figure of 23 per cent and the first year or the 1983 account was 25 per cent. 1984, however, might be rather better.

9 Sep 84

Sunday Observer: Hush-hush deal for ‘Gang of Four'

ALEXANDER & Alexander, the United States owners of Lloyd's insurance broker Alexander Howden, secretly secured the help of the former directors it had accused of misappropriating $55 million in preparing for any legal action by members of Minet Holding's PCW underwriting syndicates.

Both former Howden chairman, Kenneth Grob, and ex-finance director, Alan Page, have given assistance to Alexander & Alexander since signing a secret agreement in April under which they and fellow directors Jack Carpenter and Ronald Comery were granted immunity from further A & A litigation.

Alexander Howden chairman Dick Page - who although not responsible for negotiating the deal with the four, was, nevertheless, a signatory to it - confirmed yesterday that the four had agreed to assist A & A, but stressed that their help had been of little use:

One of the conditions of the agreement was that Messrs. Grob, Comery, Page and Carpenter would co-operate with A & A to provide information which would help them unravel some of the complex web of transactions which had been initiated prior to January, 1982 (when A & A acquired Howden), explained Page.

Following the signing of the agreement, discussions took place with Mr Grob and his colleagues, but these were quickly terminated when it became clear that no relevant additional information could be forthcoming.'

At the time the deal was signed, on 13 April, A & A chairman Jack Bogardus confined his public remarks to expressing satisfaction that a settlement had been reached with the four. He made no reference to the undertakings by the former directors to assist A & A in the future.

A & A is now bracing :itself for legal action by the handful of the 1,500 members of the PCW underwriting syndicates at Lloyd's who have refused to accept the controversial £38 million compensation offer made to them jointly by insurance brokers Minet Holdings and A & A.

That £38 mil1ion represented funds channelled to private offshore companies controlled by former PCW executives, not the former Howden directors, which was paid through Howden subsidiaries in the UK in the form of quota share reinsurance. Quota shares are arrangements to reinsure a fixed proportion to a syndicate's accounts.

Very little documentary evidence of these transactions remains, which goes some way to explaining A & A's anxiety to secure the services of the former Howden executives who would have understood their workings; albeit at the cost of dropping legal action against them.

The undertakings signed by the four are far-reaching on the face of it, and involve promises to supply documentation and any other evidence, along with appearances in court if required. In return, A & A has undertaken to pay expenses to the so-called ‘Gang of Four'.

Clause 6(1), of the pact states: ‘The individual shall provide and shall continue to provide full co-operation in supplying to the A & A Companies all information (whether orally or by the provision of documents or otherwise) as the A & A Companies shall reasonably require which they possess or can procure relating to any and all matters in which any of the A & A Companies are in any way involved and shall on request provide proofs of evidence and attend as witnesses at such times and such places as the A & A Companies shall reasonably require.'

To help them in their endeavours on behalf of A & A in preparing the ground for any possible legal case, A & A promised to allow the former directors a free hand to examine any documents they wish to study relating to their period in office.

In addition, the four former Howden directors also gave A & A an undertaking to use their ‘ best endeavours' to assist A & A in recovering a number of works of art from Ian Posgate. He was a fifth former Howden executive named in A & A's writ, but not party to the 13 April agreement. A & A is continuing its action against Posgate who has begun a counter action.

The works of art involved are a painting by Redon entitled L'arbre au ciel bleu; a painting by Camille Pisarro, Route du Fort l'hermitage, a Henry Moore statue entitled ‘ Working Model of Sheep Piece'; a painting by Walter Greaves and another by Enrico Castello.

9 Sep 84

Sunday Times: Lloyd's chiefs quashed legal go-it-alone bid

Senior Lloyd's officials have headed off attempts by members to bring private prosecutions against insurers who made huge profits in the offshore reinsurance scandals it was revealed last week.

The attempts, which were made by the Committee of Lloyd's - made up of elected members - dramatically illustrate the depth of feeling in Lloyd's about the lack of prosecutions since the scandals were uncovered. Between $300m and $500m in secret profits is alleged to have been made by the offshore companies

With no sign of action by the Director of Public Prosecutions, the Committee decided earlier this year that it should pursue private prosecutions. It then sought the backing of Peter Miller, Lloyd's chairman, and Ian Hay Davison, the chief executive. Miller, Davison and Philip Brown, a former senior civil servant who is secretary of the investigating committee, persuaded the Committee to drop the proposal.

But several members, frustrated by the failure to throw the book at the alleged fraudsters still wanted to draw blood. - which renewed the pressure on Lloyd's top men.

Although Davison insists that he has not written to Senior ministers, there followed a contact with Alex Fletcher the responsible minister and Robin Leigh-Pemberton, Governor of the Bank of England seeking assurances that prosecutions would go ahead.

Miller has now received assurances from the government that it does not intend to drop criminal charges. But the dilemma facing him is that premature criminal charges could prejudice Lloyd's own disciplinary proceedings.

Any prosecutions are likely to be taken against the ‘"big fish" involved in the massive frauds. But numerous minnows were also involved - not all of them equally guilty, and some not guilty at all. If the major figures are charged then many of the minnows could find themselves suspended for up to two years until the trials are completed and not until then could their cases be heard by Lloyd's.

There is also the possibility that the prosecutions might fail. If that happens, the minor figures will have been suspended for nothing. As for the major figures Miller and his colleagues are well aware that a small hard core of fraudsters could resort to court action to stop Lloyd's disciplinary action if they face prosecution from the DPP.

And if a public prosecution should fail there is the added danger that the major figures could return to go into action again at Lloyd's.

Despite this, both Miller and Hay Davison said last week they expected swift action from the DPP in a small number of cases which, even by the tangled nature of fraud are relatively straightforward.

Why is it so difficult to prosecute white collar crime? The question is fast moving into the political arena, not least because of the current upheaval in the City where the previous rigid barriers between brokers, bankers, jobbers and fund managers are breaking down. As David Hopkinson, the boss of the M&G unit trust group, has pointed out in a public letter to the chairman of the stock exchange, Sir Nicholas Goodison, City deregulation could lead to a welter of conflicting interests damaging to the private and institutional investor.

Last week Goodison delivered his reply, stressing that those who failed to submit to an acceptable degree of voluntary regulation would create "the hurried imposition of wholly statutory regulation".

On the surface, Goodison's letter appears to be a last plea for self regulation. Many believe however that Goodison now accepts that this is a non-starter and that some form of intermediate watchdog with statutory teeth is needed. The stock exchange chairman has a sensitive political nose. He may well have sensed that the drift in Whitehall is moving steadily against clubby self regulation.

Ostensibly, Norman Tebbit and his jumbo department of trade and industry is charged with policing the City. But powerful Whitehall interests, notable the Treasury and the Bank of England, are beginning to make their presence felt. The Bank of England, through the Governor Robin Leigh-Pemberton, has come out in favour of a half way house between club rules and an American style Securities and Exchange Commission. Nigel Lawson at the Treasury has voiced similar views.

84

The Chairman of Lloyd's, Mr Peter Miller, visits Japan and Korea and campaigns for free trade. Mr Miller also issued an invitation to Japanese to become individual Members of Lloyd's. Currently, there is apparently only one Japanese Member.

12 Sep 84

Victor B Levit, managing partner of Long & Levit, delivers a paper entitled "Recent Developments in Bad Faith and Punitive Damages" to the Under 30's Lloyd's Non-Marine Claims Committee.

13 Sep 84

The original deadline for joining the ACC was 13 September 1984. However, the deadline was extended because many producers and insurers needed much more time to weigh up the pros and cons of the Facility rules (liability share and insurance coverage for producers; obligations to provide coverage and problems in finding reinsurance for insurers).

17 Sep 84

Daily Telegraph: Lloyd's report on PCW affair soon

Disciplinary reports by the Lloyd's insurance market on the £38 million misappropriated from PCW Syndicates have been accelerated and are expected to be published soon. The procedure has been helped by an investigation for Richard Beckett Underwriting Agencies, which is now administering the syndicates.

Once Lloyd's has checked and published the facts, the ground is cleared for a decision by the Director of Public Prosecutions, who already has a report on the matter from the police Fraud Squad.

The latest report was prepared by accountants Neville Russell for solicitors Clifford Turner and sets out where £17 million is though to have done among the people involved with the syndicate over the years 1968 to 1982.

The accountants undertook extensive research in Switzerland, Gibraltar, the Isle of Man and Guernsey and have listed nine individuals as having received money from a series of companies and trusts "existing, or apparently existing, for the individuals' benefit."

Peter Cameron-Webb, onetime chairman after whom the syndicate was named, is reckoned to have received £6.5 million. Peter Dixon, who succeeded him as chairman when Mr Cameron-Webb "retired" received £8 4 million, the accountants say. The two men also received loans from the overseas companies but the accountants could not calculate the total benefit.

According to the report, Barry Newman, a business associate of Mr Dixon and member of the syndicate but not involved with management, received £600.000. Likewise it is shown that Anthony Oldworth, an underwriter, received £260,000 of benefits plus a farm round his Isle of Wight house, costing £275,000.

Four other men involved with the running and management of the syndicates are said to have received £370,000 between them. John Wallrock, who was chairman of Minet Holdings, the broker which had a controlling stake in the syndicate management companies, had to resign when he was discovered to have a share in companies receiving payments from the syndicates.

But the Neville Russell report says that just before the scandal became public Mr Wallrock returned to the syndicates money paid into a Geneva-based trust he owned. A loan of £25,000 has not yet been repaid, say the accountants, but Mr Wallrock told the investigators he would pay that as well as the personal expenses he received from the trust.

According to the report the amounts received by the various individuals cannot be worked out precisely, partly because substantial payments were in cash with no record to show why or to whom the money went. Some of this might be "legitimate business expenses," the report warns.

Some of the money seems to have gone into property. Mr Cameron Webb, now thought to be an underwriter on the Miami insurance exchange, is said by the report to have withdrawn £2 million from Swiss companies to buy a house in New York.

Mr. Dixon, who has been staying in Spain but is now thought to spend much of his time in New York is said to have used £2 million of the syndicate money to buy a villa at Cap Ferrat, in the south of France, but put the property in the name of a Geneva-based company.

Much of the money went out in unrepaid loans the report says. Adrian Hardman, an underwriter for the syndicates, is stated to have withdrawn £50,000 from the Gibraltar company to repay a back-to-back loan on top of the £160,000 that came from various overseas companies.

19 Sep 84

Financial Times: Decision on Lloyd's prosecution at delicate stage. John Moore weighs up internal and external efforts to regulate the insurance market

A MOST delicate phase has been preached in the problems of the Lloyd's Insurance market.

The authorities are considering whether or not criminal prosecutions should be brought against some of the market's professionals, who are alleged to have misappropriated more than £100m of funds belonging to Lloyd's 24,438 underwriting members. At the some time, Lloyd's has launched internal disciplinary proceedings against a number of individuals in the market.

The situation represents a first test of the effectiveness of Lloyd's self-regulatory powers. More importantly, it represents a serious challenge for the authorities - in the shape of the office of the Director of Public Prosecutions - who are under pressure in the City of London to support effectively the self- regulation of Britain's financial community.

For some time, various City bodies have urged that there be tougher action in the area of commercial and financial fraud.

The Council for the Securities Industry, representing City interests, told the Department of Trade and Industry two years ago that anyone who commits an elaborate fraud knows "that he will probably not be prosecuted and that, if he is prosecuted, it will take years to formulate charges and he will probably escape the main charges."

The council added: "There is little point in improving the finer points of conduct if gross fraud goes unpunished."

The council was responding to the Department on plans to improve the mechanisms for the protection of investors in the City. Since the council made those observations, the scandals in Lloyd's have emerged, presenting the City with its worst troubles for years.

At present, Treasury counsel are poring over reports from the City of London Police Fraud Squad, the Department and Lloyd's. These detail facts established during two main inquiries into the affairs of Alexander Howden and Minet Holdings, two leading insurance brokers.

In the HOWDEN affair, it is alleged that five former executives misappropriated $55m from the group's insurance syndicates at Lloyd's and its other insurance interests for the personal benefit of the former executives.

In the MINET case, it is alleged that former executives siphoned more than £38m of funds out of Lloyd's syndicates under their management to companies secretly controlled by the executives.

The Director of Public Prosecutions will decide whether prosecutions should be made under criminal legislation against those involved.

In one case involving allegations that two underwriting agents at Lloyd's had secretly diverted more than £6m of Lloyd's members funds to the Fidentia Marine Insurance Company in Bermuda, which they both controlled - the director has decided that no further action will be taken.

The director moves slowly in bringing criminal proceedings in the commercial world.

Fraud is difficult to prove. Smart defence lawyers often succeed in demonstrating that there is an accepted commercial purpose, rather than a fraudulent one, in the contracts entered into by the accused.

Moreover, defendants often plead custom and practice of the market place in which they have operated. This tends to undermine the prosecution's case.

Fraud cases are often long, complex and expensive.

In the case of Lloyd's there are other pressures et work. Lloyd's is anxious to demonstrate to a critical world that it can function as a self-regulatory body. It is attempting to go through its disciplinary proceedings in order to expel from the market those pointed to by the allegations.

This Internal procedure is long and ponderous for the innocent or the guilty. Each case is argued in quasi-judicial fashion. Outside challenges to the courts by those subjected to the procedure have often delayed the process and Lloyd's own awareness of the importance of natural justice also lengthens proceedings.

While this is taking place, Lloyd's has no desire for the public authorities to intervene and bring prosecutions. Once that had happened, argues Lloyd's, natural justice would require that the disciplinary proceedings await the outcome of the trial.

The Fraud Squad, which is still investigating, has faced difficulty in finding underwriters at Lloyd's prepared to act as expert witnesses for the prosecution if charges were brought in the Minet affair.

The arguments of expert witnesses from the Lloyd's community were demolished by defending counsel in the Christopher Moran fraud trial three years ago, when the witnesses could not agree on the commercial viability of insurance contracts arranged by Mr Moran who was acquitted. Lloyd s has not forgotten the experience.

Moreover underwriters within Lloyd's fear that custom and practice of the market may be used as more aggressive defence in any future case. Many underwriters have been revealed, in the latest disclosure reforms to have links with offshore interests and various business interests outside Lloyd's.

Would Lloyd s practices stand scrutiny at a public trial if counter allegations were made that other Lloyd's underwriters were engaged in similar practices?

Lloyds officials argue that it would. The market is being cleaned up and abuses are being stamped out they say. One dramatic prosecution would show the rest of the market that Lloyds with its new management means business.

Yet no public trial may ever take place. A number of those indicated by the allegations are living and working abroad. It could take years to mount extradition proceedings to bring them to trial in Britain.

21 Sep 84

Financial Times: Two Lloyd's underwriters sue Beckett agency

Two Lloyd's underwriting members whose affairs are managed by the Richard Beckett underwriting agency company, part of Minet Holdings, have sued the agency and claim damages for alleged fraud and deceit of two of the agency's former executives.

A High Court writ has been issued and served this week by Mr. Anthony John South, an insurance broker with Willis Faber, and Mr. William Keith Topley, the two underwriting members, against Richard Beckett Underwriting Agencies.

The two claim:

  • Damages for alleged fraud and deceit.
  • Damages for conversion.
  • Damages for alleged fraud tract and/or negligence.
  • Damages for breach of contract and/or negligence.
  • An indemnity for any liabilities to the Inland Revenue for arrears of tax, interest or penalties which may have fallen due.
  • An account of all the alleged misappropriate monies and secret profits and payment of all sums.
  • A declaration that PCW, the former name of the Richard Beckett agency, is the constructive trustee of all the alleged misappropriated money and secret profits.
  • Compound interest:
  • An account of all the remuneration paid by each of the plaintiffs to PCW during the period in which the alleged fraud and misappropriations and breaches of duty took place, and payment of all sums due.

The action is to be defended by the Richard Beckett agency.

The two underwriting members are two of the 23 members who did not accept a £38.17m compensation offer to the 1,500 or so members by Minet Holdings.

Minet with its underwriting agency has alleged in its own legal action that Mr. Peter Dixon and Mr. Peter Cameron-Webb, former managers of the agency, between 1968 and 1982, systematically and fraudulently misappropriated funds from the underwriting members.

More than £38m is alleged to have gone missing.

Minet's compensation offer was accepted by all but a few of the underwriting members. In return for the compensation deal, underwriting members were required to waive their legal rights for further action against Minet and a number of other parties.

The Inland Revenue has warned that there is a tax liability of £16m due on the missing funds, and this could rise. This amount will have to be met by the underwriting members.

Some underwriting members have been holding back from accepting the offer in the hope of obtaining a better deal.

21 Sep 84

The Times: Two names issue writ over PCW

Two Lloyd's underwriting names on PCW syndicates have issued a writ against Richard Beckett Underwriting Agencies (formerly PCW ) claiming unspecified damages on four allegations of fraud, deceit, breach of fiduciary duty and negligence, and on five other matters.

The writ refers to the activities of former executives of Richard Beckett, particularly Mr. Peter Cameron-Webb and Mr. Peter Dixon, who are alleged, by the present management of Richard Beckett, to have misappropriated £38.9m of names money between 1970 and 1980.

The Lloyd's names who are suing - Mr. Anthony South and Mr. William Topley - are levelling these same allegations against the present management of Richard Beckett.

Richard Beckett. through its parent, Minet Holding, and the US insurance broker Alexander & Alexander Services, made a £38.17m compensation offer to the 1,534 PCW names last June.

Only 23 names failed to accept the offer by the August , 24 closing date.

21 Sep 84

Lloyd's List:

Members of Lloyd s have nominated eight working names and 17 outside names for elections in November to fill the four places in each category that became vacant on the governing Council of Lloyd's.

Four working members retire by rotation Mr. Brian Brennan, Mr. Gordon Hutton, Mr. Stephen Merrett and Mr. Ian Posgate, who bas been suspended from the council since March 1983, during disciplinary investigations

The retiring external members, Mr. Colin Baillieu, Mr. Christopher Davidge, Mr. Robert Elborne, and Mr. Denis Fredjohn, have offered themselves for re-election under special provision covering this year only.

Working names standing for the council are Mr. Richard Ballantyne, Mr. Stephen Cox, Mr. Peter Daniels, Mr. Henry Dobinson, Mr. John Donner, Mr. Alan Jackson, Mr. Alan Parry and Mr. Adrian Platt.

Other external names on the ballot are Mr. John Andrews, Mr. Julian Byng, Mr. Thomas Carter, Mr. Fred Gales; Mr. Phil Gallagher, Mr. Derek Hannaford, Mr. Ian Henderson, Mr. David Lawman, Mr. John Ling, Mr. Patrick Lowe, Mr. Stephen Matthews, Mr. Nick Parker and Mr. Leonard Ross-Gower.

Mr. Edward Walker-Arnott, one of the outside names appointed by the Governor of the Bank of England, also retires by rotation.

30 Sep 84

Sunday Telegraph: Lloyd's in the firing line. Havers hits out at City fraud

SIR MICHAEL HAVERS, the Attorney General, has warned the City, and in particular Lloyd's of London, that the present level of fraud has reached an intolerable height.

In a private letter to Conservative backbencher Ian Grist, which both he and Sir Michael have agreed may be published in The Sunday Telegraph, the Attorney General says: " I find the present level of City fraud quite unacceptable as well as being very damaging to many honest City firms."

Mr Grist wrote to the Attorney General following an article in these City pages on September 2 (entitled " Lloyd's chief hits at DPP "). Sir Michael has responded by stating: "There is nothing more distressing for the reputation of British justice than the sophisticated white collar criminal who escapes prosecution for frauds involving huge amounts of money."

In our article we expressed worries that the Director of Public Prosecutions, Sir Thomas Hetherington, was not pursuing alleged frauds at Lloyd's as vigorously as might be expected. But Sir Michael is at pains to exonerate the Director from suggestions that he is reluctant to pursue these highly complex cases.

Hetherington did decide not to institute a police inquiry into the alleged siphoning of £6 million out of insurance syndicates by underwriters Raymond Brooks and Terence Dooley.

Sir Michael explains: "Reference is made in the article to three cases involving allegations of secret profits made by directors who are said to have funnelled moneys from syndicates into their own private companies.

"It is true to say, as the report indicated, that the director has decided not to call for a police enquiry in one of the cases, namely Brooks and Dooley. He took this decision only after very long and careful thought, and having had the benefit of reading the report prepared by the inspectors for Lloyd's. He was satisfied that there was no reasonable prospect of a police enquiry reaching a stage in which a criminal case could be mounted successfully.

"However, let me reassure you at once that different considerations apply to the other two cases mentioned in the Sunday Telegraph article, and in no way has the Director's decision in the Brooks and Dooley case prejudged his decision in the other two."

Havers insists that the Director is still looking into the two other cases, Howden and PCW. In the fist case, four former directors of the Alexander Howden insurance broking group are alleged to be involved in £42 million of misappropriations. Hetherington is making his own inquiries.

"Similarly, in the case which involves allegations involving the PCW syndicate, the Director, after considering the Inspector's report, brought in the City of London Police in March 1984. In that case police enquiries are still continuing.

The allegations include offences of conspiracy to defraud, false accounting and thefts of moneys belonging to the Names. These are all offences which the Director considers can well be comprehended by a jury in the event of proceedings."

In the PCW affair, former underwriters Peter Cameron-Webb and Peter Dixon have been named over the removal of more than £70 million from syndicates.

Our difficulty, according to Havers, is obtaining from abroad evidence which is admissible in this country. "The Director is in the process of seeking to obtain evidence from Switzerland, Liechtenstein and other countries."

"I can assure you that both the Director and I are anxious that large scale fraud should not go undetected or unprosecuted."

The City and the public at large will watch keenly to see how soon these brave words are translated into action, so that it can truly be said that "white collar crime doesn't pay." Just now, it still seems to.

0 Oct 84

Ernst & Whinney INSIGHT No 25. Insurance Technical Section.

(Ernst & Whinney's Insight stated that the latest estimate from Lloyd's is that asbestosis is likely to cost the market £1-5 billion - this figure should be regarded as a minimum).

The Insurance Technical Section aims to provide the best service possible for all partners and staff with insurance-related clients. However, given the small resources available to the section

(2 professional staff and one administrator), its time needs to be managed very carefully to ensure that priority tasks are executed on a timely basis. Can we therefore ask for all readers of INSIGHT to assist us by co-operating over the following matters:

(a) Requests for documentation and modules should be directed in every case to ...

(c) Technical queries which are not urgent ... should be submitted in writing....

Agent Orange deal. A $180 million settlement by chemical companies for Vietnam war veterans exposed to Agent Orange has been approved in US Courts. All the major London Market

companies and Lloyd's wrote products liability cover for the companies involved.

Environmental considerations: ...

Asbestosis. The latest estimate from Lloyd's is that Asbestosis is likely to cost the Market £1.5 billion. As no fixed basis of settlement has yet been agreed, this figure should be regarded as a minimum....

Lloyd's global result. The 1981 account, closed at 31 December 1983, produced a profit down from £264 million to £152 million. However, these figures hide an underwriting loss of £43.5 million, the first for 14 years. The Chairman, Mr Peter Miller, has predicted that the next two years will be difficult as well. As was likely, the heaviest losses occurred in the general liability market, particularly industrial diseases. Even after investment income and depreciation the loss in this area amounted to £108.6 million. The amount of the reinsurance to close was disclosed for the first time for the 1981 account at £2.7 billion. The 1980 comparative was also disclosed at £2.1 billion, an increase of nearly 29%.

Intelligence:

(b) The first edition of a new publication called Reinsurance Market Report, published by Risk Research Group Limited. Copies are available.... As the firm is subscribing to this publication ...

(c) the insurance technical section receives the following magazines and periodicals: Post Magazine - weekly; Insurance Week - weekly; Marine and Aviation Report - fortnightly; World Insurance Report - fortnightly. Copies of all material referred to in this newsletter may be obtained from Danielle More, Room 411, Beckett House (extension 3466). The present members of the Insurance Technical Section are John Philpot and Raphael Harris.

1 Oct 84

Reinsurance: Prosecutions called for

THE Lloyd's authorities want to see criminal prosecutions of those underwriters and brokers who diverted funds from Lloyd's syndicates to their own interests by means of offshore reinsurance companies.

But Lloyd's chief executive Mr Ian Hay Davison has strongly denied he wrote to the Prime Minister and other leading ministers protesting "against the failure to bring criminal actions against insurers who made secret profits in offshore reinsurance companies."

However the UK's Department of Public Prosecutions believe it will be difficult to secure convictions while there are fears that any court action will further damage the reputation of the Lloyd's market.

Most of those involved in the alleged misappropriation of funds are now outside the UK and the UK authorities may find it difficult to extradite them if they do not decide to return of their own free wig to answer charges.

Mr J Arthur Toro, Jr, president of the Insurance Exchange of the Americas is believed to have discussed the position of former Lloyd's underwriter Mr Peter Cameron-Webb during a recent private meeting in London with Mr Ian Hay Davison.

Mr Cameron-Webb resigned from Lloyd's when the authorities investigated his alleged involvement in irregular reinsurance for the PCW and WMD syndicates.

In 1983 he joined a member find of the Insurance Exchange of the Americas. But should the Exchange move to expel him for alleged past misdeeds it could face a major lawsuit.

Mr Toro explained the position to Reinsurance "We are aware Mr Cameron-Webb is a controversial figure but I have found no evidence to call for action on our part. Our US Counsel advises us he has every right to his position in the exchange."

It is understood that Mr Toro consulted various UK sources but found nothing to indicate proceedings are called for.

1 Oct 84

Daily Telegraph: ‘Very damaging' fraud levels

THE LEVEL of City fraud is quite unacceptable and the Director of Public Prosecutions is looking into various cases according to Sir Michael Havers, Attorney General.

In a private letter Sir Michael says he and the director are anxious that fraud should not go undetected or unprosecuted, and that the present level is very damaging to many honest City firms.

Sir Michael. commenting on the decision of the DPP not to institute a police inquiry into the alleged siphoning of £6 million out of insurance syndicates by underwriters Raymond Brooks and Terence Dooley says evidence has being sought from abroad in certain cases and that the authorities are not reluctant to pursue highly complex issues.

2 Oct 84

Financial Times: Lloyd's backs action on fraud

MR IAN HAY DAVISON, chief executive of the Lloyd's insurance markets, said yesterday that it, "would be helpful if the authorities took action" over alleged fraud within the Lloyd's community.

Mr Davison, Interviewed on BBC's World at One, said that Lloyd's has made representatives to the authorities over the matter in the last year and had approached the Bank of England, the Department of Trade and Industry and the Director of Public Prosecutions.

He said that Lloyd's had co-operated with the authorities, which had been given copies of Lloyd's own internal reports.

"When the actions go further than the breaches of Lloyd's rules," he said, "and involve crime we think it right that there should be proceedings taken and of course it indicates to the world at large that the authorities are behind us at Lloyd's seeing that these matters are cleared up and put straight."

Mr Davison was speaking, following the publication of a letter by Sir Michael Havers, the Attorney General, to Mr Ian Grist Conservative MP for Cardiff Central.

Sir Michael had said: "I find the present extent of City fraud quite unacceptable as well as being very damaging to the many honest firms."

Sir Michael had said in his letter that the Director of Public Prosecutions had decided not to call for a police inquiry into allegations that two underwriting agents at Lloyd's - Mr Raymond Brooks and Mr Terence Dooley - had siphoned off more than £6m to a Bermuda-based reinsurance company which they both controlled from Lloyd's underwriting members funds which they managed.

The director had decided that there was no reasonable prospect of a police inquiry reaching a stage at which a criminal case could be mounted successfully.

But, Sir Michael said, the Brooks and Dooley case had in no way prejudged the director's decision over the case of Alexander Howden and a Minet's PCW underwriting agency at Lloyd's.

The director was still making inquires on the Howden affair, where former executives are alleged to have misappropriated $55m from Lloyd's insurance syndicate and Howden insurance interests.

In the case of the PCW agency, where more than £38m is alleged to have been misappropriated by former Lloyd's professionals, police inquiries are still continuing.

In the PCW affair, the allegations include offences of conspiracy to defraud, false accounting and thefts of moneys belonging to underwriting members.

"These are all offences," said ‘Sir Michael, "which the director considers can well be comprehended by a jury in the event of proceedings."

But fears are growing among the authorities about the extent of some of the practices within the Lloyd's market.

In Lloyd's own internal report into the Brooks and Dooley affair published last year, the investigators observed: "we doubt whether until the last few months more than a handful of those in the Lloyd's market have appreciated that there is anything remotely wrong in an active underwriter effecting reinsurance of his syndicates with a reinsurance company in which he or those who employed him had an interest."

The Lloyd's investigators concluded that if Mr Brooks and Mr Dooley were to be penalised they would have been penalised for "doing something which we believe for most of the period under investigation would not have been regarded as any kind of misconduct by most of the working members of Lloyd's."

The authorities are worried about the implications of the Brooks and Dooley affair for other Lloyd's cases which are being reviewed.

2 Oct 84

Lloyd's List: Space salvage go-ahead

INSURERS in London and the United States have now agreed that astronauts on board the space shuttle next month should make the fist attempt to retrieve two expensive misplaced communication satellites.

The National Aeronautics and Space Administration said it had signed an agreement for the rescue of the Westar Vl with the Lloyd's underwriting agency Merrett Syndicates representing underwriters backing the attempt.

NASA had already reached a similar agreement with insurers over the retrieval of an Indonesian satellite Palapa B-2.

NASA will charge underwriters a maximum of $5.5 million (£4.5m) for its costs in preparing and carrying out the rescue of the two satellites as compared to $4.8m which it quoted for the Indonesian satellite alone.

Both Palapa B-2 and Western Union's Westar Vl were launched from the space shuttle in February, but because of a malfunction in their booster motors they went into useless low earth orbits.

4 Oct 84

Lloyd's List: Nelson settles out of court

There has been an out of court settlement of the legal action by Mr Ted Nelson - the leading non-marine underwriter in 1981 - on behalf of Lloyd's syndicates against insurance companies Sentry (UK) and Hanseco (UK) over reinsurance of business from Canada .

Terms of the settlement are being kept confidential but it also includes the broker of the business, Robert Bradford Hobbs Savill which was named as an additional or alternative defendant.

Lawyers acting for Sentry and Hanseco had subpoenaed former Lloyd's deputy chairman Mr Brian Brennan to testify in the action involving business from the collapsed Canadian company Strathcona General Insurance and to bring various documents with him.

Lloyd's applied to have the subpoena set aside, it confirmed, but before the application could be heard, the case - originally due to start this week - was settled.

Also covered in the settlement is the legal action over business which came from another Canadian company, Commonwealth Insurance of Vancouver, due to be heard this week.

All three defendants had denied the claims against them and filed counter-claims.

8 Oct 84

The Syndicate Accounting Byelaw (No. 7 of 1984, 8 October 1984). Syndicate accounts did not fully come into line until the accounts as at 31 December 1989, closed in mid 1990.

The Byelaw was published on 8.10.84 and came into force on 1 January 1985 subject to the following transitional provision:-

"18. (b) Paragraph 7(a) above (requirement to give true and fair view) shall not apply to any annual report or personal account made up to a date earlier than 1st January 1985, and accordingly the syndicate auditor's report on any annual report or personal account made up to a date earlier than that date shall not be required to state whether in the opinion of the syndicate auditor a true and fair view is given of the matters referred to in paragraph 11 (c)(i) or (as the case may be) 11 (c)(ii) of this Byelaw".

Sir Patrick Neill stated under paragraph 5.13 of his 1986 Report "We are firmly of the opinion that the syndicate accounting requirements at Lloyd's have been greatly improved since 1983. The degree of concern about the past has, however, prompted us to look with some care at a number of issues associated with the preparation of information for Names and its presentation to them with a view to seeing whether further significant changes are needed. The issues are

(i) Accounting for investment return;

(ii) The scope of the true and fair view;

(iii) The possibility of using the date of inception of risks as the basis for attributing business to accounting periods;

(iv) The explanation and verification of reinsurance to close;

(v) "Pure Year" Accounting;

(vi) The Underwriter's Report: the description of syndicate business given to Names and the degree of disclosure about reinsurance arrangements; and

(vii) Information about future business prospects

The Neill Report states that:-

(i) The investment management of Names' funds one of the three aspects of the Lloyd's market specifically excluded from the scope of the Financial Services Act by virtue of the exemption in Section 42 (which we describe in paragraph 2.13). We comment in Chapter 10 on the monitoring of those funds which are held on trust on behalf of Names and we describe there the limitations on agents' discretion in making investments. Our concern here is with the information available to Names in order to assist them in assessing the performance of agents as investment managers. The submission made to us by the Association of Lloyd's Members suggested that accounts should be required to give fuller information about the calendar year return achieved on syndicates' investments attributed to the relevant underwriting years. Although the Syndicate Accounting Byelaw requires disclosure of basis on which investment returns are calculated and apportioned between years, the Association's proposal for more detailed mandatory reporting appears to merit careful consideration. We think that Names are entitled to be able to form a Judgement about the competence with which funds are being invested on their behalf and to make comparisons of that aspect of agents' varying performance. This is all the more important because investment returns have been in recent years a significant element of Names' profits. We recommend that Lloyd's introduce rules to ensure that agents make the necessary "Accounting for Investment returns" information available in the annual report;

(ii) Lloyd's operate on the basis of a three year accounting system under which each calendar year of account is normally left open for a further two years and the profit or loss determined at the end of the three year period. The justification for this procedure is that it is not practicable within a shorter timescale to estimate accurately the total outstanding claims in respect of risks signed in the year of account and, therefore, to determine the outcome of the underwriting. In consequence of the inbuilt delay in measuring outstanding liabilities the Syndicate Accounting Byelaw limits the scope of the true and fair requirement to the profit or loss of years of account which have been closed. Thus there is no requirement for the auditors to express a true and fair view about open years, nor about syndicate balance sheets since the latter do not incorporate provisions for outstanding claims in respect of the open years. On one level this limitation raises the question of whether Lloyd's are right to retain a three year accounting regime. It has been argued very strongly in evidence to us that they are right to do so, given the nature of the business and the difficulty of making a fair and accurate determination of the profits for distribution to Names at an earlier stage. We are not in a position to challenge that view. We have felt able, however, to address the narrower question of the presentation of information about open years of account. Some open years are prepared for the purpose of the annual solvency test and are audited in the context of establishing minimum solvency cover in line with the instructions for the guidance of Lloyd's auditors as approved by the Secretary of State under the Insurance Companies Act 1982. The general view we have heard from market professionals is that this information is not sufficiently precise to be capable of being audited to a true and fair standard in the syndicate accounts. Nevertheless, we doubt whether the drafting of the Syndicate Accounting Byelaw and the accompanying explanatory notes goes far enough to ensure that Names receive a reasonable assessment of outstanding liabilities before the account is closed. It is a requirement of the Byelaw that the Underwriter's report should contain a review of each open year of account (paragraph 10 and Schedule 8, paragraph (c)), but paragraph 79 of the explanatory notes refers only to the possibility that it may include comments as to the expected outcome. We think that all accounts should contain a commentary on the open years, quantifying so far as possible the anticipated out-turn particularly where a loss is anticipated. We recommend that Lloyd's implement this proposal;

(iii) The basis on which syndicates currently ascribe the risks underwritten to particular years of account has been criticised in evidence to us. At present risks are usually attributed to years of account, and hence to Names, by reference to the date on which the policy is signed in the Lloyd's Policy Signing Office at the instigation of the relevant broker, rather than the date on which the cover begins to run (the inception date). The former may be a considerable time after the inception date of the risk. The latter basis would remove the considerable freedom which underwriters and brokers currently enjoy in deciding which year of account receives the business. Its introduction would, however, involve major changes in the day to day operation of the market. Our own view is that in principle the precision that would result from inception date accounting makes its adoption highly desirable. We recommend that the Accounting and Auditing Standards Committee carries forward the preliminary work that has already been done by the Corporation staff and seek ways to introduce "Inception Date Accounting" (IDA) as soon as it is feasible to do so;

(iv) Whatever accounting basis is used there will remain the difficulty of calculating what provision for outstanding claims is necessary when the underwriting account is finally closed. The provision is created by means of reinsurance premium normally paid to the following underwriting year of account of the same syndicate. The premium is intended to cover the total known and estimated outstanding claims in respect of risks attributable to the year of account and risks arising in previous years of account carried forward by any earlier reinsurance to close premiums. Our prime concern in this area has been two matters raised in the written evidence submitted to the inquiry. One is the inadequate warning given to new Names that they will almost invariably inherit risks from previous underwriting years via the reinsurance to close. The other is the adequacy of the safeguards to ensure that the calculation of the amount of reinsurance to close is equitable as between the Names of one year and the next. There is a risk that the provisions may be distorted so as to favour the Names on the syndicate in one particular year of account. As far as the absence of adequate warning is concerned we have drawn attention in Chapter four to the need for improvement in the introductory information given to prospective Names. Reinsurance to close is one of the areas where greater clarity is provided in the draft brochure referred to in paragraph 4.16. We also referred to the consideration being given by Lloyd's to a code of practice for members' agents on the guidance to be given to new Names. These are, in our opinion, the correct responses to this particular problem.

(v) As the Syndicate Accounting Byelaw is currently drafted, the underwriting result of the closed year of account does not have to distinguish the "pure" result of that year taken on its own from the result of prior years carried forward, via reinsurance to close. It is perfectly possible, therefore, for an adverse underwriting result on the closed year of account to be disguised by a reduction in the amount of prior years' reinsurance to close carried forward, or for a profit on the closed year to be masked by an increased provision in respect of earlier years. Pure year figures would be of assistance both to new and existing Names and their advisers in making decisions about syndicate membership. At present the guidance on the matter contained in paragraph 78 of the explanatory notes to the Syndicate Accounting Byelaw merely gives the underwriter a wide discretion as to whether and in what terms he comments on the performance of the reinsurance to close received by the closed year of account According to Professor Macve's book to which we referred in paragraph 5.5, the Lloyd's Provisional Accounting Manual" recommended for the 1983 accounts that that part of the "technical" (i.e. underwriting) result of the closed year attributable to profits or losses relating to prior years reinsured into it should be disclosed in the notes, if material, but following "Market Opposition" , this is not now a requirement. Professor Macve went on to express the opinion that as "information is rarely provided in other ways ... it is regrettable that this recommended disclosure has not been incorporated into the requirements of the Syndicate Accounting Byelaw for the 1984 and subsequent years of account (page 110). We recommend that the Byelaw and explanatory notes should be amended to ensure the presentation of clear quantitative information on a pure year basis. In principle we believe that the accounts should not only show the pure result of the year just closed, but should also provide an analysis of each of a number of past years. The appropriate number of years in each case would be dependent on the nature of the business being underwritten. The Accounting and Auditing Standards Committee should consider how it might be amended to achieve this result. We have noted, in passing, one oddity about the regulation of premium income limits which has not been satisfactorily explained to us, namely, that where, unusually, the relevant reinsurance to close premiums are paid to a different syndicate, Lloyd's requires them to be counted against that syndicate's premium income limit; whereas they are not so counted when they are carried forward between years of account of the same syndicate; (vi) The discretion left to the underwriter (in paragraphs 76 and 77 of the explanatory notes) as to the level of detail in his report has also been the subject of criticism in evidence to us in relation to the disclosure of the syndicate's business and reinsurance arrangements. From the various reports that we have seen it is clear that practice varies widely across the market. As far as the syndicate's business is concerned, we can see no good reason why there should not be a formal requirement to quantify the business underwritten according to the various categories commonly used in the market so that Names have a more precise indication of the type of risks that they have been underwriting. We recommend accordingly. The disclosure of reinsurance arrangements raises rather more difficult questions. Leaving aside past abuses of reinsurance transactions between related parties, some submissions have raised separately the question whether paragraph 77 of the explanatory notes to the Syndicate Accounting Byelaw allows underwriters too wide a discretion not to disclose reinsurance arrangements on the grounds that to do so would be commercially damaging. The suggestion has been made to us that syndicates should be required to make disclosures similar to those made by insurance companies in their annual returns to the Department of Trade and Industry. The latter have their origin in a growing recognition of the importance of reinsurance recoveries to solvency rather than a desire to enhance investor protection. There are two main elements to the disclosures by insurance companies: a summary of the type of reinsurance protection for each accounting class of business and the identification of major treaty reinsurers, specifying any which are connected with the ceding company. While a detailed review of the arrangements for disclosure lies outside the scope of this Inquiry, it seems to us that the Council should consider whether a requirement could be introduced for managing agents to disclose the amount of reinsurance premiums paid for each syndicate by reference to categories of reinsurer, for example, the premiums paid to other Lloyd's syndicates, to companies authorised in the United Kingdom and to companies authorised within other jurisdictions. We so recommend. While we recognise the difficulties of assessing the solvency of reinsurers, we think that Names should, so far as possible, be in a position to satisfy themselves about the adequacy of the reinsurance arrangements made on their behalf. One way forward would be to require all managing agents to have available on request by Names a written statement explaining the basis on which reinsurance cover is arranged and how the security of the reinsurers is assessed. We recommend that this matter should be given further consideration.

(vii) The Syndicate Accounting Byelaw (paragraph 10 and Schedule 8) contains a requirement for the underwriter's report to include: "(e) an outline of likely future developments including comments in general terms on any proposed or material changes in:-

(i) the business to be underwritten for the Members of the syndicate; and

(ii) the reinsurance protection effected for the Members of the syndicate". Such reporting is highly desirable, though its usefulness to Names depends on some degree of quantification of the underwriter's plans and on the timeliness of the publication of the annual report in relation to decisions about syndicate membership. We have been told that the Accounting and Auditing Standards Committee is currently considering the nature of the financial information to be provided to prospective Names. We recommend that in that context and in the light of their continuing review of compliance with the provisions of the Byelaw (see paragraph 10.7 of this report which states "Lloyd's have also undertaken a major review of agents' compliance with the provisions of the Syndicate Accounting Byelaw (No. 7 of 1984). The Accounting and Auditing Standards Committee examined all the accounts for the year to 31 December 1985, identifying shortcomings and action necessary to improve compliance with the Byelaw in subsequent years. This followed a review of the 1984 accounts at a time when, under transitional arrangements, compliance with the Byelaw was not mandatory. The independent analysis of the 1984 accounts by Professor Richard Macve to which we referred in paragraph 5.5 is also relevant in this connection), the Committee should consider the desirability of further guidance to managing agents and underwriters on the preparation of a statement for Names about the types of risk intended to be underwritten in the following accounting year together with their assessment of business prospects. We think that they should also consider whether annual reports are produced sufficiently early in the year to enable Names to make considered decisions about their underwriting commitments for the following year". In conclusion Neill stated "Names rely heavily on the information which is now available as a result of the Syndicate Accounting Byelaw in making their decision about joining and renewing (on an annual basis) their membership of syndicates. We are satisfied that the information about past performance, if prepared in accordance with the Byelaw requirements, does in general provide Names with a sound basis on which to make informed decisions about their syndicates. Nevertheless, there is room for improvement along the lines we have indicated" (Neill was not made aware that the Committee did not involve themselves in the "Commercial Aspects of the Market" and that it was up to the managing agents to comply with the Byelaws. The accounts speak for themselves. In instances, disclosures which should have been made in the 1982 (the 1980 year of account) and subsequent accounts were not disclosed until mid 1990 in` the accounts made up to 31 December 1989).

Schedule 3 to the byelaw states:

"the amount charged by way of premium in respect of reinsurance to close shall, where the reinsuring members and the reinsured members are members of the same syndicate for different years of account, be equitable as between them, having regard to the nature and amount of liabilities reinsured".

However, the longer the ‘tail' of the book of business written, the smaller the proportion of the final results of a years underwriting which will be known by the end of the third year, when years of account are normally closed at Lloyd's; the level of judgement involved in calculating the RITC therefore becomes much greater. When there is immaterial inherent uncertainty relating to the calculation of the RITC premium, which may lead to inequity between Names, the managing agent may determine that it is appropriate to leave the account open. The mere existence of a loss, albeit a substantial loss, is not of itself reason for leaving a year of account open. The premium for the RITC is the most significant item in the syndicate accounts in that it is the consideration for passing the outstanding liabilities, including incurred but not reported claims (IBNR), to the Names on the next succeeding year of account of the syndicate. Clearly, any RITC must be equitable to both generations of Names. (Names always assumed this was the case, as membership of Lloyd's was on the principle of utmost good faith).

Schedule 4 of the Byelaw requires a managing agent managing two or more syndicates underwriting business principally in the same market to include in every annual report of any such syndicate specified information with regard to every such syndicate (paragraph 4.2). The same Schedule also requires the addition of a note to the underwriting accounts explaining the details of the apportionment of expenses between members of the syndicate, members of other syndicates and the managing agent (paragraph 1.8). Schedule 7 (sub-paragraph j) makes it mandatory for an agent managing another syndicate in the same market to disclose in his report the basis on which insurance business is allocated

Maximum Premium Income Limits increased from £450,000 to £600,000 (33%) for the 1985 year of account.

8 Oct 84

Underwriting Agents (Interim Provisions) Byelaw (No. 8 of 1984, 8 October 1984). 9

8 Oct 84

The Financial Times: Calculating the cost of asbestos claims

(An article in the Financial Times stated that asbestosis and other asbestos-related injuries in the US have already turned out to be the largest natural disaster to hit world insurance and reinsurance markets. It is estimated that there are more than 30,000 individual claims at various stages of processing and about 500 claims are being made per month. The insurance industries are still not able to quantify the ultimate cost of asbestos-related claims - estimates range from £8bn to as much as £50bn).

Asbestosis and other asbestos related injuries in the US have already turned out to be the largest natural disaster to hit world insurance and reinsurance markets. It is estimated that there are more than 30,000 individual claims at various stages of processing and about 500 claims are being made per month. The insurance industries are still not able to quantify the ultimate cost of asbestos related claims. Estimates range from £8bn to as much as $50bn.... Drastic situations require imaginative solutions and the insurers involved hope the proposed Asbestos Claims Facility will go some way to solve the claims handling problems .... The prime motivations for creating the facility were the need to find a satisfactory means of solving the various coverage issues and a need to develop a reasonable and practical method of handling meritorious claims at a reasonable cost.

Oct 84

Ian H Davison, Chief Executive of Lloyd's, announces that the new rules under the Syndicate Accounting Byelaw (No. 7 of 1984, 8 October 1984) will come into effect at the end of 1985 on account that the records kept by 130 (30%) of the 430 Syndicates (active in 1982) were not good enough to qualify.

10 Oct 84

Daily Telegraph: Third of Lloyd's syndicates fail accounts

One in three of the 400 underwriting syndicates in the Lloyd's insurance market with inadequate accounts that it is not possible to prepare full reports and accounts Ian Hay Davison, chief executive of Lloyd's said yesterday.

ented syndicates to all accounts going the 1982 insurance about 130 cases

were probably not sufficient care for true and fair accounts to be Mr Davison added. nce of information and further investigation Lloyd's disciplinary to see whether slack was hiding impro he said.

Mr Davison said the problem the separation of information and books, and the fact saw the need to together.

requirements up to 1982 vigorous, he said. But information gaps Lloyd's had taken a ew syndicates were investigation.

failings came to light as the revision of accountancy rules. Following period of advisory mandatory rules aced yesterday. Originally Lloyd's had planned to act new accounting 1982 because that when so many of Lloyd's scandals rated.

atants to the syndicates eives heavily critical for lax auditing pointed out that not be able to information on claims insurance could not be the financial books members of syndicates. have one third accounts incomplete and auditor's qualification.

Lloyd's has postponed the starting date. Mr Davison said syndicates were still being urged to produce as much as they can.

This will be the first time in more than 300 years of Lloyd's history that syndicates are called on to produce true and fair accounts, or to send every member a full report on what has been done with his money.

"Sunshine drives away the: mists - well here is the sunshine," said Mr Davison, who has long advocated greater disclosure at Lloyd's as the way to prevent further frauds. He conceded it was likely to he a long educational process.

Performance and the effects of the new accounting rules would be reviewed by an academic researcher under the aegis of the accounting profession. In addition to requiring true and fair reports on the lines demanded from companies, the new rules include disclosure of "parallel syndicates" and investment policy.

One gap in the rules is that members' agents, who look after the business of individuals and organise their membership of syndicates, are not covered. Mr Davison said most of these were public companies, and do not in any case directly use the members' money.

Lloyd's will continue with the current three-year time lag before closing the books on an accounting period. The first of the new figures will appear next year for 1982 but without the true and fair requirements. All the accounts are to be kept on a central register accessible to inquirers.

The new regulations were enacted as a byelaw by the ruling council of Lloyd's on Monday. Another technical change in the rules passed at the same time will make it easier for the wives and children of members to join Lloyd's. This relaxation comes shortly before the report from a working party on future requirements for Lloyd's membership.

10 Oct 84

Daily Mail: Lloyd's accounts to be ‘true and fair'

LLOYD'S of London did a bit more stable-door slamming yesterday.

They ruled that the accounts presented to the syndicates of names who risk their capital must be brought up to the "true and fair view" standard that the law has long required of public companies.

The news that they weren't already up to that standard came as a surprise to all except those names who are said to have lost millions to crooked underwriters.

The new rules will come into effect at the end of 1985. To those who asked why they couldn't become operative earlier, Lloyd's chief executive Ian Davison said that the records kept by 130 of the 430 syndicates were not good enough to qualify.

He added: "But you would be quite wrong to think that this means that there is any question of impropriety."

At the same time he revealed that some of the firms of auditors had been reported to their professional bodies.

Less controversially, work started yesterday on dismantling the 200 years old moulding in Lloyd's Committee Room which was designed by Robert Adam to transfer it to the new Lloyd's building going up on the other side of Lime Street.

10 Oct 84

Times: Account law for Lloyd's

The concept of "true and a fair" view accounting became mandatory for Lloyd's of London syndicates this week when Lloyd's Council approved the Syndicate Accounting By-law, which requires the preparation of syndicate annual reports. (Alison Eadie writes.)

The by-law helps bring the insurance market into line with company law and substantially improves standards accounting and accountability, according to Lloyd's chief executive, Mr Ian Hay Davison.

12 Oct 84

RECENT STUDIES - CONGRESSIONAL ACTION

Several recent studies have analysed the use of asbestos products in commercial buildings and residential dwellings in an effort to determine the extent of the asbestos problem in those

settings.

An Environmental Protection Agency survey entitled, "Asbestos in Buildings; A National Survey of Asbestos Containing Friable Materials" released October 12, 1984, estimates that 20% of commercial, residential apartment and federal buildings may contain friable asbestos.

The 20% finding amounts to some 733,000 buildings. Twenty-five percent of buildings with friable asbestos, or some 192,000 buildings, may have sprayed-on or troweled friable material which contains an average of 14% asbestos. An estimated 563,000 buildings, may have asbestos containing pipe and boiler insulation containing 70% asbestos.

Meanwhile, a survey of 670 homes in the eastern United States conducted by members of the American Society of Home Inspectors found that some 27% of the homes contained asbestos

products. Asbestos insulation on hot water and steam heating pipes was the most frequently observed asbestos product. In 56 of the homes containing asbestos products, or 46%, the asbestos was visibly damaged.

That study notes that other regions of the country may have widely different patterns of use of asbestos products. For example, Dr. William Nicholson of the Mt. Sinai School of Medicine

Environmental Science Laboratory previously estimated that up to 200,000 tract homes in Orange County, California, may have been constructed with asbestos duct work wrapping.

The study concluded that "asbestos was commonly found in homes more than 20-40 years old and is particularly common in components of home heating Systems. The asbestos products in

inspected homes were often damaged or worn."

The increased public awareness and concern over the hazards of asbestos products has resulted in Congressional action with the passage of the Asbestos School Hazard Abatement Act of

1984. The Act authorises $600 million for loans and grants to abate asbestos hazards in schools over the next six years.

Under the Act, the United States becomes the subrogee of the school districts' claims for damages against the various manufacturers of the asbestos products. The subrogation provision could prove beneficial from the defence standpoint since the government may be more willing to compromise its claim than the school district. Also, the government makes a far less sympathetic plaintiff than the school districts in a trial setting.

12 Oct 84

Letter from Murray Lawrence addressed to Underwriting Agents advising of the membership requirements which would apply for new members who commenced underwriting from 1st January 1986 and to existing members who changed their underwriting arrangements after 1st January 1985.

Oct 84

Attorneys letter re: Property Damage

(An attorney's report referred to a myriad of coverage issues and stated that all the factors referred to rendered the assessment of precise property damage reserves most difficult if not impossible at this time).

....myriad of other coverage issues.... All of these factors render the assessment of precise property damage reserves most difficult if not impossible at this time.

Oct 84

A recent survey conducted by the American Society Home Inspectors of 670 homes in the Eastern United States indicated that 181 homes, or 27%, contain asbestos products. The results of the survey were published in a report which was presented to the Consumer Products Safety Commission in mid-October.

Of the 181 homes where asbestos was found, the most frequent location of the material was the heating system; 123 homes, 18% of those surveyed, had asbestos material in the heating systems. In 56 of the homes, the asbestos was visibly damaged.

The report cautions against predicting a national average based on the survey and notes that other regions of the country, such as California, may have widely difference patterns of the use of asbestos - containing products.

The report concludes, asbestos was commonly found in homes more that 20-40 years old and is particularly common in components of home heating systems. The asbestos products in inspected homes were often damaged or worn; these are the conditions under which the Consumer Product Safety Commission staff is most concerned about the possibility of asbestos exposure to home residents."

22 Oct 84

The Rereport: This issue

Further collection problems have been encountered by Alexander & Alexander in the Atlanta insurance subsidiary, purchased in a job lot with Alexander Howden. We have full details. British insurance companies have been talking to the Department of Trade and Industry about the problem of offshore and unauthorised insurers. But they remain shy about seeking any legislative action. Lloyd's syndicates will have to present a "true and fair" accounting view. But not quite yet - the gentlemen have another year to sort out their figures into the sort of order fit for public gaze.

22 Oct 84

The Rereport: Further problems for A & A

Another reinsurance "black hole" appears to be forming in the outer darkness of Alexander & Alexander's underwriting activities. As usual its troublesome London subsidiary Alexander Howden is not far from the scene.

Reinsurance arrangements by Alexander Howden in league with Charman Mauduit, set in the London market at the turn of the decade for a series of US product liability risks, have largely failed to perform. Years of litigation and the prospect of vast amounts of executive time spent in dealing with the problem are in prospect.

Under the scheme A&A placed the direct insurance on behalf of a number of American Associations with the Atlanta, then owned by Alexander Howden, but now under the wing of A&A. US Associations insured under this arrangement included the National Association of Chemical Distributors, the National Association of Engine and Boat Manufactures and the National Association of Food Equipment Manufactures.

The product liability risks, valued at ?00,000 each, were reinsured by Howden (after a 5% retention by the Atlanta), with the Stetzel Thomson syndicate in London which put Elkhorn Re up as a "front" company. Further retrocessions were arranged by Charman Mauduit with a variety of companies including the Beacon, the Ajax, the Cherokee, the Pine Tops and the Accolade Insurance Agency. Some of the parties involved can't pay, others wouldn't, and the air is thick with calls for further disclosure. There are demands for a full account of where the premiums were routed and there is particular interest in the levels of commissions paid to the various intermediaries.

Claims estimated at around $3m to date have fallen on the Atlanta although no bad debt provisions have been made to deal with this problem. Last year's bad reinsurance debt provisions, which helped to almost wipe out A&A broking profits, were apparently for other difficulties.

A&A is pinning its hopes on a writ that it has issued in New York against Delta America Re, the new owners of Elkhorn Re, seeking payments arising from the Atlanta losses. Delta America is contesting the action and has demanded further documentation. It is also seeking to have the trial moved to London.

The Association programme was started in 1978 at a time when product liability insurance was difficult to place. During that year and the next the reinsurance of Atlanta's primary $100,000 liability was placed with the Bellefonte and Pine Tops in London through Alexander Howden.

In turn the Bellefonte and the Pine Tops retroceded via Charman Mauduit 50% of their lines to the Ajax in Bermuda. Insiders estimate that the total outstanding from the Ajax, which has since collapsed, to the two reinsurers under this arrangement is around $2-5m. This part of the deal does not appear to be causing problems for A&A.

In 1979, however, the arrangement was running well with few claims troubling the accounts. During that year it was suggested to A&A that London could take a larger share of the programme and a new deal was set up that increased the liability under each risk to $500,000.

The reinsurance, after the Atlanta had taken 5%, was placed this time with the Stetzel Thomson syndicate. There was however a problem to overcome. The "front" company, Elkhorn Re, had previously limited its exposure on such risks to $250,000 but Stetzel Thomson got around this by writing two lines of $250,000 on the same risk. About nine US Associations were insured in this manner.

Commissions for the Stetzel Thomson/Elkhorn placement was split 50/50 between Howden and Charman Mauduit. Stetzel Thomson received a 2-5% overrider.

Stetzel Thomson kept between 10 - 20% of any one risk and Charman Mauduit arranged retrocessions to protect the rest. Beacon Insurance of North Carolina took a 43-64% line through the Barry Toomey underwriting agency while the Ajax became liable for 10-53%, again through Barry Toomey. The Cherokee, through New Orleans Re (NOLA), picked up 10-53% while the Pine Tops agreed to 17-65%. The remaining 17-65% was written by Maurice Rutty at Accolade. In one case the Great Atlantic took the place of Accolade.

A further round of commissions, needless to say, became due and Alexander Howden picked up extra payments at this stage.

A number of the companies involved in the deal are of course no longer in the best of financial health. Both the Beacon and the Cherokee are in voluntary rehabilitation in the US while the Ajax has gone down completely. Barry Toomey, who is currently selling life assurance to the British public, has seen his underwriting agency go into liquidation.

Hence some of the problems. The deal jogged along nicely for a while because premiums entering the chain comfortably outstripped any claims falling due. But alarm bells started to ring when a special claim for $180,500 was presented around March last year. Attempts to collect the money came to nothing.

The claims started to mount up and hasty meetings between some of the organisers were arranged. At one of these meetings Ray Bassett, Howden's North American claims manager, asked Cliff Stetzel why he had failed to pay the $180,500 special claim. Stetzel is understood to have replied that he would approach syndicate members, residing in such places as Thailand, Venezuela, Argentina and Surinam. Howden protested that it had a cover note, or rather two, with the Elkhorn but Stetzel insisted that Howden had always known that the syndicate was behind the risk. It is thought that around that time Stetzel Thomson offered to pay back its 2-5% Elkhorn overrider.

Further meetings in New York between A&A, Peter Charman, National Distillers, previous owners of the Elkhorn, and Stetzel Thomson, failed to resolve the matter.

By February this year Howden was asking Charman Mauduit for about $2-5m due under the Association programme. To date it is thought that one payment of $250,000 has been made.

Claims now total around $3m and the final bill could reach $15m.

Most of the claims (probably in excess of 70%) have been incurred in settlement of attorneys fees which have arisen in "protecting" Association members from claims. The lawyers involved are Wilson, Elser, Edelman and Dicker.

The writ issued by A&A names Delta America as the reinsurer involved. Delta America is named as the new owner of the Elkhorn although it did not assume the liabilities under the Stetzel Thomson treaties previously entered into by Elkhorn.

These liabilities were placed in the care of a Kentucky licensed insurer, D & R Insurance, run by National Distillers. A defence is currently being prepared by National Distillers against the A&A claim and as a first step further documentation is being sought including details of all commission payments.

22 Oct 84

The Rereport: Offshore discussions continue

Behind the scenes discussions between ‘he UK Department of Trade and Industry and the British Insurance Association about the placing of insurance with offshore insurers appear to be making little headway.

Despite the recent growth of lawlessness with offshore and unauthorised insurers almost openly writing business in the UK through so called "contact offices", British insurance companies remain shy about suggesting further legislative action to control such activities. Even the recent appearance of offshore companies touting for personal lines and small UK commercial business has done little to concentrate Establishment minds.

In the case of non-EEC insurers where the

24 Oct 84

Asbestos Claims Council has extended the cut-off date for individual "coverage buyout" agreements to 24 October 1984.

25 Oct 84

Wall Street Journal: Oil Legacy: In Louisiana. pollution and cancer are rife in the petroleum area.

25 Oct 84

Insurance Monitor:

The Lloyd's Act gives brokers until summer 1987 to shed their managing agency interests but by the end of last month more than one third of the links between brokers and managing agents had already been severed.

When the Lloyd's Act was passed in July 1982, there were 114 managing agencies involving 308 syndicates which were still associated with brokers. By the end of November 1984, 43 of the links had been severed.

Oct 84

Letter from Attorneys to the Underwriters at Interest. Assured: ... We submit herein the following schedules setting forth recommended reserves for asbestos-related personal injury claims asserted against the assured. Pursuant to the Agreement in effect between Eagle-Picher and the London Market as of March 1984, these reserves are based upon implementation of a 5-year "roll- back" wherein the date of occurrence is derived by subtracting 5 years from the actual date of diagnosis ... Inasmuch as the subject umbrella policies provide for total limits which combine personal injury and property damage losses and the payments in reserves attributable to personal injuries consumed in full policy limits for all layers and all years, we have not recommended separate or additional reserves referable to property damage claims...

29 Oct 84

Financial Times: Underwriters face tax probe

INLAND Revenue is engaged in its most detailed investigation yet into the accounts of insurance underwriting syndicates within the Lloyd's insurance market.

Under scrutiny are reinsurance arrangements by underwriters at Lloyd's and whether the premiums they have paid for those arrangements are allowable as a tax-deductible expense against profits. The Revenue-is closely examining the level of reserves established by Lloyd's underwriters for future claims and questioning whether they are justifiable.

Since April this year, about 25 staff from the Revenue's special investigations section have been trying to analyse the underwriters' commercial transactions to see whether the arrangements have a commercial purpose or are designed to mitigate tax liabilities.

The inquiry was prompted by the disclosures in the course of the Lloyd's troubles of recent years, that underwriters had created offshore "rollover funds" with the specific purpose of reducing tax liabilities.

The funds were established in the form of "rollover reinsurance," so constructed that the risk reinsured could not exceed the amount of premiums paid to a company prepared to carry this type of arrangement. Interest was earned on the premiums and a profit margin agreed between the underwriters and reinsurers. The balances between reinsurance claims collected and the amounts paid across by underwriters could be returned to the syndicate at some future date.

The Inland Revenue is trying to assess the true underlying risk of the business insured in this way and the amount of premiums paid across in the form of reinsurance - which, of course, reduced the syndicates' total disclosable taxable profits.

Among Lloyd's underwriting agents, the Revenue's attitude so far has given rise to a certain degree of alarm. They have told members of Lloyd's whose affairs they look after that they believed this sort of reinsurance arrangement to be a commercially prudent way of dealing with identifiable and long-term potential liabilities of the syndicates. They further argue that they had discussed the arrangements with their auditors.

But since April the Inland Revenue has widened the scope of its inquiries. Inspectors are currently studying the relationship between insurance claims paid out by Lloyd's underwriters and the volume of reinsurances they secured to protect themselves against heavy losses.

What the Revenue wants to know is whether the volume of reinsurance - and the attendant tax-deductible reinsurance premium is really necessary in relation to Lloyd's total risks.

Another aspect of Lloyd's affairs is also under Revenue scrutiny. Each year, Lloyd's. like an insurance company, has to take a view on the amount of reserves it will need to meet future insurance claims. There are established through a "reinsurance to close" item, under which amounts are charged out as insurance expenditure and rolled over into the next underwriting account as a balance set aside for future insurance claims. The "rolled up" amount of Lloyd's reserves stands at £2-7bn, after an increase of £600m in the last underwriting account.

The Revenue is seeking more detailed account from the Lloyd's market about the current level of reserves, because the amounts set aside are tax deductible. It wants a more precise indication about the business and risks against which Lloyd's has set aside reserves.

Underwriters at Lloyd's are both anxious and angry at the Revenue's attitude. Some are prepared to challenge the Revenue's attitude or ruling on rollover funds in the courts.

Others are worried about the wider implications of the Revenue's current approach. On one hand, they say, they have to demonstrate to world insurance markets and the Department of Trade and Industry that the market is soundly reserved and capitalised - yet, on the other, the Revenue is directly challenging some of the methods by which the security of the market is established.

The agents argue that Lloyd's exposure to catastrophe claims, such as asbestosis which take years to pay out fully, means that adequate reserves and protections are essential.

They point out that until May this year, Lloyd's had settled about 6,500 insurance claims on asbestosis liabilities at an average cost of $89,000 (£72,950). The final cost to insurers will not be known for years.

Lloyd's recently announced accounting reforms should help in its relationship with the Inland Revenue. The amounts of reserves set aside in a reinsurance to close item will have to be judged reasonable by syndicate auditors, in accordance with "true and fair" accounting standards. And Lloyd's is attempting to establish a satisfactory basis for reinsurance accounting arrangements with the Revenue. This will lead to more standardisation and should eliminate many of the present causes of dispute.

29 Oct 84

Daily Telegraph: Taxman angers Lloyd's

Inland Revenue investigations at Lloyd's are causing confusion at syndicates which are attempting to judge the level of reserves for the current underwriting year. They have for years had to persuade their auditors that the level of reserve and reinsurance was not too low for comfort.

Now they are having to justify to the Revenue that it is not to high. The Revenue is seeking to go back over more than six years to check syndicate accounts for the level of reinsurance, especially if the money went into "rollover" funds offshore.

Chairman of Lloyd's Peter Miller protested when the Revenue first announced its scope of inquiries that they had no grounds for going back so far unless there was evidence of fraud. He added that syndicates should fight strenuously against the obtrusion.

A major fear is that if the Revenue forces down the level of reserves to prevent tax avoidance, some of the syndicates may be left uncovered and without the ability to recover the money from government.

30 Oct 84

"The Lloyd's Committee of Inquiry" report of Mr Peter Millett QC and Mr Nigel Holland FCA, Ernst & Whinney, on all reinsurances and purported reinsurances transacted by Lloyd's Syndicates through the Agencies of (amongst others) PCW, WMD, Alexander Howden Underwriting Ltd, and Posgate & Denby completed. The DTI Inspectors, investigating the affairs of Minet and WMD, were kept informed on a regular basis of the progress of this inquiry. All except four of the witnesses from whom the Lloyd's Committee of Inquiry took evidence consented to corrected transcripts of their evidence being supplied to the DTI Inspectors. In these four cases the DTI Inspectors either took evidence under oath from the witnesses concerned or else did not consider it worthwhile taking evidence.

31 Oct 84

Lloyd's List: Lloyd's name face higher tax liabilities

Thousands of members of Lloyd's face higher tax assessment. this year because of an Inland Revenue crackdown on certain syndicate reinsurances.

The Inland Revenue has notified the managers of syndicates believed to number around 140 that it is questioning the allowances against tax of certain reinsurance premiums.

The result is that around 75% of Lloyd's names will receive tax assessments for 1981, the latest closed year under the Lloyd's system, affected by this calculation.

Although the Inland Revenue refuses to comment, Lloyd's and accountants handling Lloyd's syndicates and members' accounts confirm that a considerable number of names are involved.

Lloyd's is keen for agents to assist their names and the Lloyd's Underwriting Agents' Association has also written to its members with guidance. Names are being told that they can appeal against the assessment.

In April, the Inland Revenue Special Investigations Section wrote to managing agents pressing them for details of around £110 million in reinsurance arrangements following three months of discussions in the market.

It particularly asked for details of what are known as roll-over policies where premiums with or without interest were always destined to return to a syndicate or where the reinsurance was never intended to make a loss.

It is understood that agents who have received revised profit figures for their syndicates for the 1981 year have challenged the calculations and asked the Inland Revenue for further details.

The effect on individual names is difficult to assess say the accountants. Members who underwrite on only one syndicate involved in this way would probably find the extra tax minuscule, but it could be more substantial if they were on several.

Where these syndicates have made an underwriting profit during 1981, the estimated tax liabilities have been increased.

If the syndicate made an underwriting loss, the Inland Revenue proposes to restrict the name's ability to recover against other tax.

One accountant said it appeared the Inland Revenue had approached syndicates' reinsurance in three ways including challenging some from the outset.

In other cases it questioned certain policies and wanted to investigate further so had made a round estimate of the syndicates profits. Some reinsurance programmes it had accepted and agreed the final figure.

1 Nov 84

During his first official visit to Switzerland the Chairman of the NMA, Mr H R Rokeby-Johnson addressed a meeting of all brokers authorised by Lloyd's in Switzerland. 40 Brokers' firms were represented at the meeting on Thursday, 1 November 1984, and Mr Rokeby-Johnson spoke about problems in connection with Lloyd's Swiss Non-Marine business. The meeting was arranged by Lloyd's Swiss Mandataire General, Mr Rainer A Bohmer. Lloyd's premium income in Switzerland rose during the last 4 years from approximately 29 million Swiss Francs to 50 million Swiss Francs.

4 Nov 84

Mail on Sunday: Lloyd's rocked by new tax probe

Former Lloyd's of London chairman Sir Peter Green is under active investigation by the Inland Revenue over benefits received from reinsurance premiums paid by his underwriting syndicates to his "captive" company in the Cayman Islands.

Sir Peter was chairman of Lloyd's in 1982 when the Alexander Howden scandal erupted which showed that senior members of Lloyd's had been feathering their own nests by arranging secret insurance (lay-off) deals in offshore tax havens. He retired early.

Current investigations centre on the extent to which Sir Peter Green, who doubled as head of the Janson Green underwriting syndicates and a major shareholder in brokers Hogg Robinson, benefited from Imperial Insurance Company (Cayman).

Founded in Bermuda by his father ‘Toby' Green, Imperial first came to public attention in 1983. No substantial benefits have been disclosed. Nevertheless, in October last year, the company remitted £34 million to London.

Throughout a series of reinsurance scandals, Lloyd's of London has attempted to settle with minimum scandal. It persuaded most "armchair" underwriters with Minet to accept £39 million diverted offshore forgetting some £40 million interest.

Former insurance "barons" at Howden and Minet were until recently under the impression that they would be immune from possible prosecution if they returned the cash. Attorney General Sir Michael Havers has made it plain that this is not the case.

Now Director of Public Prosecutions Sir Thomas Hetherington has had second thoughts about not proceeding against Raymond Brooks and Terence Dooley, who squirreled away £6.2 million worth of reinsurance to their Fidentia in Bermuda.

Lloyd's chief executive Ian Hay Davison, perhaps hoping that the Old Spanish Custom of offshore self-enrichment is not too prevalent, is blunt; "If the Department of Trade had notified me of anything, I certainly wouldn't be able to help you in the least."

5 Nov 84

Lloyd's List: M&M auditor in settlement worth $22m

Marsh & McLennan Companies, the giant United States insurance broker, is to receive a settlement valued at about $21.9 million (£17.8m) from its auditors Arthur Andersen & Co. in New York.

This follows a legal action by one of the broking group's shareholders on its behalf over its loss of $90m as a result of unauthorised trading in government securities.

M&M said that Arthur Andersen had agreed to pay $19.9m in cash and provide the company with unspecified concessions estimated to be worth about $2m.

The settlement concluded the litigation against the auditors, and M&M said it had obtained agreement to that effect from Abbey & Elles and Harvey Greenfield, lawyers for the shareholders in whose name the suit was brought.

It is an agreement in principle, and the details are still subject to negotiation as well as the completion of necessary documentation and court approval.

Arthur Andersen is remaining the group's auditors at leas until the end of the year.

After the discovery in April of extensive unauthorised trading in government bonds, M&M said it had cost the company $155m in pre-tax losses plus a further $10m in investigation expenses.

It reduced the group's after-tax profits by $90m in total with most written off during the first quarter of this year and one-third attributed to the 1983 financial year.

But less than two weeks ago M&M was able to report sharply increased earnings for the third quarter with net profits July to September of $31.4m - an increase of 57% on the corresponding period of 1983.

7 Nov 84

General Meeting of Members: Statement by Mr Peter Miller, Chairman

Speeches by the Chairmen of Lloyd's to the members at General Meetings all too easily become a list of jobs done, events yet to come, and the riding of either the Chairman's hobbyhorse or those of his colleagues in the Council or Corporation senior enough to insist upon their inclusion, or clever enough to slip them in while the Chairman is not looking! To some extent this is unavoidable, in the sense that the membership has a right to a full account of the stewardship of its affairs. The danger in this approach is, however, twofold.

Firstly, the sense of purpose behind what we, the Council, are trying to do tends to get lost in a mass of detail. Secondly, the membership may not identify those areas of policy where we are uncertain as to the best strategy and so need the reaction of the membership to help us.

This morning, therefore, I want to try to achieve three things-firstly, to indicate the general thinking behind the Council's actions, secondly to tell you of our progress and problems in certain specific areas and finally to share with you some of our doubts and perplexities on certain subjects where we have not, as yet, reached a conclusion as to the strategy we should pursue.

Last year a plan for 1984 was agreed by the Council, based upon three main "areas of endeavour" as they were described. They were:

to restore and maintain confidence at home and abroad in Lloyd's as a public institution;

to complete the setting up of the new self-regulatory machinery, and

finally, to support and assist the market in maintaining Lloyd's commercial success.

In a few days time I shall be presenting to the Council of Lloyd's a suggested plan for the activities of the Council for 1985 and beyond. Clearly, before the Council has seen that document, it would not be proper for me to go into the detailed proposals which will be put before them. However, I believe it is perfectly proper for me to indicate to you an important shift in our thinking.

For a long time now we have, inevitably, been mainly concerned with the construction of a new regulatory framework for Lloyd's. Indeed, some would say that we have been obsessed with this subject. While I would reject any charge of obsession on the grounds of utmost

commercial necessity to bring ourselves up-to-date in the regulatory area, nevertheless I believe that now is the time to make it clear that our main energies will henceforth be devoted to different goals. Yes, we have to complete the self-regulatory system and as soon as possible; in some moments I will turn to what is yet to come in that area. However, before that, there are two matters of major importance which demonstrate the shift in our thinking to which I have referred. Firstly, the changes and reforms in the underwriting agency system and secondly, the provision of market services by the Corporation to underwriters.

Underwriting Agency System

Let me turn then to the underwriting agency system. Whilst we have for many years been blessed with a plenitude of ingenious and skilful underwriters, whose success has enabled Lloyd's, year after year, to produce better results than our insurance company competitors, I am not at all sure that the same can be said, now that divestment is upon us, of the management skills which lie within our underwriting agencies. In a Society such as ours, the entrepreneurial spirit is counted as everything; the less flamboyant attributes of being a good manager are often disregarded.

For many years, and in many cases, our underwriters have been able to rely upon the management expertise provided by their broker owners. Divestment renders further reliance upon that source of management expertise an impossibility. One of the most important duties, therefore, which rests upon the Council, as underwriting agents come up for re-registration is to ensure that there is within the agencies, a satisfactory standard of management upon which the active underwriter and his immediate colleagues can rely and which the Name is entitled to expect.

Incidentally, I believe that there is a lot of nonsense talked about management, as though it was some separ