The Asbestos Hazard Emergency Response Act:

Adverting to the London Databank/CIS expenses, due to the advent of the Facility which includes the establishment of a Facility databank, the Working Party concluded that it would be in the Market's best interests to discontinue the London Databank, relying for future needs upon reports generated by the Facility. Insofar as 1985 is concerned that is a concluded year during which the London Databank was in operation. As at January 1, 1986, we commenced phasing out the London Databank, thus for the near term we require sufficient funds to satisfy outstanding statements and the balance of the loan that we executed in order to carry expenses for an interim period, which may be satisfied by a commitment of 50% of the 1986 projection.

The Disciplinary Committees (Amendment) Byelaw (No. 1 of 1986, 13 January 1986).

Annual General Meeting of the Institute of London Underwriters: Statement by the Chairman - Mr. D Town

Following the colourful and exciting centenary year of 1984 it would have been reasonable to think that 1985 might have been something of an ant-climax. I found that not to be so - rather that 1985 was the unusual busy and interesting year, the centenary celebrations in 1984 having provided a very colourful and spectacular bonus.

Mr. Holland's lecture entitled "Setting the scene" as part of an Ernst & Whinney seminar for clients, "The RITC process":-

‘True and Fair' requires a realistic presentation. It requires that it is done in an objective manner. It has to be pertinent to the operations of the entity. It has to be based on the best information available and it has to be arrived at after reasonable enquiry. ... We think it is important at the end of the work on the reinsurance to close that the underwriter and managing agent should prepare a memorandum to summarise the work that has been undertaken, the assumptions that have been made, the evidence that was available in support of those assumptions , the tests that were carried out and the conclusions that were reached on those tests... When they [the working papers] are gathered together for filing and are reviewed, I would hope that there would be clear proof that in arriving at the amount of the reinsurance to close equity, prudence and consistency have all been applied. Equity means that the underwriter in particular, has to look at that premium and decide that for the year being closed it is a fair premium for the Names concerned to be paying for their outstanding liabilities to be assumed by somebody else. I think he then has to walk round the other side of the table and look at it afresh from the point of view of the assuming Names as to whether or not it is a fair premium to accept for writing that liability. I think there needs to be evidence that he is satisfied on both those aspects.

The materials referred to above, while distinguishing between the respective functions of the managing agents/underwriter and the auditors, show the interplay between those functions.

Lloyd's Newsletter: Chief Executive appointed Alan Lord to take up post in March

Nominated at a special meeting of the Council of Lloyd's held on 18 February, Mr Lord's appointment has the approval of the Governor of the Bank of England and means that he will be one of the four independent nominated members of the Council. The terms of reference accepted by Mr Lord are the same as those under which Mr Davison took up the original appointment, other than that Mr Lord's contract is for five years.

At the time of the announcement of his appointment, Mr Lord was a non executive director of Allied Lyons plc and the Bank of England. He has held a wide range of senior appointments within Whitehall and the Inland Revenue. He is a former deputy chairman of the Board of the Inland Revenue, and second permanent secretary at the Treasury. He left Whitehall in 1977 to join Dunlop Holdings and subsequently became chairman of Dunlop Ltd.

Paying tribute to the contribution Mr Ian Hay Davison had made, Mr Miller said that Lloyd's owed a very deep sense of debt to Mr Davison for his very important part in the evolution of a successful system of self-regulation at Lloyd's.

He was firm in the belief that Lloyd's should remain outside the scope of the Financial Services Bill and that the Lloyd's 1982 Act should be given a chance to work. Mr Lord said he would be: "troubleshooting in difficult times"

Asked how he felt about his lack of experience in the insurance industry he said that knowledge was essential and he proposed to acquire this as soon as possible.

Lloyd's Newsletter: Names Advisory Committee report issued

Of the 42 cases considered by the Names Advisory Committee (NAC) since its formation in February 1985 13 related to complaints against underwriting agents. The balance comprised variously of requests for advice or complaints relating to members' rights, stop loss policies, improvements in Lloyd's rules or practices and requests for investigations into syndicates formerly managed by the PCW and Brooks & Dooley underwriting agencies.

In the report, which was considered by the Council of Lloyd's at its meeting of 10 February, it was stated that complaints made against agents arose from exceeding premium income limits, lack of communication between members and agents and allegations that members had been misled by their agents.

The NAC is composed of three external members of the Council of Lloyd's, Lord Kimball, Mr Eddie Kulukundis and Mr John de Courcy Ling, and considers questions or complaints from members concerning members' agents or their underwriting agents. It offers advice to the parties involved where this is in the interests of reaching an early settlement of a dispute on mutually acceptable terms. Where serious differences persist the Committee considers what other courses might assist in reaching an agreement

Lloyd's Newsletter: Trust deed approved

The Council of Lloyd's has endorsed the recent approval, given by the Secretary of State for Trade and Industry, to a new form of Premium Trust Deed to be introduced from 1 January 1987.

In line with the requirements of the Insurance Companies Act 1982 there are two types of Premium Trust Deed, one for general business and another for long term business where premiums must be held in a separate trust. There will be four forms of Deed; separate general and long term Deeds for new Names and separate general and long term Deeds for existing Names. The latter will amend existing Names' present Deeds to comply with provisions applying to new Names who start underwriting at the beginning of next year.

The introduction of the new Deeds is seen as further strengthening the position of Lloyd's policyholders who already enjoy a degree of security second to none in the international insurance market.

Lloyd's Newsletter: New undertaking

The Council of Lloyd's has approved the introduction of a new form of general undertaking between the Society and its membership. All members of Lloyd's will be required to enter into the new undertaking which ensures that disputes within the membership as a whole are subject to English law and to English courts. Disputes arising will now be resolved in one place, by one method and in accordance with one legal system. Members of Lloyd's will now be assured of consistent treatment of their legal rights.

The Council also approved the following recommendations relating to the constitution of the Lloyd's Deposit: The restrictive range investment rule is abolished for all members, providing their means and deposits are in line with current requirements. To ensure that a reasonable spread of investments is achieved a minimum of three investments must be held, no one of which should constitute more than 50 per cent of the admitted valued of the deposit. (This does not apply to British Government dated securities.) The rule requiring overseas members to provide their deposits in the form of Letters of Credit or bank guarantees has been removed.

Finally, the Council agreed that premium income limits for Names should be expressed as gross premium income limits as proposed by the Bird Working Party. This will be effective from 1 January 1988 when the so-called ‘franchise' will cease. All Names must by that time be in line with current Lloyd's requirements.

Lloyd's Newsletter: ALM rejects SIB

In a letter to the Secretary of State for Trade and Industry, Mr Paul Channon, the chairman of the Association of Lloyd's Members (ALM), Mr Anthony Haynes, said that the association had, ‘after most careful consideration', come to the conclusion that the inclusion of Lloyd's in the Financial Services Bill would be against the interest of Lloyd's Names.

"However, this is all changing and, in our view, what matters now is that the momentum of change should be kept up, and that the management of change should be effective.

"We believe that putting Lloyd's under the SIB would add nothing and only slow things up."

Lloyd's Newsletter: Lloyd's issues writs

Mr Dixon is believed to be living in the United States at present and Mr Brooks in Italy. A High Court judge has ruled that the writs may be served outside the jurisdiction of the English courts.

Lloyd's Newsletter: Action call in US

President Reagan has called for urgent action on the crisis in the US insurance industry. In his legislative programme he seeks to alleviate the situation where insurance rates have soared in the face of high damages awards by the US courts. (See Litigation Lottery, page 4.)

Ernst & Whinney: Press release concerning a seminar on reinsurance to close organised by them "recently".

Mr Bolger emphasised that prudence remains all-important, especially vital in the circumstances surrounding long-tail business such as losses arising from asbestosis, pollution and waste disposal. On the related subject of discounting, Mr Nigel Holland, the London-based chairman of the Ernst & Whinney International Insurance Committee. warned: "discounting should not be applied in the reinsurance to close calculation unless the amount of the future liability and the timing of the payment can be ascertained to a high level of accuracy. Given the many uncertainties which surround long-tail business, our view is that discounting such reserves can only compound the problem". Ernst & Whinney is one of the five largest international firms of accountants, advisers and consultants and in the UK has one of the largest insurance practices.

(239) as Nigel has stated and Charles Watt will reinforce from the tax viewpoint, it is most important that reinsurance to close is properly calculated and fully documented. As indicated on the slide an underwriter must identify what records he requires to document his reinsurance to close. The records must be adequate, they must be retained as part of the syndicate accounting records and they must be fully reconciled as between box records and those maintained in the agent's office. What should the records to document the RI to close comprise? Inevitably the calculation will be claims based and so as a start the records will include summaries or calculations of: claims reported - outstanding claims; claims not reported - IBNR; reinsurance recoveries in respect of the two other components... I turn now to what the component parts are and how these should be arrived at and recorded, remembering that it is the agent's responsibility to prepare them and to assess the R1.

Claims reported: records should be maintained on a case by case basis and estimates should be prepared and reviewed so that claims are evaluated at the cost of settling the claims together with direct expenses and in particular legal costs...

The outstanding claims should be summarised and the underlying records be readily available for

Claims not reported (IBNR): this represents the most judgmental area of the reinsurance to close calculation. The objective of the overall calculation is to arrive at the ultimate cost of settling liabilities attaching to the business written for a year of account and earlier years reinsured into that year. Different methods are used in the market to arrive at reinsurance to close:- Projections of paid claims; projections of incurred claims (paid and outstanding); projections based on premiums written in order to arrive at an ultimate loss ratio from which a deduction is made of claims settled to date. No one method can give the right answer but the more bases that are used the more confidence can be placed on the answers obtained. Projections should be carried out gross in the first place. Reinsurance protection is another variable... The size and importance of the IBNR will be determined by the nature of the business written. Therefore projections should be carried out separately on different areas of the account segregating major classes and currencies. Care should be taken to ensure that any changes that have occurred in the business mix of the account are fully reflected in the calculations. What is of paramount importance is that the quality of the data used in any of the exercises performed is good and clear and can be readily reconciled to and is consistent with the financial data... As I have already said alternative methods should be used and documented in the reinsurance work file. Furthermore the exemptions taken and conclusions drawn should be challenged in the light of current circumstances...

(245)1 was amused to receive from one of our underwriters a missive at the conclusion of the discussions on his reinsurance to close the 1982 account during which we had debated what reserves should be established for the Shell Rocky Mountain Arsenal claims. It was in the form of a photostat of a cartoon depicting two in-mates of one of Her Majesty's prisons. One says to the other "the long and short of it was that generally accepted accounting practises were not as generally accepted as I thought". The underwriter had added a little note to me which read "SRMA to you!"...

True and fair:... the tests to be applied as to whether or not the annual report has been prepared to a true and fair standard are the fundamental principles shown on the screen, which we have discussed earlier and of course the reinsurance to close is an integral part of the closed year underwriting account... Discounting - provision for future investment income:... Against this background our view is that discounting should not be applied in the reinsurance to close calculation unless the amount of the future liability and the timing of the payments can be ascertained to a high level of accuracy. Given the many uncertainties which surround long tail business, our view is that discounting such reserves can only compound the problem. Lloyd's adopts a three year accounting system and in many cases liabilities which are still outstanding at the end of that period are likely to contain uncertainties as to amount and timing...

Time and distance policies. Two types.

Conclusion: I should like to conclude this paper by emphasising the need to prepare a comprehensive set of schedules to demonstrate how the reinsurance to close has been calculated that the fundamental accounting principles have been considered in preparing the calculations and their proper disclosure is made to syndicate members in the annual report.

Syndicate Intelligence Report: Meeting with Stewart & Hughman Re. Outhwaite

The position is that Outhwaite, through Winchester Bowring, wrote unlimited policies 100% for the Non-Marine part of the Marine Syndicate 16/17 and for Non-Marine Syndicate 15. In respect of the Non-Marine Syndicate the paid claims have already penetrated the excess layers so that £1m was due on January 20th. Outhwaite, through lawyers, is attempting to refuse the claim on a number of grounds which include insufficient disclosure of information at the time of the placing of the contract in 1981, quibbling over whether the IBNR was or was not included in the assumed amount outstanding and also questions whether the level of claims actually paid is correct.

Stewart & Hughman take the position that they gave the fullest possible disclosure at the time through their brokers and that they complied with all reviews. Following the first review in early 1983 they have agreed to a premium adjustment. With a rough order of magnitude these two run off policies, which were apparently small have increased six-fold in terms of the size of the outstanding amount compared with the estimate made in 1983, i.e. from £2m to £13m and they could rise to as high as £20m.

The problem is that apart from the £66m in Syndicate investments the remaining assets of the 1982 open year of Outhwaite are the Time and Distance policies which at the earliest will mature in 1995. Speedy asbestosis claim settlements have put him in difficulties. It is known that immediate payment is also due to Cockell who has instructed Norton Rose to act on his behalf.

There are thought to be 40 other Lloyd's Syndicates with protection of this type with Outhwaite who, although they have not yet formally penetrated their excess layers, may be put in the position by their Auditors of having to regard the run off policies with him as a doubtful asset. This could lead to all these 40 Syndicates being forced to keep 1984 open until the matter is resolved.

We all agreed that keeping these years open would be a major market disaster and that on the evidence that is presented the likelihood is that Outhwaite will have to pay in the end. Peter Stilwell has been to see Murray Lawrence and we know that Peter Miller has requested the files. He asked us to see Peter Miller and we agreed that we would independently do all we could to ensure that the Committee focus on this problem as rapidly as possible. Although we have Names on the 1982 account of 317 we cannot see that it is in their interests as Members of Lloyd's to have Outhwaite refusing a valid claim on their behalf simply to achieve a postponement of the injection of cash that they will almost certainly have to make; particularly if this action results in problems for the other Syndicates that they are on.

A meeting between Lloyd's and recognised auditors was informed of the following.

In the non-marine market, the ACF which was signed in June 1985 by 34 producers will lead to a revision in reserves at 31 December 1985. There are at present about 46,000 claims in the market. Claims are being notified at the rate of about 1,000 per month but now appear to be "cheaper". On expense costs, as a result of the ACF, defence costs have fallen to about 20-25% but the Facility is making a charge of about 10% which is to be borne in the direct market only. The Johns Manville money invested in New York includes a London Market share of about $110m. This money is soon to be dispersed and this will represent a large cash outflow in 1986 on both direct claims and retrocessions.

The meeting was told that asbestosis will also extend into property damage claims.

The meeting was told that Environmental Pollution claims will see an uplift of about 5% for legal costs. 1985 is not expected to see much movement on the Shell Rocky Mountain claim but the years 1986-1988 should see a greater movement.

In the non-marine market, the asbestos claims facility which was signed in June 1985 by 34 producers will lead to a revision in reserves at 31 December 1985. There are at present about 46,000 claims in the market. Claims are being notified at the rate of about 1,000 per month but now appear to be "cheaper". On expense costs, as a result of the facility, defence costs have fallen to about 20-25% but the facility is making a charge of about 10% which is to be borne in the direct market only. The Johns Manville money invested in New York includes a London Market share of about $110m. This money is soon to be dispersed and this will represent a large cash outflow in 1986 on both direct claims and retrocessions.

It was reported that asbestosis will also extend into property damage claims.

Environmental Pollution claims will see an uplift of about 5% for legal costs. 1985 is not expected to see much movement on the Shell Rocky Mountain claim but the years 1986-1988 should see a greater movement.

PCW: Re Lloyd's - RBUA.

The Steering Committee and myself have received Part One of Tom Engel's written Opinion and Appreciation as to proceedings in the United States. Part Two, which I understand will consist of detailed legal reasoning, will be forthcoming shortly, and I will therefore be in a position to give you a more detailed resume in perhaps two to three weeks' time.

His Opinion is hard-hitting and optimistic in tone, and he would propose and advise that proceedings be taken in the American courts against Lloyd's, the brokers involved, and others, under four main heads:

I know that most of our Group have contributed to the American action, and I would urge those who have not as yet contributed to consider this most carefully, as only those who do contribute will be included in any action to be taken over there should this become necessary. The contribution that has been made by most Names in our Group has been £1500. I know I speak for many Names in the Group whose feeling is that we need to show the strongest possible hand and resolve if this affair is to be brought to a satisfactory and reasonably early conclusion, and I hope that those of you who have not as yet contributed will feel able to do so.

Letter from Lloyd's to all Active Underwriters, Underwriting Agents and Accountants approved by the Council of Lloyd's. Re: annual solvency test of underwriting members - 31 December 1985.

(In our last letter dated 19 November 1985 the ECG said that there were more than 15 declaratory judgement actions involving London underwriters already proceeding in various US courts. There are now more than 20 such actions. One of the differences between pollution and other matters currently facing underwriters is the great diversity of the problem. Where in asbestos we are concerned with the bodily injury and property damage claims brought in respect of the products of some 20 major assureds, pollution involves potentially hundreds or thousands of different assureds being sued by many different parties in respect of different types of injuries and damage. Underwriters have already been asked to give discovery of documents in the Shell Rocky Mountain litigation, Diamond Shamrock Dioxin litigation and a number of others. [Mr. Ayliffe, the Merrett claims director, was a member of the ECG] ).

You may recall that in our last letter dated 19 November 1985 the Environment Claims Group (ECG) said that there were more than 15 declaratory judgement actions involving London Underwriters already proceeding in various US Courts. There are now more than 20 such actions.... Where in asbestos we are concerned with the bodily injury and property damage claims brought in respect of the products of some 20 major assureds, pollution involves potentially hundreds or thousands of different assureds being sued by many different parties in respect of different types of injuries and damage. Underwriters have already been asked to give discovery of documents in the Shell Rocky Mountain Litigation, Diamond Shamrock Dioxin Litigation and a number of others. Members of the ECG: inter alias CJ Ayliffe, Merrett Syndicates Limited.

The Financial Requirement, that the deposits of non U.K. residents must be in the form of a bank guarantee or a letter of credit rescinded by the Council of Lloyd's. Non U.K. resident Names now permitted to provide their deposits by way of acceptable U.K. securities and/or sterling to be held in the Lloyd's Group Account Scheme. (In instances of draw down, this eases the pressure on foreign banks when faced with the dilemma of allegations of fraud and massive non-disclosure of material fact).

One of the reasons which led Sir Henry Fisher to recommend the creation of the Council of Lloyd's and which influenced the then Committee of Lloyd's to seek the new Lloyd's Act was the recognised need to obtain power to provide Members of Lloyd's "with protection which they can justifiably expect".

The enquiry established under the Chairmanship of Patrick Neill will be examining the protection offered to Names under the 1982 Act and comparing it with the protection to be offered to investors under the Financial Services Act.

The position Mr Lord, Chief Executive of Lloyd's, has adopted is the same as that taken by the Government. The Financial Services Bill is not the correct vehicle for ensuring that self regulation at Lloyd's works effectively. If a proper enquiry highlights deficiencies in the 1982 Act then this will be a matter that both Lloyd's and the Government will wish to see remedied.

Fax to Willis Faber Dumas, Lloyd's brokers. Re: Mendip Insurance and Reinsurance Co Ltd.

1. Previously known as "MIRCO" Montague Insurance & Reinsurance Co Ltd.

3. Very much still in operation;

5. Beneficial owner Sedgwicks;

Andrew Martin	Lloyd's Manager
Geoff Verey	Commercial Co.
Russell Wilmer	Investments.

"Bond Washing" outlawed.

Mr Alan Lord CB was appointed to succeed Mr. Ian Hay Davison and took up his appointment as a nominated member of the Council and Deputy Chairman and Chief Executive with effect from 1 March 1986, the appointment having been confirmed by the Governor of the Bank of England. This followed the resignation submitted in November by Mr Ian Hay Davison, the Society's first Deputy Chairman and Chief Executive.

The Related Parties Byelaw (No. 2 of 1986, 10 March 1986).

This regulates the ownership by managing agents of interests in insurance companies and the placing of syndicate insurance business by managing agents with insurance companies or through non-Lloyd's brokers which are in either case related to the managing agent.

The Membership (Amendment) Byelaw (No. 3 of 1986, 10 March 1986).

Amendment No 1 to the Membership Byelaw (No 9 of 1984) was passed by the Council, giving the power to take action where a member fails to comply with a condition or requirement relating to the member's membership or underwriting.

In mid March 1986, the Californian Appellate Court reversed a summary judgment order by Judge Brown in the Californian Co-ordinated proceedings, holding that the law of California controls awards of punitive damages against insurers, rather than the law of the insurer's domicile. Thus, English law with regard to underwriters, and Pennsylvania law with regard to INA, both of which prohibit punitive damages against insurers, will not be applied.

Ashurst Morris Crisp & Co's letter to Administrative Suspension Committee, Corporation of Lloyd's, Re: Suspended PCW Names:

On behalf of those Names who have contributed funds to the PCW 1985 Committee and with reference to your letter of the 5th March 1986, we make the following representations and reservations:-

Standard Asbestos Manufacturing & Insulating Co. -v- Royal Indemnity Ins. Co., No. CV-80-14909, Missouri Circuit Court Jackson County. Missouri Court applied bodily injury-in-fact trigger and commented with regard to the asbestos coverage issues: "One of the problems in insurance law is that it is result oriented. In an effort to compensate litigants, the courts have manipulated concepts of contract law and interpretations of insurance contracts and have vastly expanded theories of liability and contractual relationships. While the motive may be laudable, the result is that there is no stability in the law and no one can predict the result in any given case."

Paper entitled "Asbestos: The London Response'" presented in Berlin by representatives of the London Market to the European Product Liability Congress of the Cologne Re., stated in relation to the Keene decision:

"No single decision has had so much impact upon the insurance industry, for although the Court was solely addressing asbestos related claims, the decision has gradually been extended to apply over a much wider area, and particularly in respect of latency claims arising out of pharmaceutical products. In virtually every coverage litigation involving latency filed subsequently to Keene insureds seek the ‘triple trigger ruling".

(Mr. Jackson in an Address stated that the reinsurance industry is facing the greatest crisis in its history).

As is clearly indicated from the enclosures, the London Market as long ago as 1980 recognised the potential problems that could arise for the reinsurance industry out of asbestos related bodily injury claims. The unique position occupied by London in the International Reinsurance Community has tended to emphasise our predominant involvement for many decades, and it was our perception that in the interests of the reinsurance community it was necessary for London to be seen to be providing leadership in addressing the problems that would arise in the context of asbestos related claims.

(249) we must remember that particularly in the USA an insureds vulnerability to litigation is not only determined by his guilt or involvement in any loss situation, but by the depth of his pocket also. Do not equate the US judicial system with justice..

(25I) Our reinsurance industry is facing the greatest crisis in its history. We cannot allow any continuing bitterness, or any unwillingness to face these problems, to distract us from today's task of dealing with the many other threats to our corporate survival.

During the first quarter of 1986 fire in Great Britain (England, Scotland and Wales) cost an estimated £105.5 million according to the Association of British Insurers. This was slightly less than during the corresponding period of 1985 which cost £119.0 million.

The largest fire during the quarter was at manufacturers in Eastern England and cost an estimated £2.75 million. There were six other fires which cost £1 million or more during the quarter and a total of 10 costing over £750,000. The losses include both insured and uninsured damage but do not take into account consequential loss, lost orders and exports.

On 1 May it was reported that, as a result of the failure of Posgate & Denby (Agencies) Ltd to obtain E & O cover, the board of Posgate & Denby had put forward the following proposals for delegation of the management of some of Posgate & Denby's business to which the Committee has raised no objections. These comprise Posgate & Denby's members' agent to Nelson Hurst & Marsh Agencies Ltd, the company's marine and incidental non-marine syndicates 609/786 to Philip N Christie & Co. Ltd, and the company's motor syndicate 827 to David Holman & Co. Ltd.

In respect of the two remaining syndicates managed by Posgate & Denby Agencies, namely marine syndicates 488/532 and non-marine syndicate 839, Posgate & Denby would not write any new or renewal business with effect from 1 May, but would continue to service existing business. The Committee of Lloyd's directed Posgate & Denby to this effect.

On 8 May Posgate & Denby (Agencies) Ltd confirmed the errors and omissions cover had been obtained in respect of the management of syndicate 8839 and accordingly the Committee of Lloyd's agreed that the syndicate could recommence underwriting.

A revised list of recognised auditors, as at 2 May 1986, has been sent to all underwriting agents at Lloyd's under the provisions of Lloyd's Syndicate Audit Arrangements Byelaw (No 10 of 1984). Three additional firms appear in the list:-

Abex Corp. -v- Maryland Casualty, 790 F.2d 119 (D.C. Circuit. Court applied "injury-in-fact" trigger under New York law (rejecting Keene's triple trigger as inapplicable since case arose under N.Y. law).

Statement by Mr. Peter Miller, Chairman of Lloyd's

The Council and Corporation of Lloyd's maintained their high level of activity during 1985. The reform of our regulatory system continues to occupy a large amount of Council time. Reflecting that activity eight new byelaws were enacted during the year, covering subjects as diverse as agency agreements and multiple syndicates. Considerable progress was made in the re-registration of Lloyd's underwriting agents - which is at the centre of the process of reform at Lloyd's - and during the year one hundred and seventy nine applications were received. It is estimated that this is likely to represent about two-thirds of those agencies which will seek re-registration.

Meanwhile, members will be encouraged by the fact that several major disciplinary and appellate proceedings, including those referred to as the "Howden" and "PCW" cases were concluded during 1985.1 was pleased to note that the format of our disciplinary processes closely resemble those recently recommended by the Roskill Enquiry in the context of reform of the fraud trials system.

The central settlement agreed last autumn with the Inland Revenue is reflected in the Extraordinary Charge in the Accounts. I have already written at length on this subject but I repeat that it is the Council's intention to ensure that this provides a basis for an improved relationship with the Inland Revenue.

During the year our new building was virtually completed. Its fitting-out is well in hand and the market is now moving into its splendidly controversial new home.

These last two events were primarily responsible for our continued high level of borrowing. It is not appropriate for a Society such as Lloyd's to incur long-term debt and I am therefore pleased to be able to report that current financial projections suggest that these borrowings should be cleared during 1990.

Last year, I reported that it was Council policy to place greater emphasis upon formulating policies which are directed towards enhancing the level and quality of support to the Lloyd's market. This area continues to absorb much of the Corporation's attention and details of the progress made, especially in the market services and systems and communications areas, are set out elsewhere in this report.

In November 1985, the Deputy Chairman and Chief Executive, Mr Ian Hay Davison resigned from his position. Mr Alan Lord CB has taken up his appointment as Mr Davison's successor. This appointment reflects a second stage in the development of the Corporation's ability to service the needs of the Lloyd's market. The Council is committed to the continued improvement of the scope and quality of the regulatory and administrative services for which it is responsible and which are provided by the Corporation. Both Council and Corporation are always mindful of their paradoxical roles both as regulators and as servants of the market. The Council and myself look forward with confidence and enthusiasm to further major progress being made in 1986 across the wide spectrum of our responsibilities.

There were seven candidates for the four working members' seats vacated by the retirement (by rotation) from the Council of Mr Frank Barber, Mr David Barham, Mr Terence Higgins and Mr Peter Miller. Mr John Greig, Mr Richard Hazell and Mr Gordon Hutton were elected and Mr Peter Miller was re-elected to serve a further four year term.

Of the eight candidates who contested the election of two external members of the Council following the retirement (by rotation) of Mr John Marks and Mr ‘Eddie' Kulukundis, Mr John de Courcy Ling MEP was elected and Mr Kulukundis re-elected to serve a further four year term.

Sir Kenneth Berrill, KCB, one of the four nominated members of the Council who retired, by rotation, was re-appointed to serve for a further period. His appointment was confirmed by the Governor of the Bank of England.

The Council elected Mr Peter Miller as Chairman for 1986 and Mr Murray Lawrence and Mr Michael Cockell as Deputy Chairmen for the same period.

In September the Council established a working party under the Chairmanship of Sir Kenneth Berrill to review the structure and staffing of the Corporation in relation to the existing and future needs of the Society. The working party's recommendations were considered by the Council in March and April 1986 and many of them have been implemented.

Mr David McWilliam took up his appointment as Head of Regulatory Services in August 1985 on the retirement of Mr Philip Brown CB.

Mr Ian Hay Davison, the Society's first Deputy Chairman and Chief Executive, submitted his resignation in November.

Mr Alan Lord CB was appointed to succeed him and took up his appointment as a nominated member of the Council with effect from 1 March 1986, the appointment having been confirmed by the Governor of the Bank of England.

There were seven candidates for the four working members' seats vacated by the retirement (by rotation) from the Council of Mr Frank Barber, Mr David Barham, Mr Terence Higgins and Mr Peter Miller. Mr John Greig, Mr Richard Hazell and Mr Gordon Hutton were elected and Mr Peter Miller was re-elected to serve a further four year term.

Of the eight candidates who contested the election of two external members of the Council following the retirement (by rotation) of Mr John Marks and Mr ‘Eddie' Kulukundis, Mr John de Courcy Ling MEP was elected and Mr Kulukundis re-elected to serve a further four year term.

Sir Kenneth Berrill, KCB, one of the four nominated members of the Council who retired, by rotation, was re-appointed to serve for a further period. His appointment was confirmed by the Governor of the Bank of England.

In September the Council established a working party under the Chairmanship of Sir Kenneth Berrill to review the structure and staffing of the Corporation in relation to the existing and future needs of the Society. The working party's recommendations were considered by the Council in March and April 1986 and many of them have been implemented.

Mr David McWilliam took up his appointment as Head of Regulatory Services in August 1985 on the retirement of Mr Philip Brown CB.

Mr Ian Hay Davison, the Society's first Deputy Chairman and Chief Executive, submitted his resignation in November.

Mr Alan Lord CB was appointed to succeed him and took up his appointment as a nominated member of the Council with effect from 1 March 1986, the appointment having been confirmed by the Governor of the Bank of England.

The number of members of the Society at the beginning of 1986 was 28,944 (1985 26,050); this represented an increase of 11 per cent compared with a year earlier.

Almost 9,000 members (34 per cent of the membership) increased their premium income limits and this increase combined with the number of new members generated an overall increase in the market's capacity of 29 per cent.

During 1985, the preparation of the new underwriting agreements, forum agreements and premium trust deed was completed. These documents will take effect on 1 January 1987. They have recently been distributed to agents for discussion with Names. The intention of the new documents is to provide a better protection for Names and assureds, and to ensure that Names are treated equitably in their dealings with their agents. They also reflect the developments which have occurred since the 1982 Act.

The Names Advisory Committee under the chairmanship of Lord Kimball dealt with 42 cases during 1985, its first year of operation. A wide variety of issues were referred to the Committee. Where the cases fell within its terms of reference it was able to provide assistance to the Names. However, where a number of cases already involved actual or imminent legal action by certain parties, they fell outside the Committee's terms of reference.

The Binding Authorities Byelaw (No. 4 of 1985) and its accompanying Code of Practice were introduced. The code has been designed to reflect recommended practice for the operation of binding authorities which should, ideally, be incorporated in all binding authority agreements.

Rules as to who may place reinsurance to close and a requirement for it to be signed at Lloyd's Policy Signing Office were defined in the Reinsurance to Close Byelaw (No. 6 of 1985). In addition the Council took the opportunity to issue practical guidance dealing with reinsurance to close, and in particular the documentation to be prepared to evidence this important aspect of a syndicate's operation.

Regulation of multiple syndicates has been addressed under the provisions of the multiple Syndicates Byelaw (No. 7 of 1985) and its accompanying Code of Practice. This byelaw prohibits the operation of relatively small syndicates unless specific consent thereto is given by the Council.

Furthermore, the Council's concern to improve the standards of competence of new entrants to the Lloyd's market was reflected in its promulgation of the Lloyd's Introductory Test Byelaw (No. 8 of 1985). The byelaw requires that everyone conducting business in the underwriting Room for the first time from the beginning of 1986 should pass the Test within a 15 month period in order that they may continue trading or working at Lloyd's - unless the Council is satisfied that they have sufficient experience in the conduct of insurance business.

The process of re-registering existing agents and registering new agents began in earnest in 1985. Over half the agents who are expected to register have completed the process and it is anticipated that most of the remainder will achieve registration by 31 May 1986. The registration process has placed particular strains upon the resources of underwriting agents, Corporation departments and the Council's Underwriting Agents Registration Committee. That such substantial progress has been made in a relatively short period reflects the level of co-operation and assistance extended by all involved in this exercise.

Following the implementation of new rules on syndicate accounting during 1985. registration of those firms which may carry out the audit of Lloyd's syndicates has also been undertaken. This process of syndicate auditor registration is intended to ensure that only firms with necessary resources and experience are active as recognised auditors. However it is also the Council's objective to increase the number of recognised auditors eligible to audit syndicates in view of the benefit this will bring to the market. As a result of this programme the list of recognised auditors is likely to comprise some twenty firms.

During 1985, comments were received on the report of the long term review working party under the chairmanship of Mr. Patrick Bird. The report, and the comments, were very wide-ranging and it was therefore decided that it would be best to deal with the urgent issues while consideration of the longer term topics continued. As a result, Names' underwriting will be measured on a ‘gross' basis including franchise. with appropriate adjustments to the deposit and means ratio with effect from 1 January 1988. From the same date, all members will be required to maintain means and deposits in line with the current requirements.

During 1985, the report of the working party on extended warranties and consumer guarantees under the chairmanship of Sir Kenneth Clucas was completed. The report was issued for consultation and comments have been invited from interested parties. The main recommendation of the report was that a code of practice should be established for extended warranty business transacted at Lloyd's and that compliance with the code would be reviewed and monitored by the Corporation.

Several major disciplinary and appellate proceedings, including those referred to as the ‘Howden' and ‘PCW' cases, were concluded during 1985. In these proceedings, the full range of disciplinary penalties have been imposed ranging from reprimands to expulsion from the Society. Periods of suspension have also been imposed on a number of defendants, and. in one case, a fine of £1 million was imposed. Costs in favour of the Society involving several hundred thousand pounds have been awarded. The Society is determined that all these sums will be recovered and defaulters will be pursued with the utmost vigour.

In November, the Government published the Financial Services Bill which gave effect to its proposals which were contained in the White Paper, "Financial Services in the United Kingdom: A New Framework for Investor Protection," published in January 1985.

The Bill, which completed its Committee stage shortly before Easter 1986, specifically exempts from its provisions the Society and persons permitted by the Council to act as underwriting agents at Lloyd's, in respect of investment business carried on in connection with, or for the purpose of, insurance business at Lloyd's.

However, in the context of Parliamentary discussion of the Bill, the Government announced in January 1986 the establishment of a Committee of Inquiry into Regulatory Arrangements at Lloyd's. Its purpose is to consider whether the regulatory arrangements which have been implemented under Lloyd's Act 1982 provide protection for the interests of members of Lloyd's comparable to those proposed for investors under the Financial Services Bill.

The Committee, under the chairmanship of Sir Patrick Neill QC, has been asked to report by the summer of 1986 and issued an invitation for submissions, to be made by 27 March. Lloyd's expressed its willingness to assist the Committee and detailed evidence has been submitted.

Lloyd's Law Reform Committee has been closely involved in protracted discussions concerning changes in the law relating to disclosure of facts by the insured in warranties and insurance policies. These discussions, which have also involved the Association of British Insurers and the Secretary of State for Trade and Industry, have led to the adoption of a New Statement of Insurance Practice which was announced by the Secretary of State in February this year.

As foreshadowed in last year's report, Lloyd's Log was re-launched in May as a prestige bi-monthly publication and the new monthly Lloyd's of London Newsletter was launched at the same time. Both publications have attracted favourable comment from members of the Society.

The hand-over of the new building by the contractor to Lloyd's has been progressing in stages since autumn 1985. Parts of the services areas and of the underwriting Room have been handed over for fitting out work to begin; the hand-over of the majority of the building is scheduled to take place before the middle of 1986. Progress on the underwriting Room, to a difficult programme, did not justify a move at Easter and, accordingly. the move was deferred. A visitors' viewing gallery and exhibition area is scheduled to open later in 1986.

The commercial letting programme has proceeded satisfactorily with the majority of the available space already having been reserved by tenants.

Planning continues for the refurbishment of the 1958 building with work on the conversion of the Room for Corporation of Lloyd's staff accommodation due to begin in the middle of 1986.

The market services development department continued to work closely with market interests to establish future business requirements.

More than thirty issues have been identified and there is continuous discussion and communication between the Lloyd's market and relevant Corporation departments to determine priorities. The market remains determined to improve both claims payment and documentation performance.

A system of slip registration received wide market support and will be introduced as soon as possible in 1986.

During 1985 a major re-organisation of the operating departments of the Lloyd's Policy Signing Office was undertaken in conjunction with a wide-ranging review of the procedures for preparing, checking and issuing insurance documentation at Lloyd's. This review, undertaken in conjunction with selected Lloyd's brokers, is seen as a necessary preliminary towards an acceleration of the delivery Lloyd's policies and other documentation to assureds.

A procedure whereby premiums and claims can be settled between brokers and underwriters on a weekly basis was made available during the year and has been instituted in the non-marine market. This represented part of an important long term initiative to accelerate the cash flow of Lloyd's business and improve cost efficiency and security.

Following a pilot study, a new computer system for providing underwriters with full details of outstanding marine claims is being programmed and due for full implementation in 1986.

Progress towards the definition of the initial business processing system for use by the Lloyd's market continued during the year. There has been particular emphasis on consultation with all sectors of the market in order to ensure that the requirements of all users are met as far as possible. A large number of differing views have been received and it is hoped to agree on the first stages of implementation shortly. The systems and communications group is also involved in reviewing procedures at Lloyd's Policy Signing Office to determine the extent they will need to change to accommodate the new systems.

A pilot system to display, in High Street brokers' offices, premium rates being offered by motor syndicates at Lloyd's has been developed and operational running is scheduled to commence in mid-1986. A record keeping system for the temporary life market has also been developed and is gradually being implemented.

A major task being undertaken by the group is the development of an integrated suite of programs for the membership area. Three priority areas have been identified as requiring the development of modern systems. These are systems for monitoring members' deposits, special reserve fund and process control: members' standing information and underwriting arrangements: and systems for solvency and premium income monitoring.

During 1985, some 120 development projects were completed. These included the first three phases of the new North American taxation system, introduction of a new weekly settlement system for Lloyd's Non-Marine Association. a late settlement reporting system and a purchasing system. During the year the organisation of the systems and communications group underwent further development designed to increase the overall levels of efficiency of the group and to ensure the effective use of manpower. The group now operates in three branches. These are:

Staff numbers within the group are expected to be maintained at between 320-350 reflecting the volume of development work being undertaken in the systems and communications area over the next three years.

Reflecting developments in the transportation field - especially maritime - the company reinforced its emphasis on expanding overseas markets and more than 40 per cent of sales were generated from outside the United Kingdom. However, despite increased turnover, net profit before tax was marginally lower thin in 1984 at £762.000. This reflected the impact of higher costs associated with the development of the company's activities in Hong Kong and New York, which are essential if the company is to retain its dominant position in the maritime, transportation and insurance publishing sectors.

Mr Ian Winchester took tip his appointment as chief executive of the company, in New York, early in March 1985. Initially, one of his principal concerns was the motivation of the company's existing personnel. In addition, several new staff appointments were made with a view to improving the range and quality of the services which Toplis and Harding can offer to both the Lloyd's community and many of its other valued clients.

1985 was a year of significant expenditure by the Corporation. Expenditure on the new building was virtually completed. This represents the Society's largest ever investment. In October, the Council agreed a payment of £43 million to the Inland Revenue on behalf of the members of Lloyd's in settlement of a dispute concerning certain reinsurances.

Staff costs increased by £3. 5 million in 1985 reflecting the planned expansion to meet the increased responsibilities of our self regulation and the continuing drive to maintain our highly competent staff. Overseas operating expenses decreased, in Sterling terms, as a result of the strengthening of Sterling in relation to the US Dollar during the year and the reduction in certain trustee fees incurred in North America,

The momentum of reform of the Society's regulatory machinery was maintained during 1985. Very significant progress has been made since the Council of Lloyd's met for the first time in January 1983: thirty nine byelaws, twelve amendments, four regulations and two codes of practice have been promulgated over the three year period.

Considerable progress has been made in the registration and re-registration of underwriting agents as a consequence of the divestment of managing agents from ownership by Lloyd's brokers as required under the provisions of the Lloyd's Act 1982. Against the background of the evolution of a comprehensive framework of modern regulation which has been facilitated by the 1982 Act, the Council and departments of the Corporation will be increasingly concerned to liaise closely with all sections of the Lloyd's market in the identification and implementation of services and systems to ensure the market's continued efficiency and effectiveness.

The Chairman undertook a number of overseas engagements on behalf of the Society. In March he visited Brussels accompanied by the Deputy Chairman, Mr David Coleridge. Meetings were held with Lord Cockfield, Vice President of the EEC and other senior officials of the Community.

In April, Mr Miller addressed the American-Swiss Chamber of Commerce in Geneva and the following month, accompanied by Mr Colin Murray and senior members of the Lloyd's broking community, he paid an official visit to The People's Republic of China. In Beijing the Lloyd's party met the Chairman of The People's Insurance Company of China, Mr. Shang Ming and other leading officials of the PICC before being received by Vice Premier, Tian Jiyun and Madam Chen Muhua, State Councillor and President of The People's Bank of China.

The visit, which was the first made to China by a Chairman of Lloyd's, had been arranged at the invitation of the PICC and included Tianjin, Xian, Guangzhou, Xiamen, Fuzhou and Shanghai covering, in all, some 7,000 miles. Returning via Hong Kong, Mr Miller addressed the local Shipowners' Association and Insurance Institute.

In May the Chairman, accompanied by Lord Kimball, addressed the National Association of Insurance Brokers at its conference in Sea Island, Georgia. Proceeding via Kentucky to San Francisco, where he was joined by Mr Michael Cockell, the Chairman participated in the annual meeting of the American Association of Managing General Agents. Finally, after a brief visit to Los Angeles, Mr Miller addressed a plenary session of the National Association of Insurance Commissioners in Kansas.

The Chairman paid two further visits to North America during 1985. In September he spoke at the Thirteenth Annual Marine Insurance Seminar in

Houston and in November he addressed the Insurance Brokers' Association of Ontario in Toronto.

During the year the Council and Committee of Lloyd's entertained many distinguished visitors. They included The Earl of Stockton PC; the Mayor of Lisbon, Sr Krus Abecasis; The Rt. Hon Leon Brittan MP, then Secretary of State for Trade and Industry; the Speaker of the House of Commons, The Rt. Hon Bernard Weatherill MP; the Governor of Texas, Mr Mark White; and the Ambassadors of Italy, Switzerland, Japan, The People's Republic of China, Sweden, France and the High Commissioner of Australia.

Mr Alan Lord, Chief Executive of Lloyd's, said at press conference recently that any move by Names to sue Lloyd's in the American courts would be fought ‘inch by inch'. The action has been proposed by a steering committee acting on behalf of some 400 PCW Names and lawyers have been instructed to draw up a writ under the Racketeer, Influenced and Corrupt Organisation Act (RICO).

Describing the move as ‘monstrous', Mr Lord compared the American action with the pending litigation in the UK which has been postponed by a standstill agreement while the search for a settlement continued. Lloyd's would challenge the US action on grounds of jurisdiction, said Mr Lord, and he doubted whether the claim would be made substantive.

Additional Underwriting Agencies (No. 3) Ltd. Letter

You will be aware that following a study of the principal documents signed by Underwriting Members, the Council decided that new forms of Underwriting Agency Agreements, Premiums Trust Deeds and a General Undertaking should be signed by all Members who participate in the 1987 account. The documents will be effective from the 1st January 1987.

We are studying with Lloyd's the effects of these documents for Names who participated in any syndicate managed by PCW/RBUA for any year of account which remains open - as shown on the enclosed schedule. We will not submit these documents to you until the matters at issue have been clarified. Therefore, there is no action that you need take but as most Members of Lloyd's will be receiving these documents shortly, I thought I should keep you informed.

Lloyd's Disciplinary Committee, being Messr's H Dunn QC., Chairman, P L Foden-Pattinson, M R Lester, in the matter of B C Peers, M M Brooks, J R Parry, F C Raven and Bellew Parry & Raven Ltd, informed by Counsel for Lloyd's as to the position of Bellew, Parry & Raven Ltd.

When the proceedings started on May 12 Bellew, Parry & Raven Ltd. were a Defendant to the proceedings. On 21st May we were informed by Counsel for Lloyd's that on Monday of that week, namely the 19th May the Deputy Chairman of Lloyd's had decided that Bellew, Parry & Raven

Ltd. be de-registered with effect from the 19th May. We were informed that the effect of that was that Bellew, Parry & Raven Ltd. are no longer Lloyd's Brokers, they have come off the register and in consequence that our jurisdiction over them ceased albeit in the middle of these proceedings. We were informed that this was consequent to the provisions of the Lloyd's Act 1982 in connection with the procurement of the mandatory divestments of Brokers and Managing Agents.

Accordingly we had no further jurisdiction in respect of Bellew, Parry & Raven Ltd. It was submitted on behalf of Mr. Parry and Mr. Raven that the costs claimed by the Council should be reduced by an amount, it was suggested of one-third, to reflect the waste of having included Bellew, Parry & Raven Ltd. in the proceedings and then taken steps which had the effect of dropping them from the proceedings after four days. We doubted if the costs had been increased in any significant way to either side by the inclusion of Bellew, Parry & Raven Ltd. over and above Mr. Parry and Mr. Raven. However we considered the point to be valid to a limited extent particularly as Bellew, Parry & Raven Ltd. must have incurred some costs themselves and we toot this matter into account to a small extent in reducing Lloyd's claim for costs to £55,000 in all.

We appreciated that we had no jurisdiction directly in respect of Bellew, Parry & Raven Ltd. consequent to the de-registering order with effect from the 19th May but we accepted the Defence point that Bellew, Parry & Raven Ltd. having been originally included and then dropped, it would be appropriate to give sum of costs to be awarded to Lloyd's.

We noted that there was nothing claimed in the bill of costs by the Council of Lloyd's in respect of costs for the preparation of the case against the company. (The Deputy Chairmen of Lloyd's in order of seniority were W M N Lawrence and M H Cockell. The investigations committee reports directly to the Council of Lloyd's).

Additional Underwriting Agencies (No. 3) Ltd. Letter

You may have seen publicity which followed a press conference given last week by Mr. Alan Lord, Deputy Chairman & Chief Executive of Lloyd's.

On the same day that these statements were made, which followed the meeting of the Council of Lloyd's held on the 12th May, the Chairman, Mr. Peter Miller, and Mr. Alan Lord met the Board of this Company to explain the Council's views on three matters. I describe the points which were discussed below:

1. Possible Legal Action in the United States

Lloyd's is not prepared to enter into any "standstill" agreement (as it has in the United Kingdom) which involve allegations under the Racketeer Influenced Corrupt Organisations Act and at the same time participate in settlement proposals. The reasons for this were explained by Mr. Lord in the press.

The matter of Solvency for Members participating in PCW/RBUA Syndicates was discussed. As you know from our earlier letters, we are continuing with our efforts to produce results for these syndicates as at the 31st December 1985 both for Solvency and accounting purposes. We will write as soon as there is an indication of the figures which Members can use in deciding whether or not to fund any deficiency on their account. We will also explain the basis upon which these figures have been prepared. We have stated already that we anticipate that final figures will not be available until the latter part of June and therefore we have sought from the Council an extension of the date by which Members must meet the Solvency requirements: 30th June.

As widely reported, the Council is committed to seeking to arrange a settlement as soon as results at the 31st December 1985 for the syndicates and years of account can be made available.

We were pleased to see the public statement that Lloyd's is firmly committed to seeking a settlement of the PCW/RBUA affair. We accept Lloyd's position on the U.S. "standstill" agreement because we remain convinced that a speedy settlement would be far more attractive to most Members than the alternative which is years of litigation and uncertainty. However, until specific proposals have been formulated none of the parties concerned can assess the position nor can they be certain, at this stage that a settlement can be achieved which is acceptable to all of them. Therefore, we continue to seek legal advice here and in the United States, in the protection of the Names' rights.

Letter from W.M.D. Underwriting Agencies Limited to all WMD Agents: Re. 1983, 1984, 1985 Years of Account. ANNUAL SOLVENCY TEST - PCW SYNDICATES 540/542 and 847.

I regret to say that the results of Syndicates 540/542 and 847 as at 31 December 1985, are not yet ready for distribution, nor for input to the Lloyd's Central Solvency System. I do, however, expect that the results will be available by the end of May. There are two basic reasons for the delay.

Firstly, until now we have been unable to verify the Underwriting Statistics upon which Patrick Fagan relies when calculating the RI to Close the 1983 accounts. The Underwriting Statistics are based upon figures previously processed by Richard Beckett Underwriting Agencies Ltd (‘RBUA') on our behalf, which were corrupted on transfer to a new computer bureau during 1985. The figures became further corrupted by the allocation at LPSO of business to the wrong year of account or to the wrong Syndicate (not the fault of the LPSO). A fuller explanation is given in my letter to Lloyd's on 29 April, a copy of which is enclosed. Patrick Fagan should receive verified figures today, when he will be able to start calculating the RI to Close.

Secondly, the board of WMD are not yet in a position to decide how to account for the Whole Account Quota Share Reinsurance ceded to RBUA Syndicate 157 out of the 1978 to 1983 Underwriting Accounts. Although these Quota Shares are supported by Line Slip Policies processed through the LPSO, their authenticity is being challenged by Additional Underwriting Agencies (No. 3) Limited (‘AUA3') who now manage Syndicate 157. We have sought guidance from Lloyd's Auditing and Accounting Review body on this matter.

It is our custom to have the Premium Income and Settlement figures audited as at 31 December each year, before sending them to you. These figures are extracted from the Underwriting Statistics, the late production of which has delayed the audit. I regret, therefore, that the Premium Income and Settlement Percentage figures for the year ending 31 December 1985 will not be with you before the end of May.

(It is too early at this stage to project the reserve movement the London market is likely to see at the coming year-end, however there are now in excess of 40,000 claims outstanding, and new suits filed over the past year have reached a level of 1,000 filings per month. There has in addition been an increase in the average per case settlement level achieved by the ACF, which is in part affected by the recent resolution of a major class action in Texas. If no relief develops in these trends, it is likely that reserves will see a further deterioration).

(and referred to the growing asbestos property damage problem).

I forwarded to you under cover of my letter of 7 May a copy of the presentation made on behalf of the London Market to the European Product Liability Congress in Berlin on 16/18 April 1986....

It is too early at this stage to project the reserve movement the London Market is likely to see at the coming year-end, however there we now in excess of 40,000 claims outstanding, and the rate of new suits filed over the past year has reached the level of 1,000 filings per month. There has in addition been an increase in the average per case settlement level achieved by the facility, which is in part affected by the recent resolution of a major class action filed in Texas. If no relief develops in these trends, it is likely that reserves will see a further deterioration, particularly when coupled with-the growing asbestos property damage problem, which will impact on IBNR. provisions already established.

The Auditors Notes to the 1980, 1981 and 1982 open years of account to 31 December 1985, of the Posgate Non-Marine Syndicate 126 restrict the True and Fair statement to the net result of each Member, whereas the annual report has been properly prepared only in accordance with the requirements of the Lloyd's Syndicate Accounting Rules. The True and Fair requirement is given for the first time, and is precisely five months after the Alexander Howden Offer of Restitution, whereby approximately 83% of the offshore rollovers were credited to the Marine Syndicate 127.

Seminar held in London on Insurance and Reinsurance Insolvency.

Ernst & Whinney INSIGHT No. 32. (492) Audit brief- Lloyd's syndicate.

(An Ernst & Whinney Insight stated that it is understood that by about the end of March 1986 some 8,000 claims had been cleared from an initial notification to the Facility of about 52,000 claims).

In March 1986 the Auditing Practices Committee of the Consultative Committee of Accountancy Bodies issued an audit brief dealing with Lloyd's syndicates.... The issue of this brief, however, has not given rise to any changes in the Ernst & Whinney audit approach for Lloyd's syndicates....

When a claim is settled, it is allocated to those participating in the facility using a complex formula; this recognises the involvement in each policy year to which the settled claim is deemed to relate. There is no distinction as to a definitive producer to whom the claim relates as this is almost impossible to determine accurately, because the claimant may have been exposed to asbestos products from different producers over the relevant time period. Obviously such a basis does mean that certain producers and their insurers are going to contribute towards claims which do not relate to them; however, it must be borne in mind that they will not be bearing the full cost of a claim which does relate to them because of the sharing mechanism .... ...

It is understood that, by about the end of March l986 some 8,000 claims had been cleared from an initial notification to the facility of about 52.000 claims.

There were six preliminary hearings which took place between 10 June 1986 and 7 January 1987, seven sets of instructions were given, some of these being accompanied or followed by written reasons, in particular the reasons for the Chairman's conclusion on 29 July 1986 that the Chairman has, under the Disciplinary Committees Byelaw, power in certain circumstances to order disclosure of relevant documents by the Council of Lloyd's or the Defendants.

The documents put before the Committee (together with the written submissions of Counsel and the daily transcripts) were contained in over 60 files, most of these being lever arch files. Many of the files were not in chronological order, and documents relevant to a particular charge or matter were in some instances scattered throughout many of the files. Many of the relevant documents on which the Defendants relied were not produced in accordance with the Chairman's instructions, but at much later dates, thereby causing inconvenience to the parties and to the Committee.

Each of the defendants was not an impressive witness. In this assessment, the Committee had regard, not only to the print of the transcripts of their evidence to the Singleton Inquiry and before us, but also to the demeanour of each of them before us which the print of the transcripts can only partially record. Each of them sought to diminish his role and his knowledge, in certain of the matters the subject of the Charges, to an extent which we found not credible. Each of them was lacking in frankness and evasive in the evidence to the Singleton Inquiry and before us.

Each of the BPR Principals showed a serious lack of appreciation, even at the most elementary level, of the duties owed by a director of a company, whether that company is in England, the IOM, Bermuda or Cayman. It was their own evidence that they did not attend Board meetings, receive copies of Board Minutes, receive or approve accounts, or approve major transactions of certain of the overseas companies, though in material respects we do not accept all this evidence.

City of Greenville & Greenville Water Sys. -v- W.R. Grace for South Carolina, 640 F. Supp. 559, D.S.C., 11 June 1986. Affirmed, 827 F.2d 975, 4th Circuit, 28 August 1987. United States District Court and Court of Appeals for the Fourth Circuit upheld jury verdict of $6.4 million in actual damages and $2 million in punitive damages against asbestos manufacturer. The decision was limited to the law of South Carolina which State had given jurisdiction in all asbestos cases to one judge.

Daily Telegraph: Legal move holds up Lloyd's PCW report

AN INJUNCTION has prevented circulation of an internal Lloyd's report on the scandals surrounding the PCW syndicates. Arthur Andersen which acted as auditor from the beginning of 1983, has prevented even the ruling council of Lloyd's from seeing the results of the Davis committee's investigations.

Just a year ago John Davis vice-chairman of Lloyd's Bank was asked to chair a fact-finding committee to investigate what continued to go wrong with the syndicates after the misappropriations were stopped and the people responsible removed.

The committee's report was ready by the end of May to send to the council but according to today's Accountancy Age magazine an ex parte injunction by Andersen put a stop to it. The main hearing is now to be in the High Court on July 11.

Lloyd's yesterday said the injunction would be "vigorously contested" and threw doubt on the validity of the Andersen claims. But the accountancy firm said some of the points in the report require further discussion and elaboration before publication.

The council of Lloyd's is committed to sending the report both to members of the syndicates and to the Department of Trade and Industry. An action group of members has delayed its threatened litigation until the report was ready, but the impending actions against Lloyd's, brokers, agents and auditors has made people involved extra sensitive.

Now not even the council has been able to see the report. It is thought that in addition to Andersen several other people involved had been criticised enough for them to be sent a draft copy in case they wished to rebut the accusations.

The legal department of Lloyd's is advising the Davis committee and will be fighting the court action. One of the points at issue is the accounts of Richard Beckett Underwriting Agency which took over the PCW syndicates. These were signed by Arthur Andersen and Arthur Young but subsequently qualified following a report by Price Waterhouse.

Ian Hay Davison, while he was chief executive of Lloyd's used to advocate the sun that drives way the mist as the argument for greater disclosure. On his resignation from Lloyd's he returned to Arthur Andersen as a partner.

Letter from W.M.D. Underwriting Agencies Limited to all WMD Agents: Re. 1983, 1984, 1985 Years of Account. PCW SYNDICATES 540/542 and 847 - ANNUAL AUDIT AS AT 31 DECEMBER 1985.

I regret, though, that we are not able to submit Form CS3 in respect of Syndicates 540,/542. We have not yet been able to resolve how to interpret the Slip Policies, under which Syndicate 542 (previously Syndicate 175) ceded business to PCW/RBUA/AUA3 Syndicate 157. Patrick Fagan and I hope to see the Chairman of Lloyd's today in a final attempt to resolve the matter. The Slip Policies covered the Years 1978 to 1983 inclusive and, since !982, have been accounted for as Whole Account Net Quota Shares. Up to 31 December 1984, Syndicates 175 and 542 had ceded sums of money totalling £5.9m (at 31 December 1985 exchange rates). This cession represented premiums payable of £6.4m less claims recoverable of £0.5m. In assessing the RI to Close the 1983 account of Syndicate 542, we have relied upon Syndicate 157 for security in respect of a net quota share of anticipated claims (settled, outstanding and IBNR) amounting go £4.8m. Of that sum £0.6m is due now in respect of claims settled, less premiums due, as at 31 December 1985.

However AUA3 is not in a position to agree that the Slip Policies represent a Whole Account Quota Share Treaty, though AUA3 does accept that the Slip Policies do record some form of reinsurance arrangement. Without a resolution to the problem, both Syndicates must reserve the full £4.8M - Syndicate 157, in case it has to pay it, and Syndicate 542 in case it cannot recover it. £4.8m is thus removed from the assets available for the Solvency Test. This is particularly pertinent to the 413 Names (61% of the Capacity of Syndicate 540/542) who are Members of both Syndicate 542 and 157.

Neither we, nor our auditors, are in a position to agree the final accounts of Syndicate 540/542 until an interpretation of the Slip Policies has been agreed. £4.8M is too significant a sum to ignore, being equal to 40% of Syndicate Capacity. If we can rely on the Quota Share, then a 1983 Name, with a £20,000 share in Syndicates 540/542, will have a £1,500 surplus for Solvency purposes; whereas he will have a deficiency of £5,800, if we can't.

Finally, at the request of Bill Goodier of AUA3, I must correct an erroneous statement in my letter to you of 20 May. AUA3 are not challenging either the ‘existence' or the ‘authority' of the Slip Policies. They are thus not responsible for the delay in the submission of the accounts of Syndicates 540/542. It is our inability to prove that the Slip Policies are in fact Whole Account Net Quota Shares which is causing the delay.

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

I had hoped that by this stage we would have begun to turn our attention to the regulations applying to Lloyd's brokers. I know that the many responsible members of the broking community were looking forward to working with us to modernise the regime which surrounds our marvellous selling arm. It is in the interests of Lloyd's that the title ‘Lloyd's broker' should remain one in which the holders can take pride and which can be obtained only by those who can display the proper degree of managerial efficiency and professionalism. Unfortunately, we have had to concentrate our resources on other vital matters, notably the Berrill Report and the Neill Inquiry and it has not proved possible to move as quickly as I, or the Council would have wished. If I may express a personal view, I would put forward three areas which are likely to concern us when we seek an improvement in the current registration procedures of Lloyd's brokers:

Those of you who have studied the report of the Berrill Working Party will, I think, have found it a clear and illuminating document. Certainly I welcomed it and its timeliness in that it provided a blue-print for the newly appointed Chief Executive whom on your behalf I would like today to welcome to his first Lloyd's General Meeting. He brings to the management of our affairs a formidable intelligence and an executive ability which will be of great importance. Much is expected of the Corporation of Lloyd's and rightly so. As Mr. Lord said upon his appointment:

First, it is our aim to approach a settlement without the complication of adherence to a deadline inherent in the solvency test. We believe that it will be possible to arrange for PCW Names to pass the solvency test on a basis which will leave open the possibility of a settlement before the end of this year. Second, in any possible settlement it is the Council's duty to ensure that those who have contributed in any way to the misfortunes of these syndicates or who have had a moral or legal responsibility in their management, should make a just contribution. Third, we, the Council have made it plain that we are not prepared to negotiate on the basis of a claim being made against us under the Racketeer Influenced and Corrupt Organisations Act in the United States. Finally, I note with interest, what one Member of Parliament (if he will forgive me for paraphrasing slightly) said during the second reading debate on the Financial Services Bill:

United States	14,000
Japan	9,700
EEC	7,700

Financial Times: Lloyd's may aid PCW names

THE AUTHORITIES of the Lloyd's insurance market may provide aid for the 1,525 underwriting members who have been hit by the troubles at the controversial PCW underwriting agency.

The hint of the move came yesterday at a general meeting of Lloyd's members from Mr. Peter Miller, chairman of Lloyd's.

In the PCW affair up to £80m of the underwriting members' funds were misappropriated by former executives of the agency. Further insurance losses of up to £250m are directly linked to past irregularities claim the underwriting members (names).

Attempts are being made by the Lloyd's authorities to reach a settlement with the names, many of whom are planning extensive legal action against Lloyd's and numerous other parties involved in the affair.

The settlement discussions have been complicated by Lloyd's internal market procedures. Each year al Lloyd's underwriting members have to demonstrate, through a solvency test, that they have enough personal assets to meet insurance liabilities incurred in their trading at Lloyd's.

Many of the PCW names face financial ruin because of the troubles.

Mr. Miller said yesterday that it was Lloyd's aim to approach a settlement without the complication of adherence to a deadline inherent in the solvency test.

" We believe that it will he possible to arrange for PCW names to pass the solvency test on a basis which will leave open the possibility of a settlement before the end of this year."

He declined after the meeting to elaborate on the type of arrangement that Lloyd's planned. In Lloyd's there is speculation that bridging loans, secured against Lloyd's own funds, might be arranged for members who would otherwise fail the solvency test.

Such a scheme would not be without precedent. When 110 members, whose affairs were managed by Mr. Frederick Sasse, faced financial difficulties a few years ago Lloyd's arranged bridging finance.

In any possible settlement Lloyds had a duty "to ensure that anyone contributing in any way" to the misfortunes of the names' syndicates should make a just contribution, Mr. Miller said.

But Lloyd's would not negotiate settlement if the members took their threatened action against Lloyd's in the US, he warned.

• Sir Nicholas Goodison has been re-elected as chairman of the Stock Exchange for the ensuing year.

Financial Times: Tough insurance law for Guernsey

A COMPREHENSIVE law to control insurance business in Guernsey was approved yesterday by the island's parliament and is due to come into force on January l.

Under the law, insurance companies operating in or from the island - except companies already authorised in an EEC country or exempted bodies such as friendly societies - will have to be approved by, and registered with the Guernsey authorities. Similar controls will apply to insurance managers.

In Sir Ian Morrow's letter of the 19th June, he mentioned that in past years substantial amounts of premiums, claims, and outstanding liabilities had been transferred between syndicates managed by PCW/RBUA under "Slip Policies". These transfers have affected materially the results of syndicates and therefore, we are studying both the principles of the policies and their operation, before deciding what action should be taken this year. You will see from WMD's letter that a Slip Policy exists between Incidental Non-Marine Syndicate 542 and Non-Marine Syndicate 157 which is under our management and upon which substantial losses have been sustained in the past.

Following the meeting to which WMD refer in the second paragraph of their letter of the 13th June we have explained to Lloyd's our understanding of the transfers which have been made in the past under the Slip Policies and we have shown them the evidence to justify our contention that they should not be regarded as whole account quota share reinsurances.

We are studying ways by which Members of the affected syndicates can meet the Lloyd's Solvency requirements and will write to you again as soon as possible.

The Audit Brief was published by the Auditing Practices Committee ("APC") of the Consultative Committee of Accounting Bodies ("CCAB") in 1986 and was specifically addressed to the auditing of Lloyd's Syndicates. The status of this document was described in the revised Explanatory forward to the Auditing Standards and Auditing Guidelines issued in January 1989 in the following terms:

Toplis & Harding (Market Services) Ltd letter to Insurers at Interest, signed by R A G Jackson.

In my letter dated 30th May I informed you that the first annual meeting of the Asbestos Claims Facility was to take place at Princeton on Tuesday, 3rd June. Considerable progress has been made ever the first year of operation to establish the necessary organisational requirements to handle effectively the large volume of outstanding asbestos claims. With effect from September 1985 the Facility took over the handling of all claims on behalf of member producers, and by May 1986 had concluded settlement on 3,300 claims at a total indemnity cost of $220,000,000. Although considerable antagonism was experienced initially in dealing with the plaintiff bar, a respect has now developed for the expertise of management and their advisors, and this is particularly so with the State courts.

A special meeting of the Facility Board took place on 17th June to review the manner in which the Facility has been financed in order to fund settlements during this initial phase of its operation and, more particularly to consider the changes that now need to be made to increase future efficiency. Initially the Facility established a line of credit in the sum of $15,OOO,OOO, which was later increased to $30,000,0000, from which settlement commitments were funded pending reimbursement from insurer billings. Whilst this system has operated in a satisfactory manner, its effectiveness is dependent upon prompt response to billing requests in order to re- establish the line of credit. Additionally, not only are operating costs increased due to the interest charges that are incurred, but also the Facility effectively assumes the credit risk for up to a sixty day period.

To date the insurer response to billings has been satisfactory and although the London Market is not necessarily the last to pay as our reimbursement is almost always satisfied within a 21 day period. However, the Board has drown to my attention delayed payment at an unacceptable level is still arising with a small number of London based companies to whom I shall shortly be writing. Where an insurer fails to satisfy a payment request within 30 days of receipt the Board will expect the involved insurer to bear a 10% interest penalty thereafter up to the time funds actually reach the Facility. In this way the Board considers the extra interest being incurred on the line of credit will fall more appropriately to the late payer rather than the entire membership. In the event that a late paying insurer has still not responded after a 60 day period, the Facility reserve the right to Insist upon the deposit of some form of financial security to guarantee both past and future settlement commitments. The Board intends that these arrangements will operate in respect to all overdue receivables as part of the strict security rules applicable both to insurer and producer members.

May I now turn to another matter which has been under constant consideration of the Working Party. The problems created by certain reinsurers writing outward London reinsurance do not appear to be easing at present, and it has been made clear to me that certain London cedants have reached a stage where they need legal advice preparatory to embarking upon litigation or arbitration. I have more than once reported that the Working Party are unanimously of the view that there is a commonality of interest between the cedant and the London Market as a whole, and that those interests are best served by co-ordination. Not only does this address pursuit of recoveries that on an economic base would be too small to pursue, it will also ensure that a consistent approach is adopted with containment of legal expenses that are incurred.

I have already advised you that the most common complaint arising from world-wide reinsurers is the inadequate level of information provided by the London Market. There is no doubt that our failure in this regard has given certain reinsurers grounds for issuing their own questionnaires which go beyond what a reinsurer may reasonably expect of the cedant. In order to address this problem, I am now enclosing for your information a copy of a Reinsurance Advice Form in respect of asbestos related claims. This form has been drawn up in co-operation with members of the Working Party, and the principle London reinsurance brokers and has received the support of a number of reinsurance interests in the Marine and Non-Marine Markets. It is the strongest recommendation possible of the Working Party that this new advice form be adopted as the standard document to be used on all outward London Market asbestos reinsurance advices. Arrangements are now in hand for the necessary printing, and copies will shortly be available from your reinsurance broker, who will be able to provide any advice you may require on the information to be supplied.

Let me emphasise to you that all members of the Working Party are concerned at the increased burden imposed by the new advice form, but at the same time we are convinced that more information must be provided if we are to obtain the substantial reinsurance recoveries to which we are due. Arrangements are being set up to ensure that to the extent possible Toplis & Harding (Asbestos Services) will assist in providing descriptive information on contracts in which you participate for direct writings, direct inward reinsurance or retrocessions. In addition, information of this nature will be repeated in all year end reinsurance reports.

In conclusion, I would like to comment upon the changing role in the service afforded the Market by Toplis & Harding (Asbestos Services). With the developing environmental problem and the coverage litigation that is now gathering momentum, the Working Party has been working closely with the Environmental Claims Group to ensure that the service company continues to provide the Market support you have come to expect. In view of the increasing complexity of the pollution problem it was decided that a Manager of the Asbestos//Environmental Claims Office be appointed, and I am pleased to advise you that this post has now been accepted by Dr. Malcolm Aitken. Dr. Aitken was formerly with Clarkson Puckle running the E.I.L. programmes, and is well versed in pollution matters. He will become actively involved with the Environmental Claims Group in the increasing volume of claim situations that are developing, and will be available to assist in problems experienced by Market participants, particularly in understanding this growing problem. It will also be necessary that further staff be employed to maintain standards of service needed and to relieve some Market people who have given up so much of their time in recent years.

Financial Times: European Court rules out nationalisation compensation claim

THE EUROPEAN COURT yesterday ended a long and bitter dispute between several UK companies and the UK Government by rejecting compensation claims relating to shipbuilding and Aircraft companies nationalised by the last Labour government.

A group of former shareholders in the nationalised companies, including Vickers and General Electric (GEC), said that the original compensation of about £130m was far too low. If met, their claims for extra money would have been around £500m.

Rejecting arguments that payments had been inadequate, the court said while the taking of property without compensation "reasonably related to its value" would normally constitute a violation of Article One of Protocol One of the European Convention of Human Rights, the state had a wide margin of discretion in deciding what was in the wider public and national interest.

The court rejected arguments that inflation and the companies' performance should have been considered between the compensation reference period and "vesting day" in 1977, when the businesses passed into the public sector. Nor was it impressed by suggestions that large or controlling shareholders merited a special premium payment.

The judgment which had been generally expected to be in the Government's favour, has important implications for the present Government's privatisation programme, since it opens the way for re-nationalisation without the threat of later action by shareholders.

The judgment came as a blow to creditors of Vosper, the hovercraft and engineering company. The receivers said that any extra compensation would have made possible a payout to them, as well as to shareholders.

Vosper had been claiming around £50m compared with the £5.3m paid under nationalisation.

The extra compensation claimed by Vickers could have totalled around £300m. Other plaintiffs were: Vosper, now in receivership and former owner of the Vosper Thornycroft warship yard, Yarrow, whose former yard is now owned by GEC, Dowsett Securities and Prudential (who owned the Brooke Marine yard), and Banstonian Company and Northern Shipbuildings and industrial Holdings (owners of the Hall Russell yard).

Sir William Lithgow, one of the principal claimants, who was in Strasbourg yesterday, said angrily outside the court that "the Government has scored the biggest political own goal in current political history."

Sir William, a former shareholder in the John G. Kincaid marine engine company said the judgment could pave the way for re-nationalisation of British Telecom by a future Labour government without adequate compensation.

He added: "It's bye-bye to privatisation and bye-bye to the Hong Kong Treaty, which depends on respect for Western-style property rights."

Sir William wanted £4m above the £1.07m he received for his 28% stake in Kincaid. He is going ahead with another claim for the Scott Lithgow yard, in which he owned nearly half the shares.

"You can hardly expect Marxists in Peking to pay decent compensation for property rights, when the Government has pleaded that no such rights exist in Britain," He said on the situation in Hong Kong, where Britain's lease expires in 1997.

As for British Telecom, which the Labour Party has said it intends to take back into public ownership, he advised shareholders to sell their holdings immediately.

Sir William and the other claimants argued that the original compensation paid after nationalisation of the assets in l977 was "grossly inadequate." They said the way their holdings were valued by reference to a six-month period at the end of 1973 and start of 1974 was unfair.

It constituted a violation of Article One, effectively a guarantee of individual property rights, they complained. The Government has argued that legislation to increase compensation would be unfair to those who sold shares on the original terms.

Vickers, whose share price fell 25p yesterday to 453p, said it was "disappointed but not surprised" at the decision. It received £47.5m, as did GEC, for its half-share in British Aircraft Corporation and £14m for its Vickers yard.

Financial Times: Ridley shelves legislation on councillors' conduct

THE GOVERNMENT is to shelve the Widdicombe report on the conduct of local government until after the next general election.

Mr Nicholas Ridley, Environment Secretary, has decided the proposals in the 314-page report aimed at preventing councillors misusing party political power to raise issues which will have to be carefully considered and which are too wide-ranging for legislation before the next election. Consequently the consultative period will be long.

Mr Ridley has said the subject should be looked at comprehensively and it would be wrong for ministers to pick out particular sections which appeal to them, as had been considered by environment ministers.

The report from an inquiry chaired by Mr David Widdicombe, QC, was published three weeks ago. It proposes statutory backing for a fair party balance on council committees, strengthening the role of chief executives, raising of council discretionary spending limits and a ban on senior local authority employees sitting as councillors on other councils.

Instead of tighter controls over councils, Mr Ridley favours increasing local accountability through reform of the rating system as set out in the consultative green paper this year.

Mr Ridley will, however, bring forward a local government bill in the next parliamentary session. This will include powers to require local authorities to seek competitive tenders on contracting out council manual services such as catering and refuse collection and to see whether present in-house arrangements are commercially justified.

The bill will also seek to outlaw discrimination by local authorities against contractors on political grounds. Lord Hailsham, the Lord Chancellor, feels such legislation is unnecessary in view of a Law Lords ruling that local councils could be subject to judicial review on grounds of reasonableness, but environment ministers believe some declaratory clauses are needed.

No decision has been taken on whether to introduce this section of the bill.

An overhaul of the system of capital controls by Whitehall over local authorities may be included in the bill after discussion with the Treasury.

It will include a reversal of the House of Lords amendments concerning political publicity to this year's Local Government Act. The original provisions will be reintroduced to ensure the banning of material in local authority advertisements which could reasonably be regarded as likely to affect public support for a political party.

They will also seek to provide an obligation on local authorities to have regarded to a departmental code of recommended practice on publicity.

The bill is intended to tidy up a number of local authority issues without breaking important new ground as would be the case with legislation either on the Widdicombe report or on the reform of the rating system in England and Wales. Both are to be introduced after the election.

The decision not to legislate on Widdicombe, which follows the dropping last week of plans on water privatisation, reflects both Mr Ridley's fresh look at the whole of his brief and the caution of the Government's business managers who do not want divisive legislation just before a general election.

Financial Times: Lloyd's plans fund aid for members in solvency test

THE AUTHORITIES of the Lloyd's insurance market plan to use a £167m fund, designed to protect the interests of Lloyd's policyholders, to help the 1,525 underwriting members hit by the troubles at the PCW underwriting agency.

The underwriting members face insurance losses of up to £250m, which they claim are directly linked to past irregularities at the PCW agency, in which up to £80m of their funds was misappropriated by former executives .

Details of Lloyd's moves emerged yesterday as Additional Underwriting Agencies Number 3, the company formed by Lloyd's to protect the interests of the PCW members, contacted the members affected.

The move follows assurances by Mr. Peter Miller, Lloyd's chairman, in the past few weeks that Lloyd's was exploring ways in which the members could pass the annual solvency test at Lloyd's.

Because of the troubles at PCW, many members face financial ruin and Lloyd's has been seeking ways in which the members could pass the solvency test while talks of a formal settlement were still in progress.

Sir Ian Morrow, chairman of Additional Underwriting Agencies, Number 3, said in a letter yesterday that " an asset for solvency purposes will be provided by Lloyd's equal to the aggregate net losses declared as at December 31 1985" for 10 syndicates into which the members were grouped.

Although he did not specify the type of assets that Lloyd's could use, lawyers involved in talks about the PCW affair said he arrangement would involve the Lloyd's central fund.

At a Special Meeting of the Council of Lloyd's, the Council confirmed the penalties of a 12 month exclusion, a 2 year suspension imposed by a Lloyd's Disciplinary Committee and upheld by the Lloyd's Appeal Tribunal, with the costs payable reduced to £90,000, upon Mr J Wallrock. The Report of \Lloyd's Disciplinary Proceedings was forwarded to those Names involved on the syndicates.

The findings of Lloyd's Disciplinary Proceedings, Case No 8401/W, (PCW) in respect of J Wallrock published.

The Central Fund Byelaw (No. 4 of 1986, 14 July 1986).

This replaced the Central Fund Agreement of 1927 as the instrument governing the levying, administration and application of Lloyd's Central Fund. The byelaw empowers the Council to prescribe the amount of the annual contribution to the Fund and to levy: additional contributions should these be necessary. The primary purpose of the Fund is the protection of policy holders, but it may be applied for any purpose where in the opinion of the Council it is expedient for the advancement and protection of the interests of the Names in connection with their underwriting business.

Financial Times: Lloyd's to use central fund to help members

A MULTI-MILLIION pound fund designed to protect the interests of people who buy insurance from Lloyd's of London will be used to protect the interests of the underwriting members or investors in the market.

The controversial move announced yesterday is seen as an attempt by Lloyd's to deal with the troubles surrounding the 1,525 underwriting members whose affairs were once managed by the PCW underwriting agency.

The PCW members have discovered that up to £80m of their money has been misappropriated by former managers of the agency and that they face up to £250m in insurance losses, which they allege are directly linked to the earlier irregularities.

Lloyd s plans to earmark money from the central fund for members failing the greatest hardship to ensure they pass a solvency test before any settlement.

Lawyers argued yesterday that Lloyd's had effectively mutualised an important fund in the market in a way which could lead to a conflicting interests between the market's policyholders and the underwriting membership.

Financial Times: Former chairman of Minet expelled

MR JOHN WALLROCK, the former chairman of Minet Holdings, one of Britain's largest insurance brokers, has been expelled as a member of the Lloyd's insurance market after being found guilty of misconduct by the market's authorities in a number of insurance deals.

Lloyd's has outlined, in an 88-page disciplinary report, various insurance schemes with which Mr Wallrock was involved and which he used for his personal benefit.

• In November 1976, $79,762 (£53.838) was paid to a Liechtenstein anstalt, a financial trust code-named New Fam, which had been formed for Mr Wallrock and which the beneficial owner was an undisclosed member of Mr Wallrock's family.

This money was used by Mr Wallrock to purchase a one-third share in the motor yacht Cardigrae VI. The money had been transferred from another anstalt set up for Mr Wallrock by the Banque du Rhone, code-named "Papix."

• On June 13 1978 £54,869.55, debited to Papix as $99,984 was paid to New Fam and used by Mr Wallrock to buy out the shares in Cardigrae VI owned by the beneficial owner of New Fam.
• On June 14 1978, $28,808 was paid to Mr Wallrock to a York and Geneva jeweller for the purchase of jewellery.
• On October 5 1979, $75,000 was paid to New Fam and used for repairing a yacht named Gloria II (subsequently called Albacara or Totolla) bought by Mr and Mrs Wallrock and his brother in 1978 when the Cardigrae was sold; and Mr Wallrock's brother's living expenses on the Albacara at Palma, Majorca.

Other funds were used to pay for repairs of the Albacara, the buying out of shares in the yacht; taxes on the yacht, legal expenses for the marriage break-up of a business associate, Mr Peter Cameron-Webb, the professional underwriter at the PCW agency.

The disciplinary proceedings have taken place after the discovery of irregularities at the controversial PCW underwriting agency, a subsidiary of Minet, nearly four years ago.

It was alleged that Mr Wallrock was guilty of dishonest misappropriation through reinsurance schemes involving members of Lloyd's funds.

In total seven charges were brought against Mr Wallrock. Under charge 1 Mr Wallrock was alleged to have dishonestly misappropriated funds from Lloyd's and on charge 7 he was alleged to have deceived Lloyd's when inquiries started.

On the latter charge it was alleged that he had failed to disclose important information relating to the transactions and misled Lloyd's into thinking that he had had no involvement in the transactions.

On charges I and 7 the disciplinary committee found Mr Wallrock guilty and imposed penalties of exclusion from Lloyd's.