From 1 January 1987,new audit codes were introduced in respect of Non-Marine All Other Business.
Early in1987, the Council authorised discussions to proceed with the Securities and Exchange Commission in the USA with the aim of establishing the criteria for the admission of US members. These discussions have not vet been finalised: it has been decided, however, that Lloyd's best interests would be served by applying the accredited investor status test for all US candidates. Consequently, agents have been advised that with immediate effect all US candidates must satisfy this test. (LeBoeuf)
7 Jan 87
GAFbecame a member of the Asbestos Claims Facility as a late joiner. GAF were regarded as a significant defendant in asbestos litigation and it was therefore reasonable to anticipate that settlement levels within the Facility would increase.
TheReport by Sir Patrick Neill QC into Regulatory Arrangements at Lloyd's, published. The Neill Report, appendix 8, refers to the undertaking given to Parliament by the Committee of Lloyd's, by their counsel Mr Boydell, on 20 July 1981 that it would "take all (reasonable) (proper) steps to ensure that the recommendations in paragraph 9.15 and 23.22 of the Fisher Report as to the availability of information are implemented by the Council whether through the making of byelaws or otherwise, as soon as possible and in any event within two years of Royal Assent" (day 7 page 7). At the request of the Chairman of the Parliamentary Committee, Mr Michael Meacher, that undertaking was extended to the recommendations contained in paragraphs 10.29 to 10.31 of the Fisher Report (day 7 page 9). Paragraph 9.15 and 23.22 of the Fisher Report dealt respectively with the disclosure of information to prospective Names and with the formulation and promulgation of Rules in respect of the maintenance of syndicate accounting records, the content and standard of syndicate accounts and their audit.
Paragraph 9.15 of the Fisher Report commences:- "We recommend that the Council should keep under constant review the requirements for disclosure to prospective Names, and should make the necessary Bye-laws and keep them up to date." Various other recommendations were made.
Paragraph 23.22, inter alia, states:- "Either through the Audit Committee or a new Accounting Committee and, in any event, with the close involvement of outside expert advisers, lay down rules (in an Accounting and Audit Manual which could replace part of the information currently set out in the Underwriting Agents' Manual) as to the minimum information to be disclosed in Syndicate Accounts and the accounting standards and principles which should be applied. These would need to be specifically designed to meet the circumstances of Lloyd's ..."
Paragraphs 10.29 to 10.31 dealt with the registration of members' agents, disclosure to Names by members' agents of changes in the ownership, or control of the agency or in the membership of the agency's board of directors or partnership, and with the constitution of members' agents boards.
"Spirit" of the Undertaking
As the day's proceedings before the Committee continued it was made clear (day 7 page 9 & 10) that the undertaking was one to implement the particular recommendations in paragraphs 9.15 and 23.22 in accordance with the spirit of Chapters 9 and 23 of the Fisher Report i.e. the provision of information to actual and potential Names to enable them to judge the relative merits of agents and of syndicates. An additional express undertaking was given (day 7 page 13) that the Committee of Lloyd's would take all reasonable steps to ensure that there was a review of the relationship between members' agents and brokers. In effect, therefore, Lloyd's undertook to mount a comprehensive review of the underwriting agency system and of the solvency audit and syndicate accounting systems and to implement appropriate legislation, and to fulfil the undertakings in the spirit of the chapters of Fisher to which the quoted passages were an appendage. The particular undertakings as regards Fisher paragraphs 9.15 and 23.22 were viewed by Lloyd's in that context. The Royal Assent was given on 23 July 1982. The two year period for the fulfilment of the undertakings therefore expired on 23 July 1984.
Letter from Attorneys to the Environmental Claims Group. Re: ... Priority List Update.
(A letter from attorneys to theEnvironmental Claims Reinsurance Group (ECRG) enclosed an updated Priority List, identifying some 90 assureds in respect of pollution claims).
The letter encloses an updated Priority List identifying some 90 assureds.
16 Jan 87
Letter from Laurence Philipps (Agencies) Ltd
Marine Syndicate 80
I attach a copy of a letter from the managers of the above syndicate. They have made an arrangement with the Bellew Parry & Raven Group which manages Syndicate 691 whereby John Macmillan will in future employ the 69l underwriter as a deputy to accept Yacht class business forsyndicates 80, 843 and 691 whilst Syndicate 80 underwriters will write general Marine business on behalf of all three syndicates. The management of Syndicate 691 will remain smith Bellew, Parry & Raven.
The691 experience was poor in 1982 and 1983 but is now on an improving trend and Mr Macmillan feels this is an opportune time to move into the class with an experienced underwriter under his control. The volume of Yacht business is expected to be about 5% of the total syndicate 80 premium income and we recommend members to support the venture.
19 Jan 87
Ernst & Whinney meeting designed for all UK partners, managers and assignment leaders with insurance clients. Chairman, Nigel Holland. Agenda: "the market" (John Philpott); asbestosis and other latent diseases (Stephen Hill).
21 Jan 87
Clemtex, Inc. -v- Southeastern Fidelity Insurance Co., 807 F.2d 1271, 5th Circuit. Court applied exposure trigger to case involving silicosis arising under Texas law.
26 Jan 87
Letter from the Chairman of Lloyd'sto syndicate partners, managers and assignment leaders. The Accounting and Auditing Standard Committee (AASC) has formulated the attached guidance on time and distance policies. Further consideration is being given to additional disclosures relating to the reinsurance to close in particular where the run-off of prior years of account of the syndicate has been reinsured. The guidance is attached.
27 Jan 87
Annual General Meetingof the Institute of London Underwriters: Statement by the Chairman, Mr. D D Lowen.
1986 was a most spectacular year in the history of the Institute of London Underwriters. The painstaking work carried out over a long period by chairmen, committees, Institute management and staff, together with planners builders and contractors, culminated in thesuccessful opening of our new headquarters and marine trading market in Leadenhall in March on schedule. The official opening of the building at the end of April by Her Royal Highness The Princess Anne, Mrs Mark Phillips, set the seal on the determination of all ILU member companies to provide a pleasant and efficient market environment for the benefit of brokers. It is only too apparent that it has been a great success, and the Institute is now poised to expand steadily in world marine insurance affairs and to provide a service second to none.
Coupled with thenew market environment a new sense of fraternity and discipline is emerging, with greater emphasis being placed on more efficient organisation within the individual underwriting units. Competent underwriters and their staffs are now highly valued and companies realise they are the key to future profits in what continues to be a difficult trading period.
As we are all to painfully aware, themarine insurance market suffered badly from the poor or mediocre years from 1979 to 1984. For a variety of reasons, however, and despite the continuing world-wide shipping slump, results from the years 1985 are encouraging. All responsible underwriters hope that these improved years will not provoke mindless expansion in the London marine market. Alas, already there are distinct signs of unwarranted rate cutting in other markets, accompanied by the frank admission of those local underwriters that they have to run for international expansion at any cost to survive the contraction in their own domestic business.
Thecloud of gloom hanging over shipping poses the greatest challenge to insurers and no one can expect growth in pure marine direct business in the foreseeable future. The prolonged recession means that old tonnage is not being replaced by new, and the average age of fleets is rising steadily. As always happens when the shipping industry is depressed, standards are eroded. The "Flagging out" of major shipping nations into what are often inferior flags is being felt - resulting in the inevitable lowering of crewing and maintenance criteria. Thus, an even greater responsibility is placed on underwriters to help ensure that standards are maintained - for instance, in classification warranties.
DANGERS IN PACKAGE BUSINESS
Oneregrettable result of the contraction of direct marine business has been the movement towards extraneous or "grey area" non-marine writing by some marine underwriters, encouraged by many brokers who find their brokerage declining because of diminishing capacity for certain business in traditional non-marine markets. For some time the concept of package business, mainly of an offshore or energy related nature, has been accepted in the marine market but normally restricted to oil and gas exploration and production. There is nothing unusual in that: the London marine market has always offered the finest service and adequate capacity in this area. However, there are problems in the oil and gas industries, aggravated by the fall in world oil prices, and offshore insurance business is now showing a sharp downturn. In this climate, therefore, it is understandable that attempt are being made to include difficult non marine business in these packages as brokers find it increasingly frustrating to market their risks, especially in the USA.
A further development arising from this practice has been the reaction of theLondon excess loss market in opposition to his trend, and attempts have been made to draft exclusion clauses for excess loss contracts in the areas of land pollution and non-marine casualty liability business.
RELIANCE ON EXCESS LOSS MARKET
The London market has reacted characteristically to these difficulties by arranging many meetings between reinsurance and direct underwriters, and hopefully the problems are well on the way m being solved.
Many direct marine underwriters of what I might call the old school feel thattoo much power and resources are flowing into the London excess loss market. Certainly, I agree, too high a velocity of recycling of the market's premium, together with the market's absorption of its own catastrophe cover, is not healthy. Excess loss business utilised sensibly is an idea way to spread risk; but when underwriters rely on it to the event that it dictates their original direct underwriting, then obviously the effect could be serious for London as the major marine offshore market.
RECOGNISING AB1LITY AND FLAIR
In view of the state of the shipping industry, the only viable solution available to the marine insurance market is to continue to improve its underwriting expertise and service.Technical ability and underwriting flair must be recognised and adequately rewarded. We are seeing the same qualities being handsomely rewarded in the City of London's financial services sector, and there is no reason why the insurance industry should lag behind. Every encouragement must be given to the people in our business to train for and achieve recognised qualifications so that underwriting, claims and back-up services are the best we can make them.
We must be thoroughly fit and ready for the next swing of the economic pendulum which, hopefully, will revitalise the ailing shipping and offshore industries.
WIDE VARITY OF THE ILU'S WORK
The work of the Institute in the year under review encompassed a wide range of subjects. We have continued to impress upon al sectors of the shipping, trading and commercial world the value of the security offered by the Institute policy. We have gone further in making our case to government and other regulatory bodies. Theannual visit of an ILU delegation to attend meetings of the National Association of Insurance Commissioners in the United States has become a regular date in our calendar, and I fee! that great progress has been made in making them aware of the of the firm basis of the ILU and its member companies.
We havediscussed matters of mutual interest with other market bodies and, in particular, with representatives of the broking houses. These discussions were all aimed at furthering the effective operation of the London insurance market, especially, of course, the marine and aviation sectors. In all these activities the executives and staff of the Institute have played an invaluable part, and I would like to place on record our appreciation and gratitude for the support we have received from them.
The professional approach which they bring to the variety of tasks they are asked to accomplish smoothes the path of the many chairmen of committees and sub-committees and, of course, of myself in particular. Also, I am personally indebted to my deputy, John Parton, for his loyal support and hard work and to Don Town, our immediate past chairman, for his help and guidance.
1986 was, as I said at the beginning, a great year for the Institute. 1987 will inevitably bring its own problems, some of which will be those we have met before; others will be new, requiring us to draw deeply upon the expertise and experience which our market has built up over the years.
Whatever 1987 brings, however, I am confident that the Institute and its members are in the strongest position to meet and overcome the challenges which lie ahead.
27 Jan 87
Peter Miller forwards a market circular to Members entitled "Regulatory Arrangements at Lloyd's" which, inter alia, states:
Neill's terms of reference were: "To consider whether the regulatory arrangements which are being established at Lloyd's under the 1982 Lloyd's Act provide protection for the interests of Members of Lloyd's comparable to that proposed for investors under the Financial Services Bill (now Act)"
Lloyd's is therefore being judged today not only on the work which has already been accomplished towards effective regulation in our Society, but also - and more particularly - in relation to the standards which will apply to many other City institutions in the future. At the same time, the Report identifies three deficiencies in particular areas of our work:
i )the failure to regulate aspects of Agents' charges and to publish a register of such charges as agreed in Parliament during the passage of the 1982 Lloyd's Act;
ii )defects in the method of dealing with parallel syndicates; and
iii)deficiencies within the standard Agency Agreement.
The identified shortcomings moreover fall within specific areas with which Neill otherwise expresses some satisfaction. On the subject of Agents' charges, Neill comments on the other measures which have been introduced by which the Names are "much better informed than hitherto", such as "greatly improved accounting and auditing arrangements" and"a central register of syndicate results."
With regard to Agents' charges it could be said that Lloyd's preferred (and adopted well within the time scale agreed in Parliament) what Fisher in so many words described as the more radical alternative - of publication of all syndicate results - rather than "rest content with the more limited proposals", which included a register of Agents' charges. Further, Neill comments that "most of the obligations arising from that commitment (to Parliament) were met within the agreed time scale". All that said, it must be a matter of deep regret, as we expressed to the Neill Committee, that we in any way fell down in such a serious matter as a Parliamentary undertaking.
Parallel syndicates fall within that area where conflicts of interest may act to the prejudice of Names' interests. Neill has (with the exception of parallel syndicates): "... no criticism to make of the actions that have been taken ... to deal with conflicts of interest that may arise in the market".
In this matter,Lloyd's has proceeded step-by-step by a combination of rules on disclosure supported by auditors verification, prohibition of very small syndicates (under 50 members), and a code of practice to deal with possible abuses. (It should be remembered that it is not the trading of syndicates in parallel that is in itself an abuse, but the misuse of the situation so created to "prefer" one to another by allocation of risk, expenses or reinsurance). In its approach to this problem, the Council was particularly advised by its Rules Committee, chaired by the then Chief Executive and the Council very carefully examined the suggested cure before adopting it. The suggestion by Neill that the adopted method is not "sufficient as a regulatory control" and therefore not effective to cure the possible abuse of the situation created by parallel syndicates, must and will be taken very seriously by the Council. We must test again the claim that there is a commercial need for parallel syndicates.
In all, theCommittee put forward some seventy recommendations for further action in the regulatory field at Lloyd's, to put Names who transact business at Lloyd's on a par with the protection which will (at a future date not yet certain) be available to City investors.
Without being able to commit Lloyd's precisely to any particular reform, in advance of discussion within the Council, it is clear that Neill has provided a very detailed list of further measures which we must be predisposed to adopt as part of the evolutionary process of that programme of reform upon which we have worked so assiduously over the past four years.
It seems to me however that we must not lose sight of one thing -trust. The relationship between a Name, his active underwriter and his underwriting agent must be based on complete trust, before it is even worth protecting by a legal framework.
Victor B Levitt, for the fifth time in recent years, delivers a paper entitled"Pollution, Clean Up Costs And Insurance Exposure" to the Under 30's Lloyd's Non-Marine Claims Committee.
4 Feb 87
Recognisedauditors meeting held at Lloyds.
(Mr. Jackson (Merrett Agency) addressed the meeting as to the continuing concern with asbestos.New cases are being advised at 1500 per month, which is higher than previously. The ACF means that expenses are down. It had been hoped that there would be a drop in claims in 1986 but this has not been evident. 900 new cases per month were reported in 1985, while 1500 new cases were reported in November and December 1986. The Facility settled claims at a higher rate than was expected. During the course of 1986 the London market expended approximately $70m in Facility billings and to some extent this figure was affected by accelerated cash-flow. Known claims will account for 25-30% increases in asbestos reserves at year end (31.12.86). Much of this increase will come from reinsurance and retrocessional contracts.
It was stated thatenvironmental pollution will account for increases in some reserves. The market will end up paying a lot on pollution but policy wordings may give us better defences than on asbestos. It appears inevitable that we are likely to see a continued growth in the involvement of the London market as new losses are reported. There appears to be a trend developing in the court findings arising out of various EPA coverage litigation which demonstrates more respect for the intent of insurers - namely that the seepage and pollution exclusion means what it says and that the date of damage cannot reasonably pre-date the time of discovery).
Presentation by Mrs C Shorthouse (Lloyd's):-
(iii) Audit opinions regarding run-off accounts: There are noticeable differences of opinion within the profession as to the most appropriate method of report on run-off accounts. For example, two firms dealt with the uncertainty by emphasis of matter to the effect that names' net results as shown in the personal accounts were true and fair subject to any material adjustments which may be necessary if the amount retained is understated. One firm felt that the uncertainties necessitated a qualification and two firms gave no opinion on the personal accounts. All other firms reported in accordance with bye-law provisions. Lloyd's view remains that auditors should report in true and fair terms. In certain circumstances, an emphasis may be appropriate but should not be included as a matter of course.
17 Feb 87
Recognisedauditors meeting held at Lloyds on 4 February.
Notes dated 17 February 1987 circulated from MA Bolger to Ernst & Whinney insurance partners and managers.
Themeeting was addressed by representatives of the four principal markets. Points to be watched include the following:...
mention was made of the continuing concern with asbestosis. New cases are being advised at the rate of 1,500 per month, which is higher than previously. The claims facility is running which means that expenses are down. R.I. calculation problems have been identified leading to litigation and arbitration.
TheJohns-Manville facility is earning interest and payment is likely to be made when Johns-Manville is out of chapter 11 in 1987. However, if an early settlement is not reached, an extra call from syndicates may be necessary. A market letter advising the interest and appreciation figures will be circulated in good time. Reserves for Shell have increased and further pollution losses have been incurred. 1984 was likely to be a poor result but there is some hope that the open years will be better with the shortening of accounts and the move to claims made settlements. [The proposed time-table (page 336) reveals that the author of these words is R Jackson.] Main concern is still asbestos. It had been hoped that there would be a drop in claims in 1986 but this has not been evident, 900 new cases per month were reported in 1985, while 1,500 new cases were reported in November and December 1986....
The Asbestos Claims Facility settled claims at a higher rate than was expected. During the course of 1986, the London Market expended approximately $70,000,000 in Facility Billings and to some extent, this figure was affected by accelerated cash- flow. It must be emphasised that even though there can be acceleration on a temporary basis, reserves established in underwriters' books would always be well in excess of payments made no matter how accelerated they were. Expressed another way, the payment is easily contained with incurred reserves, even though there is a speed up in the cash going out beyond that which was originally foreseen.. Known claims will account for 25-30% increases in asbestos reserves at year end 31 December 1986. Much of this increase will come from reinsurance and retrocessional contracts....
Environmental pollution will account for increases in some reserves.... In respect of Shell-Rocky Mountain,reserves will increase by $100 million. The Shell-Rocky Mountain case should come to trial in 1987. The market will end up paying a lot on pollution but policy wordings may give us better defences than on asbestos. It appears inevitable that we are likely to see a continued growth in the involvement of the London Market as new losses are reported. However , on a more encouraging note, it is worth observing that there appears to be a trend developing in the Count findings arising out of various E.P.A. coverage litigation which demonstrates more respect for the intent of insurers - namely that the seepage and pollution exclusion means what it says and that the date of damage cannot reasonably pre-date the time of discovery.
Ely Lilly obtained a "Keene" rulingwhich has been upheld. A settlement of $80 million plus for London's share, will be forthcoming soon.
1984 account will show desultory results. For 1985, 1986 and 1987 accounts the tail of liability business is shortening ... it is therefore anticipated that these accounts will show significantly better results than earlier years.
18 Feb 87
Ernst & Whinney management letter to Merretts written as a result of their initial audit work for the audit as at 31 December 1986.
26 Feb 87
TheEnvironmental Claims Reinsurance Group (ECRG) held its first meeting. Mr. Ayliffe was a member.
27 Feb 87
Letter from RAG Jackson, Chairman of the Asbestos Working Party, to the Insurers at Interest.
(The letter stated the following.There had been a substantial increase in the number of new law suits which arise from asbestos related causes. During the course of the first half of 1986 new cases were arising at the rate of approximately 900 new cases per month but as the end of the year approached a significant increase in new filings became apparent reaching a level of approximately 1,500 new cases for both November and December. The average cost of settlement per claim being achieved by the ACF has yet to reduce to the level which was the basis of the claimant reserve used in the calculations for year end reserves. There are a number of reasons why indemnity levels have not been capable of being reduced, the most significant being the aggressive attitude adopted by the Courts in the Texas class action and the material effect this has had upon the overall average settlement costs. Once again it has not to date proved possible to reduce the substantial outlay in regard to costs which are being incurred through the liaison counsel acting on behalf of the ACF. There are a number of reasons that bear upon this issue, the most significant of which is the pressure being exerted by various courts to speed up the number of cases which are addressed during the coming months. With this increased activity it appears unlikely that we shall see any meaningful reduction of legal costs during the present year. The main area of concern is the substantial increase that has developed in new filings which are clearly arising as a result of an all out effort by the plaintiff Bar in conjunction with the unions to canvas claimants from industries with only a remote asbestos involvement. Mass screening is developing in the tyre industry where pulmonary problems are said to exist due to an exposure to talc which may contain minimal quantities of asbestos and which is used in the moulding process. Similar screening activities are now being reported from the steel industry. The letter quoted an extract from a recent Wall Street Journal article which summed up this new form of ambulance chasing. It is significant that claims that are generated in this fashion arise from individuals who have little or no disability and even assuming that liability was to fall upon asbestos producers - which is questionable - the measure of damages should be minimal. For some time it has been the perception of the Facility that the quality of more recent filings was less serious than formerly. The average indemnity levels which we are experiencing in the Facility reflect the severity of claims arising some 5 years ago and it would be reasonable to anticipate some reduction to develop as we start to address more recent cases. I emphasised this point at a recent meeting of Panel Auditors as a consideration that needs to be kept in mind in endeavouring to address future loss development. The problems arising out of asbestos related claims continue to become more serious with the passage of time. Indeed many producers are now being forced to recognise the present trends are such that they must now contemplate that there will be a future point in time at which they exhaust all insurance coverage. The majority of claims arise from asbestos exposure in an occupational environment and for employees in certain occupations such as shipyards and railroads they already have protection afforded for occupation disease under existing Federal legislation. In the event that a Bill were to be passed by the House supporting this objective it would greatly ease the burdens being imposed upon asbestos producers under the strict product liability theories).
I have advised you in earlier letters of the concern expressed by the Facility at the substantial increase in the number of new law suits which arise from Asbestos related causes. During the course of the first half of 1986 new cases were arising at the rate of approximately 900 new cases per month but as we approachedthe end of the year a significant increase in new filings became apparent reaching a level of approximately 1500 new cases for both November and December. The reserve projection contained in year end reports circulated to the Market were based upon the lower level of new losses then being experienced and assuming that the substantial increase which we are now seeing continues during the course of 1987 it will be apparent to you that this will have a material impact upon the reserves that will be reflected in the year end 1987 reports. Two other significant aspects which bear upon the potential for reserve increases are that the average cost of settlement per claim being achieved by the Facility has yet to reduce to the level which was the basis of the per claimant reserve used in the calculations for year end reserves. There are a number of reasons why indemnity levels have not been capable of being reduced, the most significant being the aggressive attitude adopted by the Courts in the Texas Class action and the material effect this has had upon the overall average settlement costs which we have achieved...
An additional consideration that enters into the reserving philosophy relates tothe defence cost being incurred by the Facility. Once again it has not to date proved possible to reduce the substantial outlay in regard to costs which are being incurred through the Liaison Counsel acting on behalf of the Facility. There are a number of reasons that bear upon this issue, the most significant of which is the pressure being exerted by various Courts to speed up the number of cases which are addressed during the coming months. With this increased activity it appears unlikely that we shall see any meaningful reduction of legal costs during the present year. The Board have devoted considerable efforts in this area and a budgeting business plan has now been produced setting out revised control procedures which should contain further increases. The tentative goal for 1987 has been set at $89.75m although whether this proves to be attainable must depend upon future litigation activity. One favourable feature arising from the entry of GAF is that with our ability to provide a common defence for all producer members no increased costs will arise and those costs which are incurred will now be allocated over a larger base.
The experience achieved to date within the Facility and the pressures that are now developing will be a major consideration to be taken into account by the representatives of the Working Party when we come to address the basis upon which the 1987 year end reserve projections will be based.The main area of concern is the substantial increase that has developed in new filings which are clearly arising as a result of an all out effort by the plaintiff bar in conjunction with the Unions to canvass claimants from industries with only a remote asbestos involvement. Mass screening is developing in the tyre industry where pulmonary problems are said to exist due to exposure to talc which may contain minimal quantities of asbestos and which is used in the moulding process. Similar screening activities are now being reported from the Steel industry and the following extract from a recent Wall Street Journal article sums up this new form of ambulance chasing...
It is significant that claims that are generated in this fashion arise fromindividuals who have little or no disability and even assuming that liability was to fall upon asbestos producers - which is questionable - the measure of damages should be minimal. For some time it has been the perception of the Facility that the quality of more recent filings was less serious than formerly. The average indemnity levels which we are experiencing in the Facility reflect the severity of claims arising some five years ago and it would be reasonable to anticipate some reduction to develop as we start to address more recent cases. I emphasised this point at a recent meeting of Panel Auditors as a consideration that needs to be kept in mind in endeavouring to address future loss development...
The result of there-evaluation of reserves will effectively reduce those reserves presently carried on post coverage block years based upon the current volume of outstanding claims. As the coverage limits in the Initial Coverall Block became depleted by future settlements GAF will add, on a sequential basis, subsequent years of coverage to expand the insurance available. When these future developments take place and assuming that there is no substantial reduction in the rate of new filings it must follow that there continues to be a potential IBNR exposure to all post Coverage Block years. From the above comments it will be apparent to you that the problems arising out of asbestos related claims continue to become more serious with the passage of time. Indeed many producers are now being forced to recognise the present trends are such that they must now contemplate that there will be a future point in time at which they exhaust all insurance coverage. This serious position has caused producers to renew their efforts in seeking to obtain Federal Government recognition of the dilemma which they face and more particularly to provide some relief to the liabilities which they are now required to address. There are presently pending before the Senate draft bills which provide that where a claimant has a right of action under a Federal statute this will be an exclusive remedy.
The majority of claims arise from asbestos exposure in an occupational environment and for employees in certain occupations such asShipyards and Railroads they already have protection afforded for occupation disease under existing Federal legislation. In the event that a Bill were to be passed by the House supporting this objective it would greatly ease the burdens being imposed upon asbestos producers under the strict product liability theories...
4 Mar 87
At a meeting of the Council of Lloyd's on 4 March 1987, the Council agreed the composition and terms of reference of the following new committees and working groups arising out of the Neill Inquiry.
Underwriting Agents Registration Committee
The Neillrecommendations (Nos. 42-45, 47-50) relating to this committee and its functions are contained in Chapter 9 of the Neill Report. An additional recommendation (No 40) on parallel syndicates is included in chapter 5 and this will be considered by a sub-committee of the new UARC. The existing UARC will continue until 22 July 1987 to complete the present registration function as a committee of the Committee of Lloyd's
The new UARC's broad terms of reference are to propose to the Council of Lloyd's arrangements for implementation of Neill's proposals covering the registration and continuing approval of underwriting agents at Lloyd's and therefore to assume the powers of the UARC conferred byUnderwriting Agents (Interim Provisions) Byelaw (No 8 of 1984, 8 October 1984).
Parallel Syndicates Sub-Committee
The Sub-Committee's terms of reference coverNeill's recommendations (No 40 and 41) that the present Code of Practice on multiple syndicates should be replace by a more specific Byelaw covering the whole area of parallel syndicates.
Information to Existing and Applicant Members Working Group
The relevantrecommendations (Nos. 2-7 and 39) are contained in Chapters 1 and 8 of the Neill report. The Working Group's terms of reference cover the provision of information to applicant an existing Names which enable them to evaluate the risks and merits of membership.
Names' Interests Committee
As recommended by Sir Patrick Neill's Committee of Inquiry, anew Names Interests Committee was established in March 1987, chaired by Sir Kenneth Berrill KCB. During the year, the Committee formulated the byelaws enacted by the Council in December setting up the office of the Lloyd's Members' Ombudsman and putting in place a modified arbitration procedure in relation to certain disputes between members and agents. The Committee also took over responsibility, in June, from the former Names' Advisory Committee for giving advice or assistance to individual members; over the year some 15 such requests were considered.
Therecommendations Nos. 29-38 relating to this committee and its functions are contained in chapter 7. Its terms of reference cover arrangements for the effective investigation and resolution of complaints by Names against underwriting agents and the Corporation of Lloyd's.
4 Mar 87
The Council and Committee Byelaw(No. 1 of 1987, 4 March 1987).
4 Mar 87
Quorums and Appointments of Committees and Sub-Committees (Amendment) Byelaw(No. 2 of 1987, 4 March 1987).
4 Mar 87
Ordinary and Extraordinary General Meetings (Amendment) Byelaw(No. 3 of 1987, 4 March 1987).
4 Mar 87
The Membership (Amendment No. 2) Byelaw(No. 4 of 1987, 4 March 1987).
This Requires Members to comply with the current Financial Requirements as at 1 January 1988.
Likewise, thedisclosure of any commission, remuneration or benefit given or received in connection with a candidate's membership of Lloyd's. The Rota interviews during 1987 required the prospective members to state whether any such payment has been given. The year also saw the implementation of the Neill Committee's recommendation that the agent should leave the Rota interview for a period to enable the candidate to be questioned alone.
4 Mar 87
TheUnderwriting Agency Agreements Working Group
The Council of Lloyd's at its meeting on 4th March 1987 established a working group with the following terms of reference:
(2). To prepare for submission to the Council of Lloyd's aninterim report suitable for wide consultation concerning the following major issues:
Initially the group consisted of:
10 Mar 87
Merrett's letter to run-off cedants.
30 Mar 87
Ernst & Whinney internal memo from Stephen Hill to syndicate audit executives and assignment leaders. Professional standards panel (PSP). The firm's rules relating to qualified ornon-standard audit reports reply equally to syndicates as to any other clients. Any qualified or non-standard report relating to a syndicate for which an independent partner review is required would require the approval of the PSP.
Managing agents and underwriters reports: The auditors responsibility is to report on these documents on an exception basis only, that is, where he considers them to be inconsistent with the content of the syndicate annual reports. However, we owe a duty to our clients to review these reports for compliance with the bye-law and to advise accordingly....
Asbestosis: the treatment of interest on Johns- Manville payment into Court has been raised with insurance technical sections. It is apparent that a number of different treatments have been operated in the market. I draw your attention to my memo dated 12 April 1985 on this matter a copy of which can be obtained from my secretary. I stress the point made in that memorandum that the treatment set out is a preferred and not a prescribed basis. I am in possession of a letter from Toplis & Harding (Asbestosis Services) Limited dated 6th November 1986 regarding accelerated cash-flow payments on the asbestos claims facility. This does not add any new light on the matter, I have already disclosed to executives and staff but gives a general review of the subject together with some figures at 31 July 1986. If anyone would like a copy of this letter please let my secretary know.
31 Mar 87
Additional Underwriting Agencies (No. 3) Ltd (AUA (3))was appointed by Lloyd s on 5 August 1985 to act as the managing agent of the PCW syndicates in place of Richard Beckett Underwriting Agencies Ltd (previously PCW (Underwriting Agencies) Ltd. The report and accounts made up to 31 December 1985 are dated 31 March 1987, a delay of only some 12 months. Spicer & Pegler state:
1. Subject to the matters set out in paragraph 2 our work has been carried out in accordance with approved Auditing Standards.
2. We have received full co-operation from Additional Underwriting Agencies (No. 3) Limited (A.U.A.3) butthe scope of our audit has been limited by the following matters:
a) On 5th August, 1985
b) We were appointed as syndicate auditors in August 1985, following the resignation of Arthur Andersen & Co.We have not been allowed to review Arthur Andersen s working papers relating to the audit for the year ended 31 December 1984 for the open and run-off years of account. They became the sole auditors following the resignation of Arthur Young as joint auditors in August 1984 in accordance with the requirements of Lloyd s Byelaw No 10 of 1984.
c) We are aware that, since November 1982, a number of reports have been written by various third parties on behalf of different interests in relation to the business of the AUA 3 syndicates. We have not been permitted access to all the reports written.
Consequently we are unable to form an opinion as to whether we have received all relevant information relating to the business of the syndicate prior to our appointment and specifically to transactions occurring before 1 January 1985 in respect of the open and run-off years of account.
Apart from thelimitations in the scope of our audit necessitated by the matters described in paragraph 2 above, there are various other material and inherent uncertainties which affect our audit opinion. These are referred to in note 1 to the aggregate balance sheet which note explains the basis of preparation.
Note 1. Basis Of Preparation:
The aggregate balance sheet at31 December 1985 has been prepared to show the aggregate state of affairs of all the syndicates listed in note 7(i) and having regard to the matters explained below.
Since its appointment as substitute managing agent, A.U.A.3 has made extensive efforts to produce reliable accounts for the syndicates. In particular, it has re-assessed the basis on which the reserves for outstanding liabilities should be determined, and has examined in detail the accounting principles and assumptions to be adopted in the syndicate accounts.
A.U.A.3 have found that, to a great extent, the principal syndicates were managed by the previous managers as a group without always recognising the interests of individual syndicates. Many problems arose from this method of management, in particular relating to the transfer of business between syndicates, the use of group reinsurance programmes and the pooling of assets in cash groups. A.U.A.3's investigations indicate significant accounting irregularities under previous managers which call into question many of the accounting decisions made by them and the reliability of the accounting records inherited.
All of these problems have a material effect on the individual syndicates and as a result ithas not proved possible to prepare syndicate accounts in accordance with the Lloyd's Syndicate Accounting Byelaw (No. 7 of 1984).
The aggregate balance sheet has been prepared in the light of the problems referred to above and incorporates the assumptions made by A.U.A.3 particularly as regards the reinsurance recoveries and the accounting records themselves.
The open year of account balances for all open years less than three years old reflect underwritingtransactions up to 31 December 1985 but do not include subsequent premiums and claims which may arise before the accounts reach the end of their third year and no provisions have been made for any additional underwriting losses which might arise.
The run off account balances for years which have not been closed because of uncertainty reflect in addition to underwriting transactions up to 31 December 1985 an estimate of the known and unknown outstanding liabilities of these accounts so as to establish estimates of the aggregate ultimate underwriting results for those accounts.
(The accounts as at 31 December 1985 were signed off on 31 March 1987, and not in 1986.)
0 Apr 87
TheCouncil agreed with the Government in April 1987 that they would aim to deal with the remaining 32 Neill recommendations within two years.
9 Apr 87
Offers were made by the Society of Lloyd'sto the members of the syndicates managed by AUA3 (with the exception of eight names)v with a view to ending the involvement of those members in the PCW affair. The offers were declared unconditional on 19 June 1987 and were accepted by 98.4 per cent of the members to whom they were made. Under the terms of the ensuing settlement a reinsurance to close policy was effected with Lloyd's syndicate 9001 in respect of all members who assented to the offers thus terminating their involvement in the PCW syndicates. Syndicate 9001 was specially constituted for this purpose and has been 100 per cent reinsured by Lioncover Insurance Company Ltd, a UK authorised insurance company, which is a wholly owned subsidiary of Lloyd's. The reinsurance to close transactions arising from the settlement will be accounted for in the 1987 global accounts.
The contribution to the Settlement
1 (a) Allocation between Members
The contribution of approximately£34 million to be made by Members is approximately 25% of Members' non-marine premium income capacity (including incidental non-marine) and approximately 15% of Members' marine premium income capacity allocated to their PCW Syndicates.
1 (b) Maximum contribution
An adjustment has been made tolimit each individual Name's contribution to a maximum of 25% of his estimated aggregate PCW losses (after personal expense).
(iii) The Reinsurance to Close contract—This contract (the text of which appears at page 52) in effect assumes all your underwriting liabilities and brings your financial involvement in the PCW Syndicates to an end. A certificate in respect of the reinsurance to close will be sent to you, if you accept and the Offer becomes unconditional.
2. Reinsurance to Close arrangements
(a)Syndicate 9001 and Lioncover Insurance Company Limited
The reinsurance to close policy to cover every Member who accepts the Offer will be issued 28 days after the Offer becomes unconditional. It will be underwritten by Lloyd's syndicate 9001 which has been specially constituted. The members of that syndicate are:
1. Mr. Peter Miller, the Chairman
2. Mr. Murray Lawrence, the Senior Deputy Chairman
3. Mr. Alan Parry, the Junior Deputy Chairman
None of the members of this syndicate will benefit in any way from membership of this syndicate.This syndicate will be 100 per cent reinsured by Lioncover Insurance Company limited which is a wholly owned subsidiary of Lloyd's; an application for the authorisation of this company as a U.K. insurance company is being prepared.
Contributions by other potential Defendants and Lloyd's
As is explained in the Chairman's letter, a total sum of approximately £55 million has been contributed by companies and firms who may be under a legal or moral responsibility to you in respect of this affair and by the Errors and Omissions market. They have agreed to contribute on the basis that they firmly deny any liability and that if the Offer does not become unconditional they will vigorously defend any proceedings brought by you or on your behalf.
The contributors (in addition to the Errors and Omissions market) are (in alphabetical order)
Although these parties are contributing to the overall settlement, Lloyd's is not acting as their agent and they are not parties to the proposed Settlement with you or AUA3.
(b) Contribution from Lloyd's
Themonetary contribution made by Lloyd's is approximately £48 million, also referred to in the Chairman's letter. It is made on the basis that any liability is firmly denied. Lloyd's contribution will be paid out of the funds of the Society to which you as a member of the Society will, like all other members, have contributed. Any deterioration in the future will likewise be borne out of the funds of the Society.
(a) 1984 Offer
(i) United Kingdom
To facilitate settlement
8.Variation of Underwriting Agency Agreement, Premiums Trust Deed and General Undertaking
On 1 January 1987 Lloyd's introduced new forms of these documents. By letter of 20 November 1986 Lloyd's agreed that the forms should be deemed to be varied in certain respects so as not to prejudice the position of PCW Names. If you accept the Offer and it becomes unconditional, these variations will cease to have effect four weeks after the Offer is declared unconditional.
9. Disclosure and Misrepresentation
The Offer made by Lloyd's isbeing made in the context of threatened litigation in which numerous claims would be asserted on your behalf against Lloyd's and other Defendants, all of which it is understood will be strenuously defended. The factual background to the PCW Affair is in many respects highly complex and obscure and the management of the Syndicates by PCW was in many respects irregular prior to 1982. In these circumstances and in the light of the contemplated litigation involving many parties, it would be contrary to usual practice, particularly in proceedings involving many defendants, to make any disclosure. Furthermore, Lloyd's itself has acquired certain information in circumstances in which such information cannot be disclosed; Lloyd's is bound by its statute and its byelaws as to the confidentiality of information received in disciplinary proceedings and investigations.
The evidence Lloyd's received as a result of theTuckey-Holland Inquiry was received only after express undertakings of confidentiality had been given by the independent investigators; similarly the evidence given in the disciplinary proceedings is confidential. Reports of the relevant Disciplinary Committees have been published and are available from Lloyd's. As has been explained, potential Defendants are contributing substantial sums towards this settlement. In addition a reinsurance to close is being underwritten by syndicate 9001, with a reinsurance by Lioncover. All of these persons, therefore, are or will be making commitments on the basis that this Settlement brings finality.
Moreover, this Settlement is intended to bring the PCW Affair to a final conclusion as far as you are concerned: you will not be liable to make any further contribution as a Member of the Syndicates and Lloyd's will take the risk of all future deterioration in the Syndicates' underwriting losses. To ensure this finality and to take account of the complexity and obscurity of the factual background and the irregular management of the Syndicates by PCW prior to 1982, Lloyd's requires all the parties to the Settlement to accept that in relation to the Settlement and the negotiations connected with itno liability or cause of action or right to rescind shall exist or arise in respect of any negligent or innocent misstatement or misrepresentation and that there are no duties of disclosure whatsoever in relation to the Settlement. Your attention is drawn to the comments in the letter from the Chairman of AUA3 at pages 7 and 8. (see extract of AUA3's letter of 9 April 1987).
9 Apr 87
Additional Underwriting Agencies (No. 3) Ltd letter from Sir Ian Morrow
The rights you are giving up
If you accept the offer you will give up all claims of any kind which you may have against any party arising from the PCW affair.
Since our appointment we have devoted substantial resources to formulating claims which might be brought on behalf of Names to recompense them for the wrongs they have suffered. We have prepareddraft writs against more than 70 potential defendants including the former syndicate managers, their controlling shareholders, the sponsors of the offer made to Names in 1984, the brokers responsible for placing a number of the policies, the former syndicate auditors, Members' Agents, and Lloyd's itself. We have also prepared draft points of claim against the principal potential defendants and a copy of this (which exceeds 150 pages in length) is available to any Name or Members' Agent who requests it. The issues arising are complex.
A number of factors make it impossible, at this stage, to give advice as to the amount which may be recovered in these proceedings.Our prime difficulty is lack of evidence. Many of those who could provide us with evidence are potential defendants or unwilling for other reasons to provide us with the necessary information. The records of the syndicates are in many cases inadequate or missing altogether. Lloyd's has advised us that it is unwilling to make disclosure of the information in its possession because, it maintains, it would be unusual to disclose information which might count against it in the course of settling litigation which has not yet been commenced. Lloyd's is bound by its own byelaws and by undertakings of confidentiality, which have been given in investigations and disciplinary proceedings, not to disclose to anyone any evidence given in those investigations and proceedings. Such evidence might well have assisted us in assessing the value of your claims.
I must emphasise that youare giving up all your rights except rights to claim under personal stop loss policies. The rights you will give up will include any special rights which individual Names may have against, for example, their Members' Agents, or their personal professional advisers and attorneys and also any rights which you may have to sue AUA3 for anything it may have done or omitted while it has been your agent (and will include advice concerning the offer given by AUA3 or your other advisers). This is to achieve finality. Similarly, in the interests of finality, Lloyd's insist that you agree that you will make no claim against it for misrepresentation or non-disclosure in relation to the settlement. This is intended to ensure that if facts come to light which you ought to have been told in connection with the settlement, or if anything you have been told is wrong, you will have no legal claim.
Since our appointment we have made extensive efforts to produce reliable accounts for the syndicates. In particular, we have re-assessed the basis on which the reserves for outstanding liabilities should be determined, and examined in detail the accounting principles and assumptions to be adopted in the syndicate accounts. Both the syndicate auditors, Spicer and Pegler, and our consulting accountants, Price Waterhouse, have carried out a great deal of work to assist us in these investigations.
In spite of all these efforts, it has not proved possible to prepare normal syndicate accounts, but we have prepared pro forma statements. In doing so, we had to make a number of assumptions, notably in relation to the allocation of risks, reinsurance recoveries, assets and liabilities. Substantial credit has been taken in respect of reinsurance recoveries, some of which may be disputed. Spicer and Pegler have audited the books and records of the syndicates, but they have informed AUA3 that they are unable to give any opinion on these pro forma statements.
The pro forma statements have been prepared to enable the Names to make arough and ready comparison of the required contribution with the estimated losses. Because of the unavoidable inaccuracies in the figures, which further work will not necessarily improve, such comparisons must be approximate. However, the global deficiency can be ascertained with reasonable certainty, and for all their uncertainty, the individual figures are the best that are available.
Since its appointment as substitute managing agent, AUA 3 has made extensive efforts to produce reliable accounts for the syndicates. In particular, it has re-assessed the basis on which the reserves for outstanding liabilities should be determined, and has examined in detail the accounting principles and assumptions to be adopted in the syndicate accounts.
AUA 3 have found that, to a great extent, the principal syndicates were managed by the previous managers as a group without always recognising the interests of individual syndicates. Many problems arose from this method of management, in particular relating tothe transfer of business between syndicates, the use of group reinsurance programmes and the pooling of assets in cash groups. AUA 3 s investigations indicate significant accounting irregularities under previous managers which call into question many of the accounting decisions made by them and the reliability of the accounting records inherited.
All of these problems have a material effect on the individual syndicates and as a result it has not proved possible to prepare syndicate accounts in accordance with the Lloyd s Syndicate Accounting Byelaw (No. 7 of 1984).
No reduction in the reserves has been made in respect of expected future investment income on the syndicate investments ( discounting ).
A letter from attorneys to theEnvironmental Claims Reinsurance Group (ECRG) stated the following.
We have proposed, and the ECG has approved, the creation of a Priority List of assureds with pollution claims. The Priority List will include assureds whose pollution claims pose an imminent potential exposure to underwriters, involve a declaratory judgement action against underwriters, or require an indemnity or expense reserve. Because of the significant potential exposure of the pollution claims included on the Priority List, it is imperative that the Market be kept fully informed. The London market faces an enormous problem with the presentation of pollution claims. There are already many more assureds concerned with pollution than were concerned with asbestos. The number of pollution coverage lawsuits involving underwriters already exceeds the number brought during the whole of the asbestos problem.
(This appears to be an early version of the same letter which was sent on 28 September 1987).
23 Apr 87
Seminar held in London entitled: Insurance and Reinsurance Insolvency.
In a report published in April 1987, the EPA are said to have examined 44,000 schools and established that they contained 213,000,000 square feet of asbestos containing material. There are 107,550 schools potentially affected which according to the EPA produces 510,203,786 square feet of asbestos containing material. The cost of ripping out asbestos tends to vary from a low of $4.50 per square foot in Texas to a high of $30 per square foot in New York. Overall, the EPA has estimated a cost of $12.50 per square foot for removal from public schools In August 1987, Mendes & Mount and Lord, Bissell & Brook advised that:-
"As the publicschools represent 69% of suits filed to date, we can extrapolate these figures to produce a total of 739,425,777 square feet for all claims filed to date. Due to the great variance in removal cost, we have utilised the EPA projection of $12.50 per square foot, thereby calculating the gross removal costs of all known suits to be $9,242,822,210. The figures are provisional and it must be borne in mind that there are continuing reports of further filings, especially from the States Attorneys General and media articles indicating that there are as many as 735,000,000 public buildings in which asbestos may be deemed potentially hazardous".
30 Apr 87
Minutes of Merrett Holdings Plc Board Meeting. 421 Run-off contracts. .. It was agreed that thesignificant impact of the losses on the members of the syndicates justified regular audits of the reinsured's records and claims and reinsurance handling procedures. In addition, specific staffing requirements within the syndicate/agency to monitor progress were to be investigated.
0 May 87
British Insurance Law Association Journal: USA liability and Environmental Claims
An address in March 1987 by Robert S Faron of Barnet & Alagia, USA
"a great legal debate is raging over the extent that the Comprehensive General Liability Policy provides coverage to those insured who have sent waste to Superfund sites or who own and operate superfund sites. There are many issues concerning this debate and it is difficult to predict trends."
Two recent courts of appeal opinions show the dichotomy of views (on the manifestation/exposure theories).
and went on to say that:- "the courts are split on the applicability of the exclusion clause to activities of insureds who have disposed of waste in the regular course of business."
Increase in litigation & clean-up costs
However, the ambivalence of court decisions did not rescue the insurance industry from its precarious situation. Apart from the ambivalence of legal decisions, insurance articles on the subject of pollution continue to point to the potentially crippling costs faced by the insurance industry, including enormous litigation costs. For example, Robert Faron outlined theextreme vulnerability of the insurance industry to litigation:- "Decisions in the product liability and workers' compensation area have accelerated the standards of care, have expanded upon the basis of liability, have imposed procedural and substantive devices to access liability for a new set of defendants.
Plaintiffs have been able to provide statutory causes of actions where the common law has not, have been able to provide statutory procedural devices for overcoming common law procedural hurdles and have used statistics to eliminate soundly reasoned common law defences.
The tide of environmental protectionism has led to stringent standards and broad claims of damages regardless of the technical, statistical or legal basis for such claims.
Four yearsof litigation has left little defences available and has all but swept away common law barriers of causation and even proximate causation in the enormous costs of cleaning up sites."
The "deep pocket" mentality:- "The concern of not being able to attribute liability lead (sic) to a deep pocket mentality and the deepest of these pockets that has been discovered is the insurance companies who have provided comprehensive general liability cover to companies who are engaged in this exercise of environmental purification."
Collapse of Insurance Industrya possibility - and the consequence of this Faron argues, is the possible collapse of the insurance industry:- "Some say this expansion of liability will not only undermine the economic basis for many of its industries, as competitors in world wide competition, but also due to the stacking and imposition of enormous transaction costs on insurance policies, threatening the very basis of the US and indeed the world's insurance and reinsurance capacity."
6 May 87
The Syndicate Premium Income (Amendment) Byelaw(No. 3 of 1987, 6 May 1987).
Commencing with the 1988 account, the 30% franchise (50% for Life) for outward reinsurance will be formally consolidated with the premium limit and that allocated premium income will be monitored against the new gross premium underwriting limit (GPUL). This resulted in aMember's overall premium income limit being increased from 1 January 1988 by 25% to a new "gross" limit and it was the responsibility of Managing Agents to decide whether to invite Members to increase their share on individual syndicates by 25% to the new gross limit. Where a syndicate is not writing to its existing capacity the Managing Agent may decide that the gross limit for 1988 will be the same as the net limit for 1987 without enhancement. (Agency salaries likewise increased; With the introduction of minimum salaries (say £300), agency salaries may have increased in excess of 25%).
TheSyndicate Premium Income (Amendment) Byelaw issued in May gave effect to the Neill Committee's recommendation that where a direction to restrict underwriting had been made a full explanation of the circumstances giving rise to the direction should be provided to the underwriting members and members' agents concerned.
In the case of theindividual member, the Council decided (in 1987) that the calculation of premium income in checking compliance with premium income limits should be consistent with that used for syndicate monitoring purposes.
6 May 87
Corporation of Lloyd'sAnnual Report and Accounts as at 31 December 1986
Statement by Mr.Peter Miller - Chairman of Lloyd's
Two edifices that the Society has been working on for some years were tested in 1986. I refer, of course, to the new building - No 1 Lime Street - and the regulatory structure based on the Lloyd's Act 1982..
The very hard work and careful planning that preceded the market's move into the new building in the early summer was reflected in the smoothness of the transition. The building has lived up to our expectations and is proving an exciting new home for the market. The same detailed planning and team work ensured that the official opening of the building in November by Her Majesty The Queen was such a happy and memorable occasion.
On theregulatory front, Sir Patrick Neill's Inquiry sat effectively throughout the year. He and his colleagues subjected the Council of Lloyd's work since the 1982 Act to an exacting scrutiny. The detailed report they produced was very positive about the progress Lloyd's have made and it was encouraging to see how well Lloyd's systems for investor protection measured against those that will have to be installed elsewhere in the financial community under the Financial Services Act.
The report contained many recommendations for further development in our regulatory system. Considerable resources are now being deployed to ensure their evaluation and implementation.
Themajor constitutional change recommended by the Neill Inquiry has already been implemented by the Council. It was possible to act this quickly because four of the working members of the Council selflessly volunteered their resignation so that four new nominated members could be appointed with effect from the middle of 1987.
Theproblems of the past in the shape of the PCW affair have accounted for a great deal of top management time and effort over 1986 and even more during the early months of 1987. It is the Council's hope that the offer now made will bring to an end the involvement of those Names caught up in this most unhappy affair.
Theintroduction of modern and effective self-regulatory machinery tailored to the needs of a vigorous and expanding market place - which contributes so significantly to the economic well being of the United Kingdom - requires efficient and capable administrative resources.
Over the past year, substantial progress has been made in refining the organisation of the Corporation and introducing career development programmes which are designed to ensure that the Lloyd's market enjoys the administrative support that will maintain its international competitiveness. Information technology has already made a significant impact on the work of the market and identification of the systems of benefit to the market and their implementation assumes a particular importance.
The changes and challenges faced by the Society in recent years have placed particular demands on the staff of the Corporation and its subsidiaries. On behalf of the Council and of the membership, I record my sincere thanks to them for the excellent support they have given in enabling the Society to move forward so effectively
Postal ballots were held for six seats on the Council of Lloyd's for 1987 in respect of both working and external members -four working and two external members. The Electoral Reform Society conducted the ballot.
There werefive candidates for the four working members' seats vacated by the retirement (by rotation) from the Council of Mr. David Coleridge, Mr. Norman Evennett, Mr. Colin Murray and the Hon Robin Warrender. Mr Frank Barber, Mr. Alan Jackson, Mr. Stephen Merrett and Mr. David Rowland were elected to fill the vacancies for four year terms.
Of thesix candidates who contested the election of two external members of the Council, who had retired by rotation, Lord Kimball and Dr. Copisarow were re-elected to serve further four year terms.
Mr.Brandon Gough, one of the four nominated members of the Council, retired by rotation and Mr Alan Hardcastle was appointed for a three year term. His appointment was confirmed by the Governor of the Bank of England.
The Council elected MrPeter Miller as Chairman of Lloyd's for 1987 and Mr Murray Lawrence and Mr Alan Parry as Deputy Chairmen of Lloyd's for the same period.
During the year the development of career policies for Corporation staff was given fresh impetus with the introduction of improved assessment and training programmes. These represented important elements within the systematic approach being developed for career and manpower planning. Such initiatives, allied to an improved pay and benefits package, will greatly assist in the retention and recruitment of the staff required to provide the essential support to the growing business of the Lloyd's market.
During the year there were three new appointments as Group Heads. Mr. J D Lee succeeded Mr. P M Hermon as Head of Systems and Communications in June. Mr.JA W Moir, Head of Finance resigned in September in order to take up an appointment in Canada and he was succeeded by Mr. J H F Gaynor. In December, Mr A A Duguid joined the Corporation as Head of Regulatory Services in succession to Mr. D M L McWilliam.
The number of members of the Society at the beginning of1987 was 31,484 (1986 28,944): this represented an increase of 8. 77 per cent compared with a year earlier.
Almost 9,000 members (28 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 21 per cent.
TheNames' Advisory Committee under the chairmanship of Lord Kimball dealt with 32 cases during !986 bringing to 74 the total number of cases referred to the committee since its establishment in 1985. A wide variety of issues have been considered by the committee, ranging from suggestions for improvements in Lloyd's rules or practices to requests for advice regarding the rights of Names. Under its terms of reference the committee was not, however, able to provide assistance where cases involved actual or imminent legal action.
The functions of the Names' Advisory Committee will be taken over during 1987 by the newly formedNames' Interest Committee, recommended by Sir Patrick Neill's Committee of Inquiry.
The development of the regulatory framework continued apace throughout 1986. The reforms of recent years became more firmly embedded in Lloyd's practices and further byelaw changes were made. The workload of committees with regulatory responsibilities continued to be heavy and the year saw an increase in both the number and quality of Corporation staff to operate the regulatory system as the range and depth of skills needed continued to grow.
1986 saw the final stages of implementation of theLloyd's syndicate accounting rules which were introduced in 1984 with the publication of the new list of recognised syndicate auditors, and the production of the 1983 syndicate annual reports to the mandatory true and fair view standard.
During 1986 theCommittee of Lloyd's took formal action under the Syndicate Premium Income Byelaw (No 6 of 1984) for the first time. This action, intended to prevent or minimise overwriting of premium limits, took the form of directions to cease underwriting or to restrict the level of insurance business underwritten. A total of 15 directions were issued during the year and 13 voluntary undertakings to restrict underwriting were accepted from certain agents. The steps taken by the Committee of Lloyd's were intended to demonstrate its commitment to enforcing the provisions of the byelaw. To assist it in its work a sub-committee (the Premium Income Monitoring Committee) was established, chaired by the Senior Deputy Chairman.
The process of re-registering existing agents .and registering new agents,under Byelaw No 4 of 1984, which had begun in 1985 continued throughout the year. By year end 200 agents had been re-registered. and the bulk of the work on the remaining 40 agents re-registering under byelaw No 4 was complete. Under the old byelaw (No 87) 306 agents had been registered but under the rules of the new byelaw a number of small agencies, particularly members' agencies, have deregistered or intend to de-register. Various mergers, acquisitions and consolidations of agencies have also taken place.
A number of new byelaws were promulgated during the year.
TheRelated Parties Byelaw (No 2 of 1986) 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.
TheCentral Fund Agreement of 1927 was replaced by the Central Fund Byelaw (No 4 of 1986) 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.
TheReview Powers Byelaw (No 5 of 1986) empowers the Chief Executive of the Society to order a review into the affairs or any aspect of the affairs of a Lloyd's broker or underwriting agent. A review may range from a request for information to a more comprehensive review of the affairs of the business in question and will be carried out by the new General Review Department assisted as necessary by staff from other Corporation departments.
Towards the end of 1986, the regulation of Lloyd's brokers began to receive more concentrated attention than had been possible during the period of intense activity since the passing of the 1982 Act. Arrangements are in hand at the end of 1986 for the 1987 Council to consider the establishment of aBroker Regulation Committee. This committee was to be charged with making recommendations for future broker regulation, including the substance of the necessary byelaws, regulations, codes: and other requirements and their implementation.
A large amount of preparatory work had been in train since mid-1985 on the future rules for Lloyd's brokers. The intention was that these rules would encompass business aspects (such as financial strength, accounting disciplines, independence, competence), and the character and suitability of the people involved and operating standards (a code of practice). 1986 closed in the expectation thatoverall proposals would be embodied in a consultative document during the summer of 1987.
Thenew Premium Trust Fund Deed and the General Undertaking were signed by members together with the new Underwriting Agency Agreement. 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.
The detailed mechanics and procedures for implementing the Council's decisions on the move togross premium underwriting limit and the bringing of all members into line with current requirements for means and deposits were formulated and notified to agents. It became clear that bringing this into effect will be a major operation, including considerable resources within underwriting agents and the Corporation departments.
Acomplete revision has been undertaken of the guide presented to prospective Names. Copies of this guide have now been sent to all existing Names. The Council agreed that a register of agents' charges to Names should be prepared and made publicly available. Work has proceeded by obtaining information from agents by the use of a comprehensive questionnaire. Analysis of the data provided is in progress with publication planned for spring 1987.
Work has been undertaken within theRegulatory departments with the assistance of the Systems & Communications Group to identify the new systems that are needed to enable regulation to function properly. As a result of the initial investigation work a systems strategy has been prepared and work has started on a number of business projects. It is planned that some of the data in these systems should, with the relevant security checks, be open to electronic enquiry by underwriting agents.
During 1986six disciplinary cases involving ten defendants were concluded. Penalties imposed included two exclusions from membership of the Society, three periods of suspension, and, in one case, a fine of £175,000. Costs awarded in favour of the Society exceeded £250,000, all of which his been or is in the process of being recovered. Lloyd's Appeal Tribunal (composed of a President and Deputy President wholly independent of Lloyd's heard and dismissed three appeals against disciplinary penalties. The Appeal Tribunal also dealt for first time with three appeals on administrative rather than disciplinary matters. Again, in these appeals the Tribunal upheld the original decisions taken by Lloyd's.
The Solicitors Department has expanded in response to the Corporation's need for internal legal advice and the need for support for Lloyd's growing self-regulatory regime.
The passage of theFinancial Services Bill through Parliament focused attention upon the City. Introduced in November 1985, the Bill specifically exempted the Society and underwriting agents from the need to be authorised in respect of investment business carried on in connection with, or for the purpose of insurance business at Lloyd's.
After exhaustive Parliamentary discussion the Bill was finally enacted on7 November 1986 and the Society remained exempt. Meanwhile, the Committee of Inquiry into Regulatory Arrangements at Lloyd's under the chairmanship of Sir Patrick Neill QC and established by the Secretary of State for Trade and Industry in January 1986 occupied a great deal of time and attention by the Council and Corporation departments.
The Committee of Inquiry was asked to consider whether the regulatory arrangements introduced under the Lloyd's Act 1982 provided protection for members of Lloyd's comparable to that proposed for general investors under the Financial Services legislation.Written submissions were made by the Society and oral evidence was given to the Committee by the Chairman, Mr. Murray Lawrence, Deputy Chairman, and Mr. W C Beckett, CB. Solicitor to the Corporation, on five days on behalf of the Council. Excluding members of the Council, a total of 274 individuals or organisations gave evidence to the Committee of Inquiry whose report was published on 22 January 1987.
The report described Lloyd's as "a prime example of self regulation in action" and congratulated the Council on the energy and determination shown in using its powers.
The Committee stated: "We know of no profession or equivalent organisation which has accomplished such a major programme of reform in such a short timescale."
Nevertheless the Committee made a number of recommendations and the Council and staff of the Corporation will be heavily involved in undertaking the work necessary toimplement the bulk of the recommendations by early 1988.
The Law Reform Sub-Committee of the External relations Committee during the year considered two discussion documents issued by the Lord Chancellor's Department as part of the Civil Justice Review. As a result, comments were submitted on personal injury litigation and small claims procedure.
Pressand media interest in Lloyd's continued at a high level throughout the year. The programme of revision of publications and the introduction of new titles designed to provide information to a wide spectrum of audiences world-wide on the history and development of Lloyd's was maintained. The monthly Lloyd's of London Newsletter launched in May 1985 continue to provide information on the activities of the Council and the Lloyd's market to members of the Society. The bi-monthly magazine, Lloyd's Log, was awarded prizes for its design in two national competitions.
Meanwhile, work was completed on the production of anew documentary film on Lloyd's which is designed to appeal to a world-wide audience. It will be released in the first half of 1987.
The underwriting Room moved into the new building over the Spring Bank Holiday in May; the accommodation for the Council, the Chairs and senior staff was occupied in September and tenanted areas have been completed and occupied progressively since then. Out of the available area for tenants on galleries 6 to 10 some 90 per cent of space will have been occupied by the end of April 1987.
Catering services, which opened at the time of the Room move, were supplemented by the opening of the Coffee House, open to the public, in January 1987. Lloyd's exhibition and public viewing gallery opened in November and has proved to be extremely popular. In its first five months of operation almost 150,000 visitors toured the exhibition and viewed the work of the market.
Meanwhile, refurbishment of the 1958 building has commenced. When the project has been completed it will be occupied largely by Corporation departments and catering services for the market, leaving the fourth andfifth floors available for market associations and external tenants.
A20,000 sq. ft office block at Colchester was completed for occupation by Lloyd's of London Press Limited. It was formally opened by the Chairman of Lloyd's on 8 July 1986.
FINANCE AND MARKET SERVICES
A system was introduced during 1986 wherebyall slips with inception dates on or after 1 January 1987, are centrally registered with Lloyd's Policy Signing Office. This enables LPSO to issue listings of settlements due or overdue and is a significant step towards the introduction of centralised credit control.
Afacility has been established in Zurich whereby policies for Swiss assureds may be prepared and issued in the appropriate language within a short time of risk inception. This pilot scheme is being introduced with the co-operation of Lloyd's brokers and Swiss brokers to address the problem of slow delivery of insurance documentation. If successful, it is expected that this initiative will be extended to other countries commencing in 1987.
Lloyd's Aviation Department surveyors carried out surveys in over 40 different countries world-wide including, for the first time, China. In January, a surveyor from the department was trapped for several days during a coup in Aden before taking part in an emergency evacuation from the beach-head on Her Majesty's Royal Yacht Britannia.
The department handled seven of the eight major hull war claims, reflecting the department's previous experience and expertise in this field.
Aircraft valuations and operational safety studies increasingly featured as part of the service provided in 1986, with numerous studies carried out world-wide.
During the year, a specific training programme for surveyors was initiated on new aircraft types through manufacturers and airlines summarised courses to ensure that Aviation Department surveyors are aware of new developments which could be the subject of claims.
The department's aircraft salvage system was used extensively to secure the maximum return for insurers.
Theaviation intelligence section continued to produce publications relating to the intelligence service and to provide information and statistics to the market.
In 1986, two Lloyd's Agencies, William W Jewett in Portland, Oregon, and Burns, Philip & Co Ltd, in Townsville, recorded the centenary of their appointment.
Meetings of Lloyd's Agents in Italy, Malta and Yugoslavia and North Europe were held in Ostuni and Antwerp respectively and the inaugural meeting Lloyd's Agents in the Caribbean was held in Barbados in November. This was chaired by Mr. Gordon Hutton, chairman of the Lloyd's Agency Committee and was attended by representatives of 21 of the Agencies in the area.
During 1986, 45 Agencies were inspected in Europe, the Caribbean and the United States of America, and visitors from some 160 Agencies were received in London.
PERSONNEL AND TRAINING
Major new programmes for remuneration and benefits of its staff career development, training and manpower planning are underway in order to maintain the Corporation's staff position in an increasingly competitive market.
473 people have sat and passed the new Lloyd's Introductory Test and market education seminars on regulatory and other major issues have been held and others are planned.
SYSTEMS AND COMMUNICATIONS
1986 was a year of consolidation in some areas and in others growth through the provision of new services.
The group continued to work closely with market services development (MSD) and identified that concentration on the enabling systems, which enhance the business process but do not isolate individual concerns, is the way forward.
The Corporation's systems approach now reflects this: system are built, delivered and consolidated before moving forward to the next stage.
Business needs identified by MSD in full consultation with all markets are clarified and priorities established around the basis offour business directions. These are underwriting control of premium flow, faster claims agreement and payment, timely information flows and prompt documentation production.
Efforts have been concentrated onsolving business issues by system solutions and differing problems of identifying market and Corporation systems requirements have been resolved.
This approach has led to the implementation of theoutstanding marine claims advice system, slip registration and shortly to the introduction of flexible settlement.
In addition, major systems are now in development for funds management,Scheme Canada (to speed the payment of premiums and claims) and a substantial amendment of the main direct data entry system.
The group was reorganised to streamline operations and prepare the way for provision of new services. Systems development was collated into one single function with responsibility for project development from inception to implementation. Systems planning is now the responsibility of the Group management team.
A major initiative was the development oftwo new areas of activity: Consultancy Services and the Technology Information Centre.
Hitherto, theCorporation has concentrated on the provision of all embracing systems for the good of the whole market. This approach left a gap in provision of service to individual firms which have been the exclusive domain of commercial computer bureaux. The consultancy services team will provide individual firms with objective advice and guidance on the implementation of new business technology. This initiative has been coupled with the establishment of the Technology Information Centre which is located on gallery 4 of the new building,
The Technology Information Centre has a comprehensive display of computer hardware and software allied to the Lloyd's market where potential users can gain valuable ‘hands-on' experience of products without sales pressure.
This activity in helping users to prepare for the new technology has been accompanied by the introduction of several news briefings on technical and organisational developments.
Without doubt the most important venture during the year has been the collaborative exercise with Lloyd's Insurance Brokers Committee, the Policy Signing and Accounting Centre and Institute of London Underwriters of electronic data networking. Two trials are progressing to plan and it is anticipated that 1987 will see the first electronic exchange of data between market business sectors. This new development will lead toenhanced business communications not only throughout the Lloyd's market but also will enable connection to European and North American concerns in the future. The development and implementation of the network will be determined by the market's business needs and will enable new trading relationships to be examined in the light of technology.
There were no major acquisitions of hardware or software during the year. The Council approved the provision of a remote standby centre to ensure that in the unlikely event of a major disaster, Lloyd's business is secure. The re-siting of terminals and telephones in the new building was accomplished without mishap.
The number of employees within the group is stable at around 323 staff and we are extremely well placed in the Corporation to take full advantage of the benefits of information technology into the 1990s. Currently the Corporation has a ratio of one terminal to two employees with a steady growth through personal workstations and office systems, to a fully literate information society by the early 1990s.
LLOYD'S OF LONDON PRESS LIMITED
Responsible for Lloyd's maritime intelligence service, the company publishes Lloyd's List, together with a wide range of shipping and insurance publications, books and newsletters. Some 40 per cent of its turnover is derived from overseas markets which are serviced by regional offices in New York, Hamburg and Hong Kong.
In1986 the severe down-turn in the world-wide shipping market substantially affected income from subscriptions and advertisement revenue and pre-tax profit from the company's core products was £650,000 - a reduction of 24 per cent compared with 1985. Major cost savings were achieved and market share for the main publications was in fact increased.
The development of a computer-based international freight forwarding information system and the formation of a joint venture with Lloyd's Register of Shipping, the latter having important implications for the cost of maritime data capture, led to the investment of more than £1 million which has been written off in the year of account. As a result of this write-off, and including subsidiary company operations, a consolidated pre-tax loss of £230,000 for the year was incurred.
TOPLIS AND HARDING, INC.
During 1986 Toplis and Harding Inc.experienced trading difficulties reflecting an industry-wide reduction in available loss adjusting work. Turnover in 1986 was $16. 4 million compared to $16. 9 million in 1985. The reduction in new assignments, coupled with increased expenses arising from both a major re-organisation and the development of new services led to the loss for the year of $2. 4 million (£1. 8 million).
Furthermore, following a change in the basis of assessment of tax in the US, it has also been necessary to make provision of deferred taxation of £714,000 payable in future years.
1987 is also expected to be a difficult year as the company completes the major re-organisation commenced in 1986 and introduces improved systems and procedures.
The consolidated revenue account for the Corporation of Lloyd's and its subsidiaries showed asurplus for the year of £12. 8 million.
Operating incomerose by £19. 4 million. Subscription rates charged to members remained unchanged but income from this source rose by £12. 1 million or 28 per cent reflecting a further significant increase in market capacity. Direct charges to the market for specific services rose by £7. 1 million. Of this amount, £3. 9 million related to overseas operating expenses recoveries - largely reflecting increased premium taxes resulting from higher business volumes in Canada and France. The rates of entrance fees for new members were unchanged from the previous year; the reduction in income of £0. 8 million reflected a slight decrease in the number of new members elected to commence underwriting from 1 January 1987 compared to 1 January 1986.
Expenditureincreased by £22. 9 million. Staff costs rose by £7. 5 million, reflecting the improved pay and benefits package introduced from 1 January 1986, a rise in staff numbers during the year, particularly in the regulatory services group and an increased emphasis on staff with professional skills. Premises costs rose by £5. 8 million, largely as a result of the move to Lloyd's new building.
Thenet cost of interest payable increased by £5. 4 million compared to 1985. This reflects both the full year cost of funding the settlement with the Inland Revenue in October 1985 and the additional investment of £37. 2 million in fixed assets during the year.
Operating results of subsidiary companies showed a deterioration of £2. 6 million reflecting that both Lloyd's of London Press Limited and Toplis and Harding Inc. have suffered from the severe downturn in the world-wide shipping market and in addition that Toplis and Harding Inc. absorbed considerable re-organisation costs.
Capital expenditurecontinued at a high level, with the major part of the £37. 2 million cost incurred attributable to the final stages of the new building. This expenditure has been financed partly from current revenue and partly by increased borrowing. The source and application of funds statement (page 20) shows an increased funding requirement of £6. 9 million during the year, which was substantially below the increase during 1985. This is in line with the Council's long term financial strategy for the Corporation.
Business Insurance: New Avalanche of Asbestos Claims Hits.
Mr. Floyd Knowlton of the Travelers Insurance Company, Inc. is recorded by US attorney Mr Ringer as saying:-
"It causes me to think that this is going to go on forever... becausethe workers now suing have been in industries where they have been exposed to many products in addition to asbestos, insurers will have to conduct more investigations to determine whether there is an asbestos-related injury and whether it was caused by a policy-holder's product, notes Mr. Knowlton... As a result, legal and administrative costs could be very significant, he says. However, the indemnity payments in these cases may not be as large as for shipyard workers, Mr. Knowlton added".
25 May 87
Business Insurance: New Avalanche of Asbestos Claims Hits.
The number ofnew asbestos claims doubled in the last few months to 2,100 per month compared with 1,000 per month at the end of 1985. Knowlton "It causes me to think this is going to go on forever.".. Leonard Minches, vp claims for Gerling Global Reinsurance Co. said reinsurers are concerned about the increase but they don't yet know whether the increased claims are an acceleration of anticipated claims or were unexpected.... Tyre workers alone could eventually bring 20,000 claims; Mr. Gerry predicts. In addition to tyre workers sheet metal workers are also being screened as part of various medical studies...
No-one yet knows how much this new onslaught of claims will cost asbestos producers, insurers and reinsurers.Previously the cost of asbestos bodily injury claims has been estimated anywhere from $4 billion to $100 billion. The new wave of lawsuits not only names the major asbestos manufacturers but also many additional small and large manufacturers that used asbestos in their products.
... Even before this new wave ...more bankruptcies of asbestos producers had been expected, and the insurance industries ability to fund asbestos claims had been questioned.... William Bailey, former vp of Commercial Union says there is not enough insurance to cover all the asbestos claims that will be filed...
29 May 87
The Board of Sturge Holdings PLC announced that agreement in principle had been reached for Sturge to acquire the Lloyd's underwriting Agency business of the Bellew, Parry & Raven Group ("the BPR Agencies").
29 May 87
Californian Co-ordinated Proceedings
Judge Brown announced his tentative decision on Phase III of the Californian Co-ordinated proceedings known as In re Asbestos Insurance Coverage Cases.
(2) Duty to Defend - Judge Brown ruled in line with recent Appellate Court decisions in other jurisdictions that there was
3 Jun 87
The PCW Syndicates (Exemptions and Miscellaneous Provisions) Byelaw(No. 6 of 1987, 3 June 1987). Not withdrawn.
3 Jun 87
Administrative Suspension Byelaw(No. 7 of 1987, 3 June 1987).
U.S.F. & G -v- Wilkin Insulation, No. 85-010, Kane City 3rd Circuit Court, 1987. Court held physical injury was required for plaintiff to prevail in an asbestos property damage case. While the case was reversed in December 1989, the lower court's holding was applicable from 1987-1989.
5 Jun 87
Anderson County Board of Education -v- National Gypsum Co., 821 F.2d 1230, 6th Circuit, 5 June 1987. Defendants prevailed before jury against Plaintiff claims of negligence, strict liability, misrepresentation and fraud in an asbestos property damage case. Appellate Court held statute of limitations also bars warranty claim - based on state law.
8 Jun 87
Business Insurance: Asbestos firms to gain $275,000,000 from ruling.
Three of the asbestos producers involved in landmarklitigation stand to gain more than $275,000,000 in insurance coverage to pay asbestos claims following San Francis's Superior Court Judge Ira A. Brown's long awaited decision.... All attorneys generally agree that Judge Brown's decision gives the broadest insurance coverage possible to policy holders for bodily injury asbestos claims. Judge Brown ruled that producers are entitled to recover from all insurers that wrote liability insurance policies for them from the time they claim and was exposed to asbestos through the time of the victims files of claim on until the victims death. In many cases this has been more than 4 decades. Judge Brown also found that every policy figured by an asbestos related bodily injury claim must respond in full to the claim and that policy holders do not have to pay a proportionate share of defence and indemnity costs for periods when they were self-insured or uninsured. But, in a part of the decision that favours insurers, Judge Brown held that under pre 1966 policies insurers are not liable for defence costs after policy limits have been exhausted. Judge Brown also ruled insurers bear the burden that proving their policy holders acted intentionally or maliciously in order to deny coverage on the basis the policy only covers losses which are not expected or intended.
10 Jun 87
Letter from Mr. Jackson's as Chairman of the AWP to insurers at interest:
(produced late in the day, presumably after the closure of the 1984 year of account circa May 1987. The letter including for example the growing concern at the steadily increasing number ofasbestos property damage claims and the following sentence:- "Quite apart from the liberal approach that can be anticipated when the Courts come to address the many substantial coverage issues that arise, the quantum in the underlying actions is very significant.")
(No doubt that you will be aware thaton 29 May Judge Brown announced his tentative decision on the phase 3 issues in the California Co-ordinated action ... At this early stage our counsels are still assessing the impact of the decision but I can recall that there is substantial concern at the way Court has ruled upon trigger of coverage, particularly in view of their conclusion that the contracts under review were unambiguous. Although basically rejecting the Keene rationale the Court finds that injury commences from the date of first exposure and continues until either the death of the claimant or until a claim is notified to the assured. The injury process is considered to continue over the entire period and as there is no basis on which to measure the damage during each policy period the Court has determined that each policy is liable to respond in full ... We now have to cope with what can only be termed "Super Keene" in California.... It will be some time before counsel have completed their analysis of this ruling and its impact upon the many serious latency problems which confront the market. However, it is inevitable that we may expect to see California replacing Washington DC as the forum of choice....)
In order to keep the Market abreast of developments, I wish to provide the following report on matters that have received consideration by the Working Party since my last Market letter dated 27 February 1987.
I have no doubt that you will be aware that on 29 May Judge Brown announced his tentative decision on the Phase III issues in-the Californian Co-ordinated Action. The issues relating to Phase III are of material concern to the Insurance Industry and specifically concern the trigger and scope of coverage, expected and intended defences and the obligations relating to defence. Thedecision is extremely detailed and lengthy and for that reason it is not my intention to distribute a copy with this letter but one will be available for review by any participating insurer at the above offices, or alternatively copies can be provided on request.
At this early stage our Counsels are still assessing the impact of the decision but I can record that there is substantial concern at the way the Court has ruled upon trigger of coverage, particularly in view of their conclusion that the contracts under review were unambiguous. Although basically rejecting the Keene rationale the Court finds that injury commences from the date of first exposure and continues until either the death of the claimant or until a claim is notified to the assured. The injury process is considered to continue over the entire period and as there is no basis on which to measure the damage during each policy period the Court has determined that each policy is liable to respond in full.Although the judgement does not specifically refer to an insureds ability to select the year from which to seek recovery, the joint and several nature of the finding effectively produces the same results. On the question of defence the Court indicated that it would be prepared to consider additional briefing on specific concerns but its general conclusion was that such obligations cease upon the exhaustion of indemnity limits.
Bearing in mind that in so far as bodily injury claims are concerned the London Market had concluded settlement with those insureds involved in the Co-ordinated Action, the decision has no direct impact on our Market. However, bearing in mind that this case is the most extensive coverage action ever to come before the U.S. Courts and already has consumed over two years for the Bench to reach this stage, the precedential nature of the ruling will be apparent to all.It was the concept of our industry that the significance of the issues involved justified the enormous investment of time, energy and legal costs to achieve a more rational interpretation of our contracts and in particular to contain the "free for all" effect of Keen. As matters presently stand we have to face on the one hand a developing reluctance of the Washington D.C. Courts to provide reaffirmation of Keene and on the other we now have to cope with what can only be termed "Super" Keene in California.
I must emphasise that Judge Brown's ruling is not at this stage a judgement, bearing in mind there are two further phases to be addressed by the CourtPhase IV will deal with extraneous issues that arise from the earlier phases of the case and in particular the manner in which the latest decision will be implemented to avoid the uncertainties that arose out of the original Keene judgement. Thereafter the Court will move to Phase V to consider matters relating to Asbestos Property Damage. Only after all phases have been completed will judgement be entered on all aspects of the case and it is at that point that consideration of Appeal to the Upper Court will arise. However Counsel have cautioned that little substantial change is likely to occur from the tentative decision now handed down.
It will be some time before Counsel have completed their analysis of this ruling and its impact upon the many serious latency problems which confront the Market. However it is inevitable that we may expect to see California replacing Washington D.C. as the forum of choice. The continuing adverse climate relating to the interpretation of our coverages as reflected by Judge Brown's findings should give those insurers who continue to provide occurrence coverage cause for concern.
I would now like to move on to matters relating to the Asbestos Claim Facility. It is perhaps timely to remind the Market that but for the coverage resolution provided by the Facility, we would now be bound by Judge Brown's ruling. Although many critics of the Facility, and in particular certain Reinsurers, have maintained that the Facility Agreement was too generous, the latest decision clearly justifies our commitment; indeed the terms of the Facility Agreement are more restrictive in many respects than the latest pronouncement of the Court. The number of claims disposed of by the Facility continues at the rate of approximately 500 cases per month with total indemnity running in the area of US$30M. It is unlikely that we shall see any material increase in the number of settlements processed in the foreseeable future. With the dramatic upsurge in new cases being reported, we are now facing an ever increasing volume of outstanding claims as each month passes. There were in the region of 25,000 outstanding claims when the Facility started operating in September 1985; by the end of April 1987 we had disposed of 8,500 cases which represents nearly 35% of our original case load. Of much greater significance is the fact that thenumber of outstanding claims is now in excess of 50,000 cases.
I have mentioned from time to time that Facility defence costs have been running at an unacceptably high, level of up to 30% of indemnity. Much work has been done to contain costs but now that we have to address the steady increase in filings, it becomes unrealistic to expect any material reduction to be realised. During the first four months of this year we have an additional 8,000 new suits filed and it is perhaps worth reminding the Market that had we been faced with this substantial volume outside the Facility, defence costs would have been vastly in excess of the amount we now face in a controlled environment.
It is perhaps indicative of the success of the Facility in providing fair and equitable compensation to meritorious claims thatthe Plaintiff Bar have now commenced an anti-trust conspiracy action against the Facility and its Members. In a wide ranging complaint filed in the Western District Court of Pennsylvania they assert that Facility members acting in concert is against the interests of claimants and that ethical concerns arise with one defence counsel representing all defendant producers. The objective of this outrageously self-serving suit by the Plaintiff Bar is the dissolution of the Facility and it is by no means coincidental that this case has been assigned to one of the few judges critical of the Facility. To date service has / not been effected on the London Market but the matter is being carefully monitored by Counsel.
The Working Party is becoming increasingly concerned at the steadily increasing number of claims alleging property damage due to the installation of asbestos products. A major consolidated case covering some 83 School Districts was due to commence before Judge Fisher in the now notorious Eastern District of Texas last month wherein damages were acknowledged to be in excess of US $100m. ……… Quite apart from the liberal approach that can be anticipated when the Courts come to address the many substantial coverage issues that arise, the quantum in the underlying actions is very significant. We have asked those Counsels representing London Market interests to develop as much factual background to these cases as possible to determine potential exposure prior to year recommendations.
As in previous years our U.S. Representatives will meet in July with certain members of theDirect and Reinsurance Claims Committees to develop the bases to be adopted for the coming year end reserves. The general deterioration gives cause for concern for it is now clear that the Market must prepare itself for significant reserve increases in year end reports. The Working Party are concerned that Companies and Managing Agents are mindful of these developments in making interim statements to Shareholders or Names.
The final issue I wish to raise relates to the problems that continue to exist on outward reinsurances. As a result of the efforts expended by the major London Reinsurance brokers we are now seeing an increasing response from the European Market and I am particularly pleased to record thatMunich Re are now starting to respond to billings. I was recently advised that Gerling Global were now prepared to entertain pre Facility claims subject to existence of aggregate provisions in the original and reinsurance contracts. Bearing in mind that pre Facility expenditures go back to 1985 there is grave concern at the dilatory manner in which wholly justified reinsurance recoveries are being addressed. Of even greater concern is the negative attitude adopted by many reinsurers to original claims handled through the Facility. In the past reinsurers have argued that obligations under the terms of the Facility Agreement exceed contractual responsibilities. That argument and also the view that we were rewriting contracts has been rejected in the past and as a result of Judge Brown's ruling our commitment to the Facility has been totally vindicated.
With the increasing pressures that are developing as a result of the substantial cash flow experienced in our Market, I am urging brokers to impress on reinsurers that our patience is running out. At the request of the Working Party a review of various reinsurance wordings is being conducted by Barlow Lyde & Gilbert preparatory to moving into a more litigious mode. I will ensure that all Market participants are fully posted on developments in order that any actions be co-ordinated. With this in mind I would ask that any syndicate or Company considering taking legal action contact Colin Croly of Barlow Lyde & Gilbert before g proceeding.
TheAnnual General Meeting of the Asbestos Claim Facility took take place last week in Washington which attended as representing the interests of the London Market. I spent some time with William Wall, the Chief Executive Officer, to explain to him the unique manner in which our Market place operates and invited him to visit London as soon as his business pressures permit. I hope to provide you with a full report on the progress of the Facility later this month.
Annual General Meeting held of the Asbestos Claims Facility. Meeting, attended, inter alia, by R A G Jackson (Merrett).
It was announced thata significant Producer, Owens Corning Fibreglass, gave the requisite 60 days of notice of withdrawal from the Facility in respect of new filings. Under the terms of the Facility Agreement, OCF will continue as an active participant in respect of all cases that are outstanding up to the time of withdrawal and, therefore, this development will only start to impact the Asbestos Working Party's operation as the Facility become actively involved in suits filed after the departure of OCF. On 26 August 1987, R A G Jackson advised the Insurers at Interest that "it appears that the fundamental problem facing OCF is that their generic share is becoming disproportionate to the changed source from which new cases are arising.
20 Jun 87
Financial Times: PCW affair moves nearer to settlement
THE PCW affair at Lloyd's of London moved nearer to a conclusion last night when Lloyd'sdeclared unconditional its offer of a settlement to nearly 3,000 members of the former PCW syndicates.
The announcement came nine weeks after Lloyd's unveiled its settlement proposal and nearly five years after it began to emerge that members of the syndicates had been the victims of amassive fraud.
In April, Lloyd's asked a core group of1,547 of its members (" names ") to contribute up to £34m to a cash fund to provide against net losses of an estimated £235m faced by the syndicates over the next two decades. In return, the names would be freed from all further liabilities.
Lloyd'srefused to comment on the key question of how many of the 1,547 worst-effected PCW names had agreed to accept its terms.
Mr Peter Miller, chairman of Lloyd's, is likely to reveal this figure at the market's annual meeting on Wednesday, Lloyd's said.
Under the terms of thetwo part offer, Lloyd's could declare it unconditional only if at least 90 per cent of affected names accepted. However, this threshold could be lowered with the consent of Additional Underwriting Agencies Number Three, a caretaker body set up to manage the syndicates
AUA3 met Lloyd's officials yesterday but its directors were unavailable for comment last night. MrChristopher Crosthwaite, a solicitor for 450 PCW names, said the body had refused to tell him the level of acceptances yesterday.
Mr Crosthwaite and the PCW 1985 Committee, which represents the450 names, have criticised the Lloyd's settlement terms because they claim the losses directly arose from fraud by professional members of the Lloyd's market.
However, it is still unclear how many PCW names have rejected the offer and whether they will go on to sue Lloyd's and dozens of other potential defendants allegedly involved in the affair.
The share prices of two of the potential defendantsSedgwick Group and Minet Holdings, rose yesterday. Sedgwick gained 4p to close at 293p. Minet closed at 375p, up 3p.
20 Jun 87
The Times: Names support £134 million PCW package
One of the blackest periods in the history of Lloyd's drew to a close yesterday when the insurance market declared it had received enough backing from underwriting names enmeshed in the PCW scandal to proceed with the£134 million rescue package it unveiled in April to try to resolve the affair.
Mr Peter Miller, the chairman of Lloyd's, said: "It is now possible to close this shameful chapter."
"I am very pleased indeed that the proposals put forward by Lloyd's to end this most difficult problem have been accepted by an overwhelming number of damaged names. While the claims on the policies still have to be met, the names who have assented will not be involved in any further problems."
The acceptance of the package ends years of uncertainty generated by the PCW scandal, which blew up in 1982 when it was discovered that the two founders of the PCW syndicates, Mr Peter Cameron-Webb and Mr Peter Dixon, hadmisappropriated £40 million of investors' money over a period of years.
"I think it is very important that Lloyd's was able and had the strength to solve this problem," Mr Miller said.
"It is aproblem which had to be solved by Lloyd's if it is to retain both its self-confidence and public confidence in it as an effective self-regulatory body."
The rescue formula devised by Lloyd's, which is pressing ahead with civil actions against Mr Cameron-Webb and Mr Dixon, asksnames to contribute £34 million towards the cost of meeting outstanding claims against PCW syndicates.
Lloyd'sitself will put in £48 million, with the balance coming from companies which Lloyd's deems may be under a legal or moral responsibility to syndicate members. They include Minet Group, which owned the PCW underwriting agency, and Alexander & Alexander, through whose companies PCW funds were siphoned abroad.
Afternine months of negotiations, Lloyd's calculated the likely gross liabilities of the syndicates affected to be £680 million. Taking account of assets, including insurance recoveries, the net liability is reduced to £235 million. The £134 million needed now is to meet present and future liabilities of the PCW syndicates.
The deadline for acceptance closed yesterday. It will be a few days before the final tally is known, but the decision by Lloyd's to declare its offer unconditional suggests it has received the backing of 90 per cent of the names involved, the level needed to go ahead with the plan.
Lloyd's accepts that a caucus of theworst hit names, some of whom face bills of more than £240,000, will refuse. Some have already threatened to take their grievances to court.
But Mr Miller is offering no fresh sweeteners to win round dissenters and added thatLloyd's would defend any legal actions with vigour.
He said: "We have made an offer after intensive negotiations with those representing the names and we have no intention of mounting another."
MrChristopher Crosthwaite, the solicitor who has been acting for the PCW 1985 Committee, which speaks for 450 of the hardest-hit victims of the non-marine syndicates, hailed yesterday as "the end of a long battle."
"The 1985 Committee has done its job. its job was to get an offer which although unpleasant for some people was good for others."
Mr Miller gave warning that the penalties of not accepting the Lloyd's offer were stiff.Names who assent will not be liable for any unforeseen deterioration in the claims against the PCW syndicates but, he said: "If you don't accept, you are a name against policies against which many people all over the world have claims."
It is understood thatnames who do not assent to the package run the risk of suspension from underwriting. They would also not be able to pass the solvency test required of names unless they put up assets that covered the whole of their losses from the stricken PCW syndicates. Some market sources suggest that even then it is doubtful whether such names would pass the solvency test.
Some aggrieved names say they are willing to pay their share, but are disputing what that share is.Mr Miller conceded that calculating the liabilities of the PCW syndicates had been a complex task.
He said: "The losses were underwriting losses. But you have fraud, and you have chaos which surrounds the fraud, which makes it impossible to apportion the losses correctly, 100 per cent, between the names involved."
23 Jun 87
Merrett internal memo from K E Randall to directors of Merrett Holdings Plc. Claims and reinsurance functions.
1. At the last meeting of the Board,I outlined my concerns about the poor quality of the records and the weaknesses in our internal organisation for dealing with outstanding claims and reinsurance recoveries....
4. The problems of Syndicates 417, 418 and 799 may be summarised as follows:
(i)The figures are now huge: ...
(ii)The outstanding claims go back many years and there have been numerous changes in personnel over the years.
(iii)The records are poor and in some cases non-existent.
(iv)The syndicates have grown to a size where individuals or groups have specialised and there is no-one Co-ordinating the problems or the syndicates as a whole.
(v)There have been massive problems in dealing with asbestos and environmental claims with the result that responsibility for monitoring outstanding claims on Syndicates 417 and 799 has been sadly neglected and the staff now assigned to maintain the records are far too junior and inexperienced.
24 Jun 87
General Meeting of Members of Lloyd's: Statement by Mr Peter Miller, Chairman
Ladies and gentlemen, after the General Meeting last November, a senior member of the market commented to me that theChairman's Statement on that occasion provided those attending with - I think his words were pretty thin gruel. In a sense, he was right; while we had the opening of the building by Her Majesty The Queen to look forward to, as to other matters, we were a bit like Godot, waiting for events which it seemed would never come about and therefore any comments would have been purely speculative. I can promise that same member richer fare today and with contents more wholesome than the "gruel thick as a slab" prepared by Shakespeare's witches in "that play." Indeed in view of the importance and complexity of the matters I must discuss with you, in advance I make no apology for a statement somewhat more lengthy than usual.
Self Regulation-"Neill" and "Fisher"
We received theNeill report in January; five months later it is perhaps becoming possible to put it into the overall context of the Lloyd's reforms of the last four and a half years. When we do this, we can get some idea of where we have got to with successful self- regulation at Lloyd's and where we should be going. It is the architecture of the new Lloyd's as conceived in the Lloyd's Act of 1982 which Neill sets out to improve, drawing upon the latest standards of investor protection being introduced elsewhere under the Financial Services Act. In the light of the Council's work since 1983, it is worth reminding the Society as well as the world at large of the praise which Neill felt able to accord to our efforts so far. Improvements in accounting standards, the reformed disciplinary procedures were particularly commended, and, as you know the Neill team said that they knew of:
That this is so, shouldnot be any cause for complacency, Neill singled out some areas where it was felt that we had not yet got it right and further efforts were needed, but overall the recommendation made by Neill are clearly developments of and improvements to what was already in train.
At this point, may I pause to report to you the completion of a central requirement of the Lloyd's Act 1982? You will of course recall therequirement of the Act for divestment (of broker ownership of underwriting managing agencies and vice versa) by 23 July 1987. That has now been completed. But Lloyd's set itself a further goal, not precisely required by the Act, namely the re-approval by re-registration procedures of all underwriting agencies. This too will be completed by 23 July .and marks, to my mind the most significant of all the Lloyd's reforms. The application of the concept of "fit and proper" to overall composition and balance of boards and to the individuals serving thereon and the adequacy of the financial structure, is something Lloyd's developed in 1984 and has now put into practice. Combined with the vastly improved accounting procedures and requirements on disclosure we now have an underwriting agency system which is independent and therefore more responsive to the Names at Lloyd's; more competent and therefore more reliable.
To return toNeill and as you know, we have accepted in principle all the recommendations. We have already implemented eighteen of them and steady progress is being made on the others. I would make a plea for patience; practical effects need to be carefully worked out and we must have effective consultation with those concerned. For example, and as we have already said to Parliament, it may not be possible to bring in revised underwriting agreements before 1 January, 1990, if we are to get it right. Further it is wrong to castigate Lloyd's for delay in, for example, broker regulation. The Council and the Lloyd's broking community are equally keen to complete the considerable reforms already made in this particular area. Our necessary involvement with the work of the Neill Inquiry last year diverted resources from this task amongst others. These resources can now be devoted to their project. I am determined that we should be ready to start re-registering brokers under the new rules by the end of this year.
There really can be no doubting the will and determination of the Society and the Council in all these matters. In human terms, clearly themost difficult recommendation was the alteration in composition of the Council. Many expected that there would be lengthy transitional provisions, yet within days of publication of the report I was able to announce that this core constitutional change would come into effect on 1 July. I pay tribute to the selflessness of Mr Barber, Mr Bird, Mr Ballantyne and Mr Greig who were prepared to make way immediately for the four new nominated members. It is right to commend the services which they have contributed to the Society and to record, as an example of those services, that Mr Barber, in his ten years on the Committee and Council, served on sixty committees and chaired a further ten and served as both Junior and Senior Deputy Chairman. Mr Bird was the author of the Bird report on membership requirements and is virtually "Mr Property" and "Mr Captains' Room", while Messrs Ballantyne and Greig, though relative newcomers to Council are of an age (if they and their retiring colleagues will forgive me) which leads me to hope that re-election (for which they will be eligible for a term commencing in 1989 or any calendar year thereafter) may, one day again place their shrewdness at the disposal of the Council and the Society.
May I warmly welcome MrsElizabeth Freeman, Sir Maurice Hodgson, Sir Jeremy Morse and Mr Brian Pomeroy (a member of the Neill Inquiry) as the four new nominated members of Council. I am delighted that Lloyd's could attract people of such calibre. The new Council is now composed in such a way that each year in November, places for three working members and two external members will be subject to an election in accordance with Lloyd's Act - and voting is a topic to which I will return.
It has been said that thenew composition represents a shift in the balance of power within the Council. This, I think, is to misunderstand the nature of the way the Council works and leads me to reflect specifically upon the nature of its task in the future and generally upon the future of self regulation at Lloyd's.
The Council never has, and I hope never will, either vote or find itself divided, upon what I would call constituency lines. The recommendation for a change in composition should be accepted as a reflection of the general changes outside Lloyd's in the concept of self-regulation, rather than any idea that theexternal and nominated members were in practice overwhelmed by the working members. I have heard it suggested, as a disadvantage to Lloyd's, that we shall be free of surveillance by the Securities and Investments Board or indeed by any other body. This seems an extraordinary suggestion, since we are now, as we have always been, subject to regulation by the Department of Trade and Industry. Further, we now have eight "surveyors", totally independent of the market, in the nominated members who have of course to be approved by the Governor of the Bank of England. One of these is the Chief Executive of the Corporation (and therefore as close as anybody to all that is going on) and another must be the Chairman or Deputy Chairman of the SIB itself.
May I pause to stress thedifference between the duties facing the Council of Lloyd's and those for which some of the new self regulatory organisations have been called into existence, namely investor protection. In addition to our responsibilities to our Names we have further and equally important responsibilities to our policyholders world-wide. It is this dual responsibility which distinguishes us from the other self-regulatory bodies in the City.
This leads me to some comments which can shortly be made about thefuture of self-regulation at Lloyd's and the Council's role therein.
First, theCouncil at last has the chance to escape from the role to which circumstances have condemned it since 1983, namely crisis management. It must develop into the truly effective organ of policy decision within the Society in discharging its responsibilities. These responsibilities remain unchanged and deserve restating. They are, first to protect the solvency of the Lloyd's policy and thus the policyholders' interests; second to protect the interests of the Names by proper regulation of the market place; third to provide the market place with a proper working environment in the widest sense including the use of modern technology, and finally to represent when appropriate the interests of the Society as a whole to governments and regulators at home and abroad. While the Council's working relationship with an increasingly effective Corporation continues to improve (both of which developments I heartily welcome), the Council must perfect its policy-making initiatives by the proper use of the various Council committees. It is very important that these committees should work effectively and I look to increased participation thereon by members of the market, and the external Names alike - and to achieve the latter I welcome the increasing responsibility and interest of the Association of Lloyd's Members.
On the more general subject of regulation, there has beenCity criticism of the increasing cost. For Lloyd's, I do not share those particular worries (though in general terms we must always critically examine any increase in costs). Far more I fear the effect of regulation if it is perceived as a method of taking the risk out of what is essentially a risk-taking business. The man who is at the heart of our Society is the active underwriter with a pen in his hand. So far, I am satisfied that the new regulatory regime has not damaged his risk-taking ability - but clearly there is a danger that this could become so. He must not be put into the position where he is always looking over his shoulder, worried that the Names will sue him if he takes a risk. We must always remember that this is a risk-taking business and there is a high financial risk in being a member of Lloyd's; our chosen agent is carefully regulated perhaps, but he is the agent appointed by each individual Name and the consequences of his action are those of each individual Name and no one else.
The PCW Settlement
Since I last spoke to you, theSociety has put forward proposals to settle the PCW affair. A great deal has been written on this subject and I have already explained the reasons for the Council's action to all Names together with details of the proposals themselves to the PCW Names - and to any other name who required them. Ladies and gentlemen, the long nightmare is over; the offer made by Lloyd's has gone unconditional with more than 95 per cent of Names involved accepting. The PCW affair had characteristics and a dimension which render it unique. It involved not only large and genuine underwriting losses but also the theft of monies by the managing agents by improper use of certain reinsurances. The principal of these monies (though not the interest) was of course recovered and restored. But in addition we were left to cope with the results of the perhaps inevitable chaos which surrounds any fraud and certainly applied to the financial affairs of the PCW syndicates. It was this deadly combination which made it unavoidable that the Society's own monies - the monies of the other members of the Society that is to say - would become involved, in apparent conflict with the basic doctrine of each for his own part not one for another. Negotiations by Lloyd's succeeded in obtaining material contributions from the potential defendants to suits by PCW Names. Those Names were asked for payment of amounts which on average, relieved them of 75 per cent of their potential losses, thus replacing the uncertainty of years of litigation with the certainty of the immediate benefit of a fund of £100 million as well as the literally inestimable benefit of finality to their exposure in this dreadful affair. Lloyd's itself is financially involved, but it is the Council's carefully considered view that the unique circumstances set out above have not only rendered this inevitable if the matter is to be settled, but also that the continuance of the affair was becoming highly damaging to the wider interests of the Society. Those not yet accepting will be able to do so on almost identical terms to the present settlement up to 8 July. Thereafter non-assentors will, as every other Lloyd's member, have to pass the solvency test. I cannot, at this stage, see a way by which they could do so. We shall of course continue to pursue our declared policy of relief of hardship and pursue any sensible accommodation with those who wish to assent and finalise their affairs but who do not wish to continue underwriting at Lloyd's. Talking of pursuit we shall continue to pursue malefactors vigorously by civil suit. I hope that in the end the Director of Public Prosecutions can find a way to do so likewise in criminal procedures.
Ladies and gentlemen, there can be no dissent with the bald proposition that this mustnever be allowed to happen again. Of course no policyholder has suffered or has ever been likely to suffer. Our capital base, our Names, however, surely have the right to expect that in a well-regulated society, while they may be exposed to the hazard of insurance risk they should not be exposed to the hazard of theft of their own monies. I cannot promise that we will never again suffer from crooks and charlatans; I can, however, point to each particular of the Cameron-Webb theft and demonstrate how our modern system of regulation would, point by point, prevent recurrence.
The sadness to me of the1970's was that not only that some people forget the law of agency but also that some forgot, perhaps under the twin strains of heavy taxation and cut-throat competition, the importance of ethics in business. It is easy to be cynical about this; when ethics in business are discussed the tendency is to reach out to see that the silver spoons are safely locked away. It is also easy to be guilty of talking down and to forget how much easier it is to be honest when one is older, richer and established than when one is young and properly hungry both for money and success. May I make a few practical suggestions? All but the sad handful of the truly amoral, know within themselves what is right and what is not. If you wish to carry on your business in mental as well as material comfort, adhere to the first and eschew the second. It is so desperately easy in the understandable anxiety to get or complete the order, to allow ambiguities to stand, to slide over or omit unpleasant truths, to fail to correct a misapprehension which stands to one's advantage. It is the particular duty of the older members of the market to take responsibility and enforce strict standards not only on those who work directly under them but also on those with whom they deal; for example nothing has so debilitating an effect upon standards as the sight of the broker being allowed to "get away with it" by weak or indolent underwriters. Know your law, particularly the law of agency - it is founded not on some abstract theory which can safely be ignored, but rather on a carefully constructed reflection of civilised society. Being part of the common law developed over centuries, to my mind it carries added moral weight; the development of this law within the Lloyd's Society by use of codes of practice is also of course extremely important. Finally (and I am indebted to Robert Heller for the initial thought), reflect on the Quakers; they treated their people honestly and decently, worked hard and honestly themselves, spent honestly and saved, honestly put back into the company more than they took out, honestly made good products, gave honest value for money and being honest told no lies - and look how well they did out of it!
The Revenue and Lloyd's
To turn from the making of money to the spending of it, I must now deal withLloyd's relations with the Inland Revenue and in particular with the recent proposals put forward in the Finance Bill concerning the taxation of the reinsurance to close. May I immediately state at least a personal sympathy with the theory of a system of lower taxes but an absence of "tax breaks" and reject firmly any suggestion that Lloyd's was enjoying some kind of tax break within the reinsurance to close. Our objection to the Revenue's approach to the problem, which was to seek to tax the reinsurance to close as though it were a "provision" made by an insurance company, was essentially because of its unreality in relation to what actually happens when the managing agent closes the syndicate's affairs.
Aninsurance company in making a reserve on account of a developing claims situation, is acting in a continuum. The "penalty" at that stage if a company cannot agree the prudential level of the reserve with the Revenue is of course payment of tax at 35 per cent. The managing agent closing a syndicate's affairs annually is transferring all risks and liabilities of that year from one set of Names (upon whom he is conferring finality in return for making a payment) to another set of Names (upon whose behalf he is accepting risks and liabilities in return for the receipt of a payment). It is pertinent that on average, fifty per cent of Lloyd's Names change their participation on every syndicate by 25 per cent or more each year (and liabilities are being transferred which may in extreme cases take up to forty years to settle). This means that unless amounts deductible for tax match the commercial payment of the reinsurance to close many Names will pay tax on money they have not received and others the reverse. At a time it is pertinent to remember that there is every temptation (but no justification) for the agent to cut down the reinsurance the reinsurance to close to maximise syndicate profits and his own commission while there is no reason (and likewise no justification) for a new set of Names being asked to accept liabilities from the past - often the far distant past - for a payment which contemplates anything less than adequate protection to cover the risk of loss which they are asked to assume.
Lloyd's does not seek, and never has sought, to deny the Revenue a locus to examine critically thereasonableness of the reinsurance to close as a deductible business expense. As you know, we have been engaged in detailed and lengthy negotiations with the Inland Revenue. I am still hopeful that these negotiations will be fruitful; that they will embrace useful guidelines on practice but, of fundamental importance that they will be based upon principles expressed in legislation, which recognise the commercial realities at Lloyd's.
At the same time I hear with some sympathy the anxieties expressed at theerosion of the risk/reward ratio in being a member of Lloyd's. In the results of the 1984 account we can see for the first time the diminished net returns consequent upon the anti-bond-washing provisions of the 1983 Budget - and perhaps only two-thirds of the full effect has yet become apparent because of the Riesco formula. It is for this reason that last November we put forward important proposals for alterations in the Special Reserve Fund - which has not been altered for over thirty years (and was incidentally granted in the first place by an understanding Socialist Chancellor - surely a challenge for a great reforming Tory Chancellor!). We shall pursue these proposals with tenacity, not in a search for unwarranted tax breaks but because the high risk business of underwriting is perhaps insufficiently recognised when one compares our taxation regime to our competitors both at home and overseas.
In a moment I shall turn to ashort commentary on market conditions. Before I do so, let me stress again the seriousness of the Revenue challenge to the reinsurance to close. Were the Revenue's original suggestions eventually to be imposed, it would at the least mean a material reduction in the amount of long-tail business written in the market (what agent would dare to write it?) - which in natural terms would be a social as well as a material disadvantage. Moreover, if Lloyd's were to withdraw from the liability market it would have an important knock-on effect adverse to our ability to attract other business. We face intense competition at home and abroad. We make a great and growing contribution to the balance of payments. If the Revenue proposals in their current form were imposed I could see our Names withdrawing or materially reducing their Lloyd's commitments; I could see our ability to compete greatly diminished and the contribution to the balance of payments going sharply into reverse. This is not a matter of remote or merely esoteric interest; it is not too fanciful to describe it as a matter of life and death for Lloyd's. I shall of course keep the membership informed of the progress of negotiations.
This statement is already overlong and I willdefer a detailed analysis of market conditions until the appropriate moment when we publish our Global results in earlcommend them for their ready acceptance of change over the past four years and for their immense success in expanding the market place and increasing the business of Lloyd's. At the same time we can provide that market place with greatly improved service from an increasingly efficient Corporation.
Finally, we can face our nation and claim to have earned the right over the last four years to the restoration of our public reputation. Wherediscipline was needed it has been applied without discrimination. Where regulatory reform was needed it has been pursued with zeal. Where our insurance policies and increased market place were needed we have been able to provide both. Ladies and gentlemen the new Lloyd's is being built four-square on firm foundations.
25 Jun 87
The Financial Times: Lloyd's members adopt religion as Miller brings ethics to fore
IT WAS the kind of decorous occasion, punctuated with flashes of controversy, that the City has come to know well. Speaking ex cathedra from a spot facing the Lutine Bell, Mr Peter Miller, chairman of Lloyd's of London, was delivering his yearly sermon to the insurance market's 32,000 members.
Mr Miller's address had been keenly awaited - and this wasno ordinary annual meeting. For one thing, a broker asked if Lloyd's could hold every year a non-denominational church service in the market's underwriting room.
Mr Miller's response was courteous and non-committal, as might be expected from a Rugby-and-Oxford man who qualified as a barrister before starting his career at Lloyd's in the mid-1950s sticking stamps on envelopes in the family insurance-broking business.
There was an equally diplomatic reply when another broker asked how Mr Miller felt about the fact that MrIan Hay Davison, the market's erstwhile chief executive, was "raking up Lloyd's troubles" once more in a new book - A View of the Room - due to be published tomorrow. T he question drew approving laughter from the congregation.
Yet Mr Miller's speech - which ran to 27 typed pages, with a number of impromptu asides - was headier stuff than such meetings are accustomed to.
In particular, there was the news that "the long nightmare" of PCW was over.
However,Lloyd's was still involved in a tussle with the Inland Revenue over the tax treatment of its underwriting accounts, said Mr Miller. It was " not too fanciful" to describe this as "a matter of life and death for Lloyd's," he added.
In the1970s, some people at Lloyd's "forgot - perhaps under the twin strains of heavy taxation and cut-throat competition - the importance of ethics in business," said Mr Miller. In future, members of Lloyd's should behave like the Quakers, who "worked hard, spent honestly and saved - and look how well they did out of it."
There is at least one old boy of Lloyd's, Mr Ian Posgate, who shares the view that Lloyd's should turn to God.
MrPosgate, one of the market's prodigal sons, is barred from active underwriting in the room, but after yesterday's meeting he favoured a yearly religious service.
However - being an ardent worshipper at the Brompton Oratory, who educated his children with the Benedictines of Downside anal the Jesuits of Stonyhurst - he insisted that the Service be taken by Cardinal Hume.
25 Jun 87
Financial Times: PCW affair settled, says Lloyd's
THElong-running PCW affair at Lloyd's of London is over Mr Peter Miller, the market's chairman, said yesterday at a general meeting of Lloyd's.
He revealed that96 per cent of the 1,547 worst-hit members of the old PCW insurance syndicates have now accepted a settlement offer which clears them of any further liability for underwriting losses estimated at a net £235m.
The settlement terms requite them to pay about£34m to help set up the cash fund of £134m, which Lloyd's needs to provide against the syndicates' losses over the next 20 years.
Thehuge losses began to emerge in 1984-85, two years after it was discovered in late 1982 that the PCW syndicates had been the victims of huge misappropriations by their former managers.
About60 PCW members (or "names"), including six in the US, have still not accepted the offer, which was made on April 9, Mr Miller told reporters. He expected more PCW members to accept before a final deadline of July 8.
"Is it going to be under orover 99 per cent? We shall see," Mr Miller said.
So far19 PCW names have asked Lloyd's for help using special "hardship" arrangements for names who wish to settle but do not have the money available.
Those whodo not accept by July 8 are unlikely to be able to pass the annual Solvency test which Lloyd's applies to members who want to continue underwriting, Mr Miller said.
Ahard-core of PCW names who have not accepted the offer are thought likely to sue Lloyd's and other parties in the insurance market. Possible defendants include insurance brokers such as Minet Holdings, which owned the old PCW underwriting agencies, and Sedgwick Group.
Minethas agreed to contribute up to £12.5m to the Lloyd's PCW cash fund, while Sedgwick has agreed to pay £10m.
ThePCW 1985 Committee, which represented 450 of the 1,547 worst-hit members, has now been dissolved, said Mr Christopher Crosthwaite, its solicitor. But some of the 60 who have not settled on Lloyd's terms will probably meet in London next week to form a new action committee to consider legal proceedings against Lloyd's and the other potential defendants.
Minet's share price closed up 8p at 373p last night, and Sedgwick gained 3p to 304p.
Minet after PCW is one thingPCW after Minet is more interesting. The past 90 days have seen Minet's shares outperform he market by 30 per cent, an omen that investors have long since discounted yesterday's news from Lime Street, even if Minet still retains a residual risk of last-ditch lawsuits from dissident PCW names. The more tantalising issue is the final shape of the long £680m run-off of insurance claims faced by Syndicate 9001 and Lioncover, the two Lloyd's bodies formed to carry the old PCW liabilities.
If US product liability and medical malpractice claims are a sizeable chunk of them - andPCW was reinsuring property/casualty companies like Fireman's Fund of California - the run-off will be over by 2007. But a long-tail of asbestos losses could stretch out to 2050. The wide margins of uncertainty surrounding reserving techniques for US casualty business will make PCW a text-book example for actuaries. They also mean that chairmen of Lloyd's may be answering questions well into the 21st century about whether PCW might eat up the central funds of the Society of Lloyd's if £680m proves to be too optimistic a forecast.
25 Jun 87
Minutes of Merrett Underwriting Agency Management Board Meeting.
25 Jun 87
Financial Times: PCW affair settled, says Lloyd's
Thelong running PCW affair at Lloyd's of London is over, Mr. Peter Miller, the market's chairman, said yesterday at a general meeting of Lloyd's.
He revealed that96 per cent of the 1,547 worst-hit members of the old PCW insurance syndicates have now accepted a settlement offer which clears them of any further liability for underwriting losses estimated at a net £235m.
Thesettlement terms require them to pay about £34m to help set up the cash fund of £134m which Lloyd's needs to provide against the syndicates' losses over the nest 20 years.
Thehuge losses began to emerge in 1984-85, two years after it was discovered in late 1982 that the PCW syndicates had been the victims of huge misappropriations by their former managers.
About60 PCW members (or "names"), including six in the US, have still not accepted the offer which was made on April 9, Mr. Miller told reporters. He expected more PCW members to accept before a final deadline of July 8.
"Is it going to be under or over 99 per cent? We shall see," Mr. Miller said.
So far19 PCW names have asked Lloyd help using special "hardship" arrangements for names who wish to settle but do not have the money available.
Those who do not accept by July 8 are unlikely to be able to pass the annual solvency test which Lloyd's applies to members who want to continue underwriting, Mr. Miller said.
A hard core of PCW names who have not accepted the offer are thought likely to sue Lloyd's and other parties in the insurance market.Possible defendants include insurance brokers such as Minet Holdings which owned the old PCW underwriting agencies, and Sedgwick Group.
Minethas agreed to contribute up to £12.5m to the Lloyd's PCW cash fund while Sedgwick has agreed to pay £10m.
ThePCW 1985 Committee which represented 450 of the 1,547 worst-hit members, has now been dissolved, said Mr. Christopher Crostwaite, its solicitor. But some of the 60 who have not settled on Lloyd's terms will probably meet in London next week to form a new action committee m consider legal proceedings against Lloyd's and the other potential defendants.
Minet's share price closed up at 373p last night and Sedgwick gained 3p to 304p.
25 Jun 87
Financial Times: Minet
Minetafter PCW is one thing. PCW after Minet is more interesting. The past 90 days have seen Minet's shares outperform the market by 30 per cent, an omen that investors have long since discounted yesterday's new from Lime Street, even if Minet still retains a residual risk of last ditch lawsuits from dissident PCW names. The more tantalising issue is the final shape of the long £680m run-off of insurance claims faced by Syndicate 9001 and Lioncover, the two Lloyd's bodies formed to carry the old PCW liabilities.
IfUS product liability and medical malpractice claims are a sizeable chunk of them - and PCW was reinsuring property/casualty companies like Firemen's Fund of California - the run-off will be over by 2007. But a long-tail of asbestos losses could stretch out to 2050. The wide margins of uncertainly surrounding reserving techniques for US casualty business will make PCW a text-book example for actuaries. They also mean that chairmen of Lloyd's may be answering questions well into the 21st century about whether PCW might eat up the central funds of the Society of Lloyd's if £680m proves to be too optimistic a forecast.
25 Jun 87
The Times: PCW names agree to Lloyd's rescue terms
Mr.Peter Miller, the chairman of Lloyd's, said yesterday that 96 per cent of the underwriting names involved in the PCW affair had assented to the formula devised by Lloyd's to settle the matter.
He isnow looking to the Director of Public Prosecutions to open criminal proceedings against Mr Peter Cameron-Webb and Mr Peter Dixon, who defrauded investors in the PCW syndicates of £40 million.
Lloyd's has already obtainedcivil judgment against Mr Dixon in the US courts in Virginia which it is trying to enforce. It is also preparing to pursue civil actions against Mr Cameron-Webb.
MrMiller said at the annual meeting of members of Lloyd's: "We shall continue to pursue the malefactors vigorously by civil suit. I hope 1 that in the end the Director of Public Prosecutions can find a way to do so likewise in l criminal procedures." But a spokeswoman for the DPP would only say: "The whole case is under consideration."
Therescue formula proposed by Lloyd's in April asked the names to contribute £34 million to meet outstanding claims against the PCW syndicates.
Lloyd'sitself will put in £48 million, with the balance coming from companies which Lloyd's deems may be under a legal or moral responsibility to syndicate members. They include the Minet Group and Alexander & Alexander.
Mr Miller said yesterday that only60 names had yet to assent to the offer. The deadline for acceptance of the terms ran out last Friday, but letters of acceptance are still being opened and names have until July 8 to pay.
Mr Miller reiterated that "there will be no deals" with those who have turned their back on the offer. Lloyd's appears confident that all but a handful will finally accept the terms. It is undaunted by threats of legal action by some of the worst hit names.
"My gut feeling is that it is extremely unlikely," said Mr Miller. "As of last night there wereonly six US citizens who had not assented. Their total commitment is about £57,000. I, therefore, think it is extremely unlikely that there is any prospect of action in the United States. I have no indication of any name wishing to pursue the matter in the English courts at this stage."
25 Jun 87
Independent: Hard-core holds out against PCW settlement
A HARDCORE of60 names caught up in the PCW scandal which has dogged the London insurance market for five years is -still holding out against the £134m settlement plan offered by the council of Lloyd's.
However, the chairman of Lloyd's,Peter Miller, said yesterday he believed that "all but a handful" would agree to the terms on offer and that he had no indication that any of the affected names would pursue the matter through the courts.
Thesettlement, which arises out of a massive fraud at Lloyd's perpetrated by two former managers of the PCW agency, has now been accepted by 96 per cent of the 3,000 members involved. Mr Miller told the annual meeting of Lloyd's that under the settlement the affected names have to pay amounts which, on average, relieved them of 75 per cent of their potential losses.
The two managers,Peter Cameron-Webb and Peter Dixon, both believed to be in the United States, are thought to have embezzled members of the loss-making PCW syndicates out of as much as £80m by diverting funds into offshore companies.
Thefailure of the Director of Public Prosecutions, Sir Thomas Hetherington, to take any action so far against the two men has been a running sore with the Lloyd's authorities.
Mr Miller refused to be drawn into a direct attack upon the DPP but privately Lloyd's finds it remarkable thatone of the biggest scandals to hit the City has yet to result in arrest warrants for Mr Cameron-Webb or Mr Dixon.
Mr Miller told the meeting that "the long nightmare" was now over. Lloyd's has also effectively extended its deadline for the outstanding names to agree to its offer by saying that assent forms accompanied by cheques would be accepted up until 8 July.
A spokesman for theDPP said the case was "under active consideration" but progress was slow because of its complexity.
25 Jun 87
Financial Times: Britannia Arrow sued by Bank over Slater Walker
THEBank of England. through a subsidiary, is suing Britannia Arrow the investment management group, for a payment; which could he more than $11.5m (£7m) in the central bank's first such action against another leading financial institution.
The dispute arises from the collapse of theSlater Walker Group, the investment house, in 1975 in the wake of the secondary banking crisis.
TheBank stepped in to rescue Slater Walker Limited, the group's banking subsidiary, eventually buying it for £3.5m in l977. Slater Walker Securities, the remainder of the group, changed its name to Britannia Arrow.
As part of its attempt to shore up the finances of SWS, the Bank at the time agreed thatSWL would buy several assets from SWS, including a $10m bond issued by a company called Cornwall Equities which SWS had in its portfolio. SWS indemnified the Bank against any loss by guaranteeing the payments of principal and interest.
After several take-overs and mergers,Cornwall Equities filed for bankruptcy in 1982 under chapter 11 of America s bankruptcy laws. This, it is suggested, activated the indemnity agreement.
The Bank maintains that Britannia has not paid SWL any of the interest that has accrued since then, because it has argued that there were legal uncertainties.
However the Bank said thatBritannia had recently denied that it was liable, prompting the Bank to start proceedings. The Bank said that a statement of claim had been lodged yesterday.
Theamount being sought includes accrued interest since 1982. The action is not expected to be heard until next year.
A director of Britannia Arrow sand last night: "We will be defending the action."
The onlyrecent comparison with this suit are proceedings started in 1985 by the Bank against Arthur Young, the accountants, following the collapse of Johnson Matthey Bankers.
25 Jun 87
Independent: Britannia Arrow faces $11.5m damages claim
SLATER WALKER Ltd, a wholly-owned subsidiary of the Bank of England, is suing Britannia Arrow, the fund management group, for damages of more than $11.5m. Britannia Arrow was formerly the non-banking side of the Slater Walker business empire which collapsed during the secondary banking crisis and had to be rescued by the Bank of England in 1975.
Theclaim dates back to an agreement finalised in 1977, which effectively completed the support operation and spun off the non-banking side. Under this, the Bank purchased Slater Walker Ltd. the merchant banking arm of the Slater business, from Slater Walker Securities (now Britannia Arrow) for £3.5m.
As part of aninjection of cash into Slater Walker Securities to set the company on its way, the Bank also purchased a $10m convertible loan note in Cornwall Equities which was guaranteed by Slater Walker Securities in the case of future problems, including default by the bond issuer.
TheBank's claim for damages centres on Britannia Arrow's alleged refusal to honour this indemnity following the collapse of the bond issuer in 1982.
By that yearCornwall Equities, a US company, had been through a series of take-overs to become KDT Industries, which then filed for Chapter 11 bankruptcy and stopping paying interest on the bond.
The Bank, through Slater Walker Ltd. has since beentrying to negotiate a payment from Britannia Arrow to cover the interest owed and the principal which is due next June.
Britannia Arrowhas always maintained it is not liable. It has made no provisions for the claim and since 1982 its annual report has been qualified because of the uncertainty of the situation.
A statement has appeared annually saying: "The directors consider that the question of any future liability remains subject to legal and other uncertainties and accordingly that no provision is appropriate."
In the latest accounts the directors said they expectedSlater Walker Ltd to make a claim in the region of $12m, "which would be vigorously defended", a tougher message than had appeared in previous years.
Britannia Arrow said it would made a statement after consulting its lawyers.
Its defence appears to start with a company called Franklin Stores, formerly a subsidiary of Slater Walker Securities.
By1980 Franklin was no longer a subsidiary but had assumed liability for the indemnity under the name AJ Equities. AJ Equities than sold some of its non-cash assets, apparently including the liability, to KDT.
Britannia Arrow isunderstood to argue that the Bank, without telling Britannia Arrow, released AJ Equities from all liabilities thus prejudicing Britannia's position as a guarantor of the loan note.
The rise and fall of Jim Slater
26 Jun 87
Letter from theDTI Inspectors to the Secretary of State for Trade & Industry
On 20 September 1982 your predecessor,Lord Cockfield, announced that he proposed to arrange an investigation into the affairs of Alexander Howden Group plc. We were appointed shortly afterwards.
We reported to you on 30 December 1985. At that time, we were reasonably confident that we had uncovered all matters where substantial funds were misused for whatever purpose. However, thereremained a small number of uncertainties and, accordingly, we submitted our report as an interim report.
Since December 1985, we have continued to monitor the position, particularly as regards Lloyd's own investigation (which were not at that time complete). No further matters have come to light which, in our opinion, merit re[port. Accordingly, we write to confirm that our investigations are now complete.
(Lloyd's disciplinary proceedings were not complete. For reasons unknown, the DTI report into Alexander Howden was withheld until 29 August 1990, when it was published together with the DTI report into PCW. Moreover, the DTI report into Unimar was an interim report and was published within days of being completed).
The Federal Savings and Loan Insurance Corporation (FSLIC) which was required to step in and guarantee each saver's deposit up to the promised US$100,000 with the Saving & Loans Associations, receives a US $10-8bn injection by Congress.
0 Jul 87
Work began in1986 on the production of a register of agents' charges which was completed in July 1987. The register, which makes publicly available information on underwriting agents charges to their Names, has been sent to all underwriting agents and is also available for inspection at Lloyd's. Extracts from the register can be obtained from Lloyd's on application.
1 Jul 87
The Underwriting Agents (Amendment) Byelaw(No. 8 of 1987, 1 July 1987).
Mark Loveday Underwriting Agencies Ltd acquired by Cater Allen Holdings for an acquisition cost of£2.1m comprising cash loan notes and Cater Allen equity.
Under the Lloyd's Act divestment by Brokers of Managing Agents must be completed.
17 Jul 87
Subsequent to the June Annual General Meeting of the Asbestos Claims Facility, Bill Wall, the Chief Executive Officer and Vice President-Claims called a meeting of Chief Executive Officers of all major Facility members, which was held at the Princeton headquarters on 17 July. The interests of the London Market were represented by:
Following a detailed presentation of the progress achieved to date by the Facility, Bill Wall again emphasised the problems that arise under the existing Board structure and more particularly stressed the organisations failure to establish a true alternative to the tort system which had been a basic concept in the formation of the Facility. Considerable support was provided by the senior executives in attendance to the Wall mission statement. Having brought about a reappraisal of the future of the Facility, Bill Wall tendered his resignation.
22 Jul 87
Lloyd's of London letter from Alan Lord, Deputy Chairman and Chief Executive, to all PCW Names.
I am pleased to be able to tell you thaton 17th July reinsurance to close contracts were concluded on your behalf with Syndicate 9001 which resulted in the full reinsurance of all underwriting liabilities arising at any time from your involvement in the PCW syndicates. The terms of those contracts are in accordance with the Offers dated 9th April 1987. As a result you will not be called upon to bear any further underwriting liabilities as a member of the PCW Syndicates That responsibility now falls on Lloyd's Syndicate 9001 and, through them, on Lioncover Insurance Company Limited which is wholly owned by the Society of Lloyd's.
I enclose herewith for your retention the Certificates of Insurance issued in respect of the policies and embossed by the Lloyd's Policy Signing Office. The original policies are held at Lloyd's where they are available for inspection.
27 Jul 87
During the week commencing 27 July, representatives of Mendes & Mount and Lord, Bissell & Brook attended a five day meeting withrepresentatives of the Direct and Reinsurance Claims Committee of the Asbestos Working Party to review past settlement experience and to consider the base of reserves to be recommended for the coming year end. Also in attendance at the meeting was a representative of Toplis & Harding (Market Services) Ltd and a partner of Grant Thornton who has been working closely with the Facility in developing the statistics based on experience to date.
28 Jul 87
American Motorists Insurance Co. -v- General Host Corp., 667 F. Supp. 1423, District of Kansas, 28 July 1987. Court found no coverage of 75 years worth of pollution resulting from careless operation. Plant had notice of pollution for over 50 years.
0 Jul 87
Theregistration of underwriting agents under Byelaw 4 of 1984 was completed on time in July and with it the divestment of all remaining ownership links between managing agents and Lloyd's brokers. At the completion of the re-registration programme a total of 234 underwriting agents had been registered comprising 59 managing agents, 80 members' agents and 95 combined agents.
7 Aug 87
Asbestos litigation reporter: Owens-Corning Fiberglass Withdraws From Facility.
All claims after 3 October. Owens-Corning Fiberglass informed the Asbestos Facility in a letter of 3 August that the company was withdrawing itsresignation of the Facility as its sole agent for handling asbestos-injury claims filed after 3 October 1987. It is the first withdrawal by any of the Facility's 51 members...
17 Aug 87
Business Insurance: Two more federal Judges split on pollution coverage.
Federal Courts continue to issue conflicting opinions on whether general liability insurers must provide coverage for pollution claims.
19 Aug 87
Lloyd's Global Report and Accounts at 31 December 1986, - 1984 Year of account - signed by Ernst & Whinney, Chartered Accountants.
24 Aug 87
Letter from Mendes & Mount, Attorneys, to the underwriters at interest. Re: 1987 year-end reserves various asbestos accounts.
(3) In our last general report we brought to the markets attention the steady increase in new filings. During the past three years we have seennew filings increase from 700 per month in 1985 to 1,000 per month in the latter half of 1986. During 1987 we have observed further deterioration with new filings thus far averaging 2,000 cases a month and it is significant that from the various sources with whom the facility are in contact they have reached provisional conclusion that it is unlikely there will be any material fall-off over the next 2 years. In trying to determine the reasons that have led to this increased activity one must look to well publicised activity of the Plaintiff Bar in developing new areas from which to enlist clients ...
However, at this point we feel that it is important to record that there is no tangible evidence to suggest that the existence of the Facility has been the cause for the vast increase in the number of law suits.
II. Property damage:
(4) This subject iscontinuing to develop into a major concern for the asbestos manufacturers and the insurance industry. Prior reports have lacked a qualitative and quantitative statistics, however, London's representatives have been able to develop certain basic information over the last 12 months on at least those suits filed to date. With the passage of the Asbestos Hazard Emergency Response Act of 1986, the United States Congress began what is likely to become a long term effort to remove hazardous asbestos from buildings and lessen the risk that poops will be harmed by exposure to the fibres...
I. Pending Law Suits:
(4) There are currently pending approximately150 law suits and in addition there are between 50 and 100 additional notices of demand. These matters arise form the following:
We hasten to add that the above numbers are not truly reflective of the parameters of this problem,for within the above there is a National Class Action for Schools where notices are shortly to be issued to 36,000 individual members. This represents approximately one-third of the schools in the United States. Also within the above suits are single actions such as that in respect of the State of Maryland which relates to "all public buildings". Moreover, only thirteen cases have been tried or settled with only four manufacturers having sustained adverse verdicts. Of the seven cases that were tried to a verdict, two were returned for the defendants and five for the plaintiffs. The adverse verdicts were as follows:
U. S. Gypsumsustained four verdicts at an average cost of:
National Gypsumsustained three verdicts at an average cost of:
W. R. Gracesustained two verdicts at an average cost of:
The fourth manufacturer,Celotex, sustained one adverse verdict resulting both in compensatory and punitive awards. The above figures do not include the recently resolved Texas School's Consolidated Action involving 83 School Districts where W. R. Grace settled its liability for approximately $47 million and . This case was filed in the Federal District Court, therefore, because of lack of diversity jurisdiction a State Court Action remains pending against National Gypsum, as their principal place of business is in Texas.
III. Year End Reserves:
(8)The Asbestos Claims Facility has disposed of 8,685 claims at a total cost of $542,546,453, the average cost per claim is $62,469. ... To complete the settlements the Facility has factored in the $93m commitment which results in a revised total of 9,435 cases disposed of for a cost of $635,546,183 or $67,360 per claim ...
Asbestos universe filings 54,058 by 1986, and 80,003 projected increase to December 1987.
(9) In keeping with the procedures adopted in the pastthere are no provisions in our projections to address the IBNR potential which we have been advised is a separate consideration for each individual insurer. It is extremely difficult for us to provide any reliable advice as to how the asbestos problem is likely to develop over the ensuing years except to the extent that it now appears that the total insurance limits of most insureds could be consumed by this enormous problem.
(10)The Facility settled case level is averaging 6,000 per year, the allocated budget is $110m for the 1987 legal costs.
(11) With passage of the Asbestos Hazard Emergency Response Act of 1986, the EPA have examined 44,000 schools and have calculated the cost of removing friable asbestos at $9,242,822,210. This figure is provisional and it must be borne in mind that there are continuing reports of further filings, especially from the States' Attorneys' General. Media articles are indicating that there are as many as 735,000 public buildings in which asbestos may be deemed potentially hazardous.
(12) It is too early to predict at this stage the outcome etc. etc. Therefore, at this time it is felt appropriate to discount the overall global figure of $9-24bn to more truly reflect the current uncertainties, but to caution that with the expected litigation and new filings over the next twelve months, the situation could materially change.
Mendes & Mountreport to the underwriters at interest. Re: 1987 year-end reserves various asbestos accounts.
As you are no doubt aware it has becomeour practice to provide the Market with an Annual report each August in which we endeavour to outline significant developments that have taken place in the servicing of asbestos accounts during the past year. Many major issues have arisen over the past twelve months which have a substantial impact upon the London Market. We propose to deal with developments within the Facility, the substantial increase in bodily injury claims now being filed and the impact that this will have on our Year End Reserve recommendations to the Market. In addition we will discuss developments that have occurred in asbestos related property damage and finally we will provide a review of coverage decisions that have been handed down over the past twelve months with particular emphasis on the tentative decision pronounced by Judge Ira Brown at the end of Phase III in the California Co-ordinated Action.
I.ASBESTOS CLAIMS FACILITY
It is our understanding that this report will be circulated to all interested insurers under cover of a letter from the Chairman of the Asbestos Working Party which will discuss this and other operational issues and our comments are supplied solely to provide you with the necessary background.
We believe the Market is generally aware of the staffing problems at an executive level which have confronted the Facility. Towards the end of last yearWade Coleman, the Chief Executive Officer from the inception of the Facility, announced his intention to resign in order to pursue other interests. A Facility Search Committee ultimately selected from the many candidates they interviewed William Wall, the former Chief Executive Officer of Kansas City Power & Light, to fill the vacancy and Mr. Wall took over his duties in May 1987. After conducting an extensive review of the objectives of the Facility and the manner in which the vast volume of asbestos related bodily injury claims are handled, William Wall concluded that his special areas of commercial expertise may not wholly serve the future needs of the Facility. As a result he tendered his resignation to the Board at the end of July.
We would now like to turn our attention to the progress achieved in the disposition of outstanding claims. Since the Facility's active involvement in settlement of outstanding law suits in September 1985, they have processed some 8,500 cases to conclusion and removed from the active trial calendar a further 1,500 cases which have been transferred to the Pleural Registry or for which Green Cards have been issued. It is worthy of mention that the rate of disposition achieved has been well in excess of all cases settled prior to the commencement of the Facility and represents approximately 40% of the known case load at September 1985.
The average compensatory cost of disposition achieved by the Facility from September 1985 through to December 1986 ranged between $59,000 and $62,000. To an extent settlements are driven by the trial priority permitted in most jurisdictions for the more severe conditions of mesothelioma and other cancers which account for over 20% of all settlements. In addition average overall settlement levels have been adversely affected by theunduly high quantum imposed by the Texas Courts in settlement of a Class Action which encompassed some 750 claimants who were awarded $93 million structured over a three year period.
TheFacility's experience in 1987 is difficult to compare with former years due to GAF becoming a Facility member effective 7 January 1987. Formerly GAF were regarded as a significant defendant in asbestos litigation and it was therefore reasonable to anticipate that settlement levels within the Facility would increase. While during the course of 1987 settlement levels did increase to $67,000, this is somewhat less than had been foreseen with GAF's participation and indeed may simply be reflective of a general increase in settlement levels.
To some extent the Facility is a victim of its own success for it is now regarded as the only viable entity to reduce cases pending on the Court calendars, as a consequence, certain Courts are pressing for an increase in the rate of dispositions. Although this may result in a slight increase in the cases disposed of, it is unlikely to be significant, bearing in mind thatthe handling capacity of the Facility as presently structured is limited to about 6,000 cases per year.
In our last general report we brought to the Market's attention the steady increase in new filings. During the past three years we have seen new filings increase from 700 per month in 1985 to 1,000 per month in the latter half of 1986. During 1987 we have observed further deterioration with new filings thus far averaging 2,000 cases per month and it is significant that from the various sources with whom the Facility are in contact they have reached the provisional conclusion that it is unlikely there will be any material fall-off over the next two years. In trying to determine the reasons that have led to this increased activity one must look to the well publicised activity of the Bar in developing new areas from which to enlist clients. There is now a noticeable change in the work source from which claims are arising with ship building on the decline, but with corresponding increases from allied trades which have not formerly produced substantial loss activity. The steel, tire manufacturing and talc industry are but three specific areas in which the Plaintiff Bar have been particularly active. A further aspect that has caused an increase in filings has been the limited extension period enacted in New York which provided a twelve month period for the filing of suits involving certain latency conditions. The grace period ran out at the end of last month and although it is a little early to assess filing levels it is anticipated that some 3,000 new cases will develop.
These adverse developments and the impact they have on total outstandings will be commented on a little later in this report. However, at this point we feel that it is important to record that there is no tangible evidence to suggest that the existence of the Facility has been the cause for the vast increase in the number of law suits. We are reasonably satisfied that the Plaintiff Bar would have directed its attention to other trade sources once a noticeable decline in new cases developed in the ship building and repair industry. This conclusion is to an extent borne out by the new cases that have developed under the Federal Employer's Liability Act against various Railroads.
This subject is continuing to develop into a major concern for the asbestos manufacturers and the insurance industry. Prior reports have lacked qualitative and quantitative statistics, however, London's representatives have been able to develop certain basic information over the last twelve months on at least those suits filed to date.
With passage of theAsbestos Hazard Emergency Response Act of 1986, the United States Congress began what is likely to become a long-term effort to remove hazardous asbestos from buildings and lessen the risk that people will be harmed by exposure to the fibres.
1. Pending Law Suits
There are currently pending approximately 150 law suits and in addition there are between 50 and 100 additional notices of demand. The source from which these matters arise are as follows:
We hasten to add that the above numbers are not truly reflective of the parameters of this problem, for within the above there is a National Class Action for Schools where notices are shortly to be issued to 36,000 individual members. This represents approximately one-third of the schools in the United States. Also within the above suits are single actions such as that in respect of the State of Maryland which relates to "all public buildings". Moreover, only thirteen cases have been tried or settled with only four manufacturers having sustained adverse verdicts. Of the seven cases that were tried to a verdict, two were returned for the defendants and five for the plaintiffs. The adverse verdicts and the average cost were as follows:
The fourth manufacturer, Celotex, sustained one adverse verdict resulting both in compensatory and punitive awards.
The above figures do not include the recently resolvedTexas School's Consolidated Action involving 83 School Districts where W. R. Grace settled its liability for approximately $47 million and U. S. Gypsum settled their involvement for $12,500,000. This case was filed in the Federal District Court, therefore, because of lack of diversity jurisdiction a State Court Action remains pending against National Gypsum, as their principal place of business is in Texas.
It is also important to note that there have been numerous dismissals of many manufacturers due to failure of product identification. By reason of advanced technology it is now possible to identify through microscopic examination the specific product formulation of various manufacturers and this capability may in the future minimise the vagaries of joint and several liability for property damage in those States that have yet to introduce or to affirm Tort reform. Currently the underlying Tort activity has centred on the Southern States where the trend has indicated heavy exposure for U. S. Gypsum, National Gypsum and W. R. Grace, and the admission at trial of damaging documentary evidence has resulted in awards of punitive damages, particularly in respect of W. R. Grace. There is no indication to date as to the major defendants for other areas based on Trial
2.Pending P. D. Declaratory Judgment Actions
There are currently seventeen Declaratory Judgment Actions pending against insurers. The London Market are involved in five major actions of which two are moving towards trial. In summary these are as follows:
a) U. S. Gypsum - Illinois
The Judge has recently granted U. S. Gypsum extensive discovery requests and is moving the case forward. Depositions have already been taken of London representatives and more are anticipated.
b) W. R. Grace
This action stemmed from the underlying Tort claims in Texas and is currently being challenged on grounds of prior and pending actions elsewhere and is limited to claims emanating from Texas only.
c) W. R. Grace - Massachusetts
This action, involving Grace's excess carriers, was filed subsequent to the Texas suit and encompasses nation-wide bodily injury and property damage claims.
d) Armstrong Cork - California
This action forms part of the California Co-ordinated Action before Judge Ira Brown. There is no specific trial date and no real discovery on property damage has ever been taken. Present indications are that the Court will address property damage in Phase V of the trial.
e) National Gypsum - New York
This action was originally filed by the Stonewall Insurance Co. and is not being actively pursued pending the outcome of various summary motions in the case of Maryland -v- W. R. Grace, which has been pending before Judge Cramm for about eighteen months and recently assigned to a Special Master.
Only one suit has been tried to a verdict, namely Lake Asbestos (Lac D'Amiante) in New Jersey where the Trial Court Judge rendered a "Keene" type judgment. No appeal will ensue from this verdict as the defendant insurers have now compromised their dispute.
III.YEAR END RESERVES
1. Bodily Injury - Indemnity
During the week commencing27 July representatives of this firm and Lord Bissell & Brook attended a five day meeting with representatives of the Direct and Reinsurance Claims Committee of the Asbestos Working Party to review past settlement experience and to consider the base of reserves to be recommended for the coming year end. Also in attendance at the meeting was a representative of Toplis & Harding (Market Services) Ltd. and the Partner of Grant Thornton who has been working closely with the Facility in developing the statistics based on experience to date.
Separate considerations arise in respect of indemnity and defence costs and we will deal firstly with the former. Taking indemnity settlements up to June 1987,the Facility has disposed of 8,685 claims at a total cost of $542,546,453 which results in an average cost per claim of $62,469. The Texas Class Action which was resolved by an structured pay out is not included in these figures. However, bearing in mind that the Facility is fully committed to complete the settlement we have factored in the $93 million commitment which results in a revised total of 9,435 cases disposed of for a cost of $635,546,183 or $67,360 per claim. To take account of the variations which exist from one State to another, the settlement data has been broken down, firstly by the States from which the claims arose and secondly by the disease category into which the claims fall. The diseases are principally the following:
Drawing upon this information we were able to determine the existing average cost for each disease category in each originating State. In applying these basic factors it is important to emphasise that each Facility insured is in a different position on an incurred basis due to the variations that arise in respect to the number of claims each disposed of before entering the Facility. However, it may be of interest to record the comparison between the total asbestos universe as it existed last year and as it now exists.
In both instances the figures include a projection of the new cases that we anticipate would arise between June and December, which estimates were based upon the rate at which new filings developed during the preceding six months. In this manner the reserves which we will recommend are reflective of the true year end position.
As at the end of June 1987, the Facility had on record approximately55,000 outstanding claims and from the databank systems available it has been possible for Grant Thornton to break down the various States from which the outstandings arose and, to the extent possible, to classify the disease category involved. In connection with the more recent filings as discovery has not progressed to the stage that the physical disability can be determined there results an unknown factor of approximately 27% of all outstandings. By tracking the development of the manner in which the unknown category developed from June 1986 to date, we have been able to reduce the unknown to a more acceptable level in order to base our reserve projections. Although it was at one time suggested that the upsurge in filings in the past year would be of less severity than was formally the case, there is little statistical evidence to support this view. Cases involving asbestosis reflect a 3% increase and although mesotheliomas have dropped slightly, they still represent over 7% of all outstanding claims.
Extrapolating the slight changes that have occurred in the disease mix on the outstandings presently known and projected to the end of this year and applying the average settlement cost per State and disease, produces an average cost ranging from $62,000 to $65,180 per claim as a result of the statistical alternatives that can be applied to the unknown disease count.
After extensive discussion with the London representatives and Grant Thornton, this firm and Lord Bissell & Brook feel it necessary to recommend that the Market adopt a figure of $64,000 per claim for the purpose of reserve projections to be contained in our year end reports. In making this recommendation we must again emphasise the reserves to be reported will be based on known case load plus estimated new filings which will develop between now and the end of this year. As new suits have presently been averaging 2,000 per month, our calculations have included a provision for 12,000 new claims developing from July to December 1987.
In keeping with the procedures adopted in the past there are projections to address the IBNR potential which we have been advised is a separate consideration for each individual insurer. It is extremely difficult for us to provide any reliable advice as to how the asbestos problem is likely to develop over the ensuing years except to the extent that itnow appears that the total insurance limits of most insureds could be consumed by this enormous problem. Within the Facility the number of new claims being reported to settlements effected are in a ratio of 5:1, consequently we have to contend with an ever increasing case load. This is graphically illustrated by the following:
Pressures are developing in an attempt to involve the U. S. Government in this serious situation, but to date there have been no indications that the Government is prepared willingly to come to the aid of asbestos manufacturers. Much will depend on whether there is any success achieved in any of the pending litigation involving the Government.
2. Bodily Injury - Allocated Costs
One of the basic objectives of the Facility was to bring down the enormous expenditures on defence expenses being incurred before its inception. In the early stages of operations drastic changes were made to rationalise the employment of Counsel and the Facility began to show progress. Unfortunatelyduring 1986 new cases being reported virtually doubled to 1,000 per month and indeed have been exceeding 2,000 per month for the past nine months. The effect of this dramatic increase is that for the 67 Liaison Counsel employed by the Facility, not only are they required to address some 500 cases which come up on the Court calendar each month, their case load of pending matters has virtually doubled.
From a reserve aspect it has been the practice to express allocated costs as a percentage of indemnity. With the Facility settled case level remaining in the region of 6,000 cases a year against an ever increasing volume of outstandings, the expense percentage is steadily increasing. We understand that the Facility had imposedstringent restraints upon Liaison Counsel in an endeavour to keep allocated costs within a $110 million budget for 1987 and that more legal activity is likely to be brought in-house in a further effort to reduce legal cost. However, as a result of the discussions that took place between ourselves and Lord Bissell & Brook, we are constrained to recommend that the Market contemplate a 25% allocated cost loading on indemnity reserves for the coming year end.
With the assistance ofGrant Thornton worksheets for each individual account are being prepared based upon the foregoing $64,000 plus 25% per claim basis and when this extensive process has been completed, we will be in a position to present our reserve recommendations on the various direct and reinsurance accounts involved.
Insofar asNon-Facility accounts are concerned our reserve recommendations will be based upon the latest claim/loss information developed on each account.
3. Property Damage
Certain factual studies have been completed within the past twelve months bythe Environmental Protection Agency that greatly assist in evaluating the potential cost of the suits filed to date. In a report published in April 1987 the EPA are said to have examined 44,000 schools and established that they contained 213,000,000 square feet of asbestos containing material. There are 107,550 schools potentially affected which according to the EPA produces 510,203,785 square feet of asbestos containing material.
The cost of ripping out asbestos tends to vary at this time from a low of $4.50 per square foot in Texas to a high of $30 to $35 per square foot in New York. Overall, the EPA has estimated a cost of $12.50 per square foot for removal from public schools. As the public schools represent 69% of suits filed to date, we can extrapolate these figures to produce a total of 739,425,777 square feet for all claims filed to date. Due to the great variance in removal cost, we have utilised the EPA projection of $12.50 per square foot, thereby calculating the gross removal costs of all known suits to be$9,242,822,210. The figures, are provisional and it must be borne in mind that, there are continuing reports of further filings, especially from the States Attorneys General and media articles indicating that there are as many as 73S,000 public buildings in which asbestos may be deemed potentially hazardous. It is too early to predict at this stage whether in fact all school districts will either file suit or join the National Class Action, neither is it appropriate to say that the Northern States will follow the Southern States in finding liability, award punitive damages or even establish that the removal of asbestos is property damage. To date only one Declaratory Judgment Action on coverage has been resolved and we are reluctant to assume that other Courts will necessarily follow the findings of a lower New Jersey Court.
Therefore, at this time it isfelt appropriate to discount the overall global figure of $9,242,822,210 to more truly reflect the current uncertainties, but to caution that with the expected litigation and new filings over the next twelve months, the situation could materially change. For the purpose of year end reserve considerations we believe that it is realistic to substantially discount the global potential arising from the existing suits that have been filed to reflect the many uncertainties that exist.
The key issue for insurers is the manner in which the Courts will resolve the coverage issue. The nature of Judge Ira Brown's decisionin Phase III of the California Co-ordinated Action whilst not necessarily relevant to property damage issues certainly gives us no cause for comfort on the way the Court is likely to go when addressing Phase V. The broad finding handed down by the New Jersey Court in Lake Asbestos is troublesome, but far from conclusive of the issue. Indeed some encouragement may be found in a judgment entered just last week by a trial court judge in the Circuit Court of Cook County. In that case, USF & G -v- Wilkin, Judge Marovich held that Wilkin's claim that the presence of asbestos is a risk of physical injury to unidentifiable persons does not amount to property damage and that the underlying claims allege no injury to property. The Judge also held that the cost of inspection, removal and replacement amounts to economic loss only and no coverage exists because the complaints against Wilkin, an insulator, do not allege property damage. It is significant that the Court held that installation of asbestos in a building is not an "accident" in the plain meaning of that term. Due to the significance of this finding it is virtually inevitable that the decision will be appealed. If ultimately the Appellate Courts were to determine that there is damage to property and that this is within the scope of coverage provided by insurers, very significant exposures will arise. From the information that has been developed to date we have been able to identify on a provisional basis the eight major manufacturers involved in existing property damage actions and their likely percentage involvement is as follows:
As a result of our discussions with Lord Bissell & Brook we arejointly recommending that reserves be specifically factored into our calculations for all of the above accounts - other than Johns-Manville - which will contemplate a ground up reserve of $500 million for each of the three major defendants.
In the coverage litigation thus far filed, Producers are seeking a Keene type application of coverage which would potentially expose all years of coverage from installation to rip out. As counsel for the London Market we have disputed this position andhave advocated that if there is found to be Property Damage within the meaning of an insurance contract liability should only attach once the insured discovers that there is an asbestos containing product within the building. However, as we are reluctant to ignore the potential exposure to the Market in the event defences do not succeed, consequently we shall factor our reserve projections over the spread of years involved on each account. Reserve recommendations to the Market will only arise on those years where limits remain available.
The remaining15% from the above listing is not capable of allocation at this stage and we propose to maintain for the purpose of year end reporting the existing precautionary reserves established for other manufacturers.
Finally we must caution the Market that the approach we outline above is in response to the Market's need to be provided with a clear indication of the potential developing from individual accounts. The current uncertainties that exist and the very real prospect of new filings over the next twelve months could materially affect our approach next year.
IV.RECENT COVERAGE DECISIONS
Since our last year end report the only decision of major impact was that rendered by Judge Brown pertaining toPhase III of the California Co-ordinated Action. This Declaratory Judgment Action has received considerable attention and was perceived by us as the decision that may have the greatest impact upon insurance coverage cases elsewhere involving "latent health".
The decision at this stage is tentative and will not be made final until all phases of the trial have been completed. The most significant aspects were:
1. Trigger of coverage - Judge Brown ruled that
This ruling is quite obviously the broadest interpretation of insurance coverage for asbestos bodily injury claims to date andclearly extends beyond the coverage bands agreed within the Asbestos Claims Facility. Judge Brown in addition made it clear that where an insured was uninsured, or self-insured, during any period of the claimant's exposure there was no obligation imposed on the insured to contribute.
2. Duty to Defend - Judge Brown ruled in line with recent Appellate Court decisions in other jurisdictions that there was no ongoing duty to defend once indemnity limits had been properly exhausted.
Judge Brown had indicated thatPhase IV of the trial will concern the extraneous issues between the parties and also the application of the "Other Insurance" provisions in policies together with the ability of insureds to stack policies in order to maximise coverage. We are led to believe that Phase V of the trial will be devoted to Property Damage in which London's involvement is limited to Armstrong Cork.
The Facility has now been operating under theAdvance Billing procedure since the 11th Billing which covered the period to July 1986. The Market had been previously advised by the Chairman of the Asbestos Working Party of the necessity of such procedure recognising that from an accounting standpoint accelerated cash flow figures would not be available until the processing of the subsequent Facility billing. However, this has allowed the Facility to dispose of cases more timely and avoid the necessity of borrowing from lines of credit and as a consequence suffer interest penalties. It has been previously emphasised to the Market the importance of prompt response to billings and we are pleased to report that the London response time has improved substantially and problem areas are now at a minimum. During the latter part of 1986 and early 1987 we submitted for the Market's consideration reports detailing the manner in which accelerated cash flow is determined as well as reflecting the state of the ACF as it existed at that time. Those reports were designed to assist the Market to update their records. Recognising the complexity of this subject and that regular reports are required not only for policies that are responding to current billings but even after exhaustion reports continue to be necessary in order to advise of the ongoing reductions in accelerated cash flow, accordingly, on the instructions of the Chairman of the Asbestos Working Party Servicing Counsel will provide you with updating reports at six month intervals.
VI.YEAR END REPORTS
Considering the fact that there will bein excess of 250 year end reports on direct and reinsurance involvements, the need for a prioritisation of such reports was recently discussed. The Working Party decided that the Market's interest would best be served by ensuring that reports with a major impact on the London Market be afforded priority treatment. In accordance with this procedure the Market will start to receive such reports within the next thirty days.
As in previous years the Working Party has instructed Counsel to have all reserve reports into the Market by 14 November and every effort will be made to preserve this time table. Full factual reports will be issued thereafter only on accounts where material developments have taken place.
Lastly, we would like to bring to the Market's consideration the question ofSurcharge, which shall be maintained at 8% for the forthcoming year.
26 Aug 87
Toplis & Harding (Market Services) Ltd. - Letter to insurers at interest.
At the request of the Chairman of the Asbestos Working Party, I attach his letter dated 26th August together with a copy of the Mendes & Mount annual report. The Chairman has asked that I specifically draw your attention to the confidentiality of the attached report, as indicated by the heading on the first page.
Letter from RAG Jackson, chairman asbestos working party:
(Page 1)(The Asbestos Working Party have been extremely concerned at the adverse reports reaching us during the course of this year and the potential impact the deteriorating loss situation was likely to have on reserves for the coming year end. In my last report I warned the market of what was likely to be in store and as it now transpires the situation is perhaps worse than I had feared. Attached to this letter you will find Mendes & Mount annual report upon the developments they and Lord Bissell & Brook perceive over the past year. The most significant feature of the report relates to the basis on which reserves will be projected both in respect of bodily injury and property damage. When the necessary allocations to the various accounts has been completed there is no doubt that substantial increases will fall upon the London Market....
(Page 5) As a result of these developments it is apparent that the Facility is at a cross-roads and short of a change of direction could founder....
(Page 6) Unfortunately problems tend to come in 3's and I must tell you that it was announced at the last board meeting that a significant producer, Owens Corning Fiberglass, gave the requisite 60 days notice of withdrawal from the Facility in respect of new filings....
(Page 7) In the face of all these problems I must report to you thatthe conspiracy and anti-trust suit being pursued against the facility by a consortium of members of the Plaintiff Bar has now reached a stage where discovery has been served).
Toplis & Harding (Market Services) Ltd. - Letter to insurers at interest.
In my letter dated10 June 1987 I undertook to provide you before the end of that month an account of the Annual General Meeting of the Asbestos Claim Facility. Bearing in mind the events that developed thereafter I have delayed providing you with a further report in order that I can address as many issues as possible in this letter.
The Asbestos Working Party have beenextremely concerned at the adverse reports reaching us during the course of this year and the potential impact the deteriorating loss situation was likely to have on reserves for the coming year end. In my last report I warned the Market of what was likely to be in store and as it now transpires the situation is perhaps worse than I had feared. Attached to this letter you will find Mendes & Mount's Annual report upon the developments they and Lord Bissell & Brook perceive over the past year. The most significant feature of the report relates to the basis on which reserves will be projected both in respect to bodily injury and property damage. When the necessary allocation to the various accounts has been g completed there is no doubt that substantial increases will fall upon the London Market. This being so I consider that the report is essential reading for the senior management of all involved Syndicates and Companies.
The Working Party has given extensive consideration to the report provided by our representatives who were in attendance at the meeting of U.S. Counsel. Whilst the developments in respect of property damage are sufficiently intangible towarrant a substantial but discounted reserve, the recommendations relating to bodily injury are based on inescapable facts however unpalatable they may appear. The Working Party have given their unanimous support to the recommendations put forward and it was at our request that Mendes & Mount were asked to provide meaningful detail in order that you can understand how Counsel reached their conclusions.
The need to provide year end reports on a timely basis has been impressed upon our U.S. representatives and subject to no unforeseen difficulties arising the last reports should be received in London by mid November. I have asked the members of theClaims and Reinsurance Committees to review reports promptly in order that they may be dispatched to the Market with the minimum of delay by Toplis & Harding (Market Services) Ltd.
Our attention has been drawn to the difficulties encountered by some sections of the Market in developing basic coverageinformation necessary to complete the Asbestos Reinsurance Advice Form. In order to address this need and hopefully bring some conformity to the information being provided on outward reinsurance, I have requested our U.S. Counsel to provide a summary of the basic information required on each account for which reports will be issued. Where possible this information will be in the form of an attachment to the year end report; however if there is any prospect that on certain accounts the summary could delay dispatch, I have requested that in those instances the information be provided by a separate letter.
Earlier in this letter I made reference to the developments that have taken place within the Asbestos Claim Facility and I will now provide you with the background. You will recall-that William Wall was appointed Chief Executive Officer of the Facility and took up his post in early May. During my visit to Washington to attend the Annual General Meeting I spent some time with Bill Wall before the meeting and learned that as a result of his review of the organisation, he was in doubt on whether to continue as Chief Executive Officer. In many respects he had reservations on whether he could make a valid contribution to the ongoing enterprise and this was particularly so with the adversarial nature that persists between Producers and Insurer members on the Board. It was Bill Wall's view that the organisation could only survive if specific interests were put aside and that a true unity of purpose became more evident.
Subsequent to theAnnual General Meeting Bill Wall called for a meeting of Chief Executive Officers of all major Facility members which was held at the Princeton headquarters on 17 July 1987. Unfortunately it was impossible for me to attend that meeting but the interests of our Market were represented by Jim Ayliffe and Keith Rayment. Following a detailed presentation of the progress achieved to date by the Facility Bill Wall again emphasised the problems that arise under the existing Board structure and more particularly stressed the organisations failure to establish a true alternative to the tort system which had been a basic concept in the formation of the Facility. Considerable support was provided by the senior executives in attendance to the Wall mission statement. Having brought about a reappraisal of the future of the Facility I am sorry to say Bill Wall tendered his resignation.
As a result of this development we once again lack the leadership of a strong nature so necessary to take us through the deteriorating situation on the asbestos scene. It is also with great regret that I have to advise you that for totally unassociated reasonsDick Jordan, the Vice President-Claims has also left the Facility. Dick Jordan, for whom I have a high regard, left to take up a senior management position with a leading Domestic insurer.
As a result of these developments it is apparent thatthe Facility is at a cross roads and short of a change of direction could founder. As a result and with the support of the Working Party I asked our representatives on the Board to take a strong line aimed at getting matters back on course at the 5 August 1987 Board Meeting in Washington. As first order of business the Board have appointed Larry Fitzpatrick, Vice President-Law as interim Chief Executive Officer with unfettered authority to take the necessary action to develop alternatives to the present practice of dealing with claims only when they are on the trial docket. This is the first stage in restructuring that needs to be undertaken whilst we embark upon our search for a new Chief Executive Officer and Vice President-Claims.
Bearing in mind themassive task facing the Facility in the volume of outstandings they now face and the extreme financial pressures that will arise on many Producers I am personally becoming involved in the possibility of setting up a Chief Executive Officer Advisory Board made up of some of the major participants in the Facility. This was one of Bill Wall's main recommendation and which we fully support. Discussions on this possibility are continuing with senior management of a number of Insurance Companies and I will keep you posted of developments. It will be apparent to all that the extent, or lack of, remaining insurance limits must greatly influence policy attitudes advocated by Producers. However our Board representatives are determined to preserve the Facility's impartiality as being the settling agent for all Members. The Facility still represents the only viable way in which to handle asbestos related claims and if it were to fail in its purpose there would bean enormous servicing problem for this Market to address.
Unfortunately problems tend to come in threes and I must tell you that it wasannounced at the last Board Meet that a significant Producer, Owens Corning Fibreglass gave the requisite 60 days notice of withdrawal from the Facility in respect of new filings. Under the terms of the Facility Agreement OCF will continue as an active participant in respect of all cases that are outstanding up to the time of withdrawal and therefore this development will only start to impact our operation as we become actively involved in suits filed after the departure of OCF. It appears that the fundamental problem facing OCF is that their generic share is becoming disproportionate to the changed source from which new cases are arising. These matters will receive the active consideration of the Board at the September meeting and I hope it will be possible to find ways to persuade OCF to reconsider its position.
In the face of all these problems I must report to you that theconspiracy and anti-trust suit being pursued against the Facility by a consortium of members of the Plaintiff Bar has now reached a stage where Discovery has been served. Certain preliminary motions will need to be addressed by the Court before consideration needs to be given to a response. Indeed it is uncertain whether the London Market will need to respond as defendants bearing in mind no specific service has been effected. The Working Party are being advised in this matter by Ropes & Gray who have warned that service on the Facility, our duly appointed agent, may constitute adequate service for the purpose of the action. The Working Party will continue to keep in close contact with this totally outrageous law suit. These matters are at a preliminary stage and if they develop into active litigation it will become complex, time consuming and the legal costs that could arise in protecting the London Market's position will be costly.
I have in my earlier letters referred to the growing concern within the Working Party at thefailure of certain outward reinsurers to meet their contractual obligations. So far as I can ascertain there has been no perceptible improvement in the situation and it now becomes necessary to consider our future course of conduct against certain specific reinsurers. At the present time I am having these matters reviewed by Barlow Lyde & Gilbert and once I am in receipt of their advice I anticipate writing to you to invite your participation in exercising legal recourse against the defaulters. Bearing in mind that we shall shortly be approaching a further renewal season in respect of inward and outward reinsurance placings, I consider that it is necessary that you are aware of the manner in which these matters are developing.
Finally, I would like to address the role performed by Toplis & Harding (Market Services) Ltd. in providing a service to the Market in connection with asbestos related claims. The need to protect privilege on communications received from Counsel still persists in many areas and is likely to continue in the present litigious environment. Although delays occur on occasions I believe the Markets need for prompt circulation of reports continues to improve and indeed isfar superior than could ever be achieved by the broking fraternity. The addition of Philip Frost to the staff has greatly added to our ability to provide service to the Market and has enabled us to make major strides in obtaining payment from brokers of overdue fee billings. However there is a cost to this service which has to be borne by the Market. It is the Working Party's intention to employ at least one additional employee in the near future to supplement the service and this cost has been taken into the 1988 budget. Taking into account the cash flow generated by late payments referred to above the Working Party have concluded that they can maintain the same budgetary provision as applicable to 1987, namely $375,000. This sum relates solely to services performed on asbestos related matters, all other services being separately costed. The projected costs will be allocated over the various direct and reinsurance accounts proportionate to work involved and will be reported on by Counsel later in the year.
I am sorry that this letter and the enclosures are lengthy but the content is of major significance to all participants and warrants your attention.
27 Aug 87
Detrex Chemical Industries -v- Employers Insurance of Wausau, 631 F. Supp. 438, Northern District of Ohio, 27 August 1987.
Court held claim for damages against insured that might result in legal liability is not synonymous with "suit".Insurer has no duty to defend in matters where insured only notified that it was potentially liable for cleanup costs.
28 Aug 87
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. Court held while plaintiff can sue based on solely economic loss, plaintiff must show that asbestos was unreasonably dangerous. Also no need to wait for manifestation.
31 Aug 87
Asbestosis claim notifications accelerated during the first half of 1987 and reached a record level when well over 3,000 new claims were filed in the month of August 1987 by the Asbestos Claims Facility. Thereafter, new filings declined with the result that for the next ten months said filings have settled down to a rate of approximately 1,500 new suits per month.
0 Sep 87
In September the Chairman, (Peter Miller),accompanied by Mr. Michael Cockell, a senior member of the Council of Lloyd's, embarked on an extensive visit to the USA during which he addressed the National Association of Professional Surplus Lines Offices' annual convention in New Orleans, the Surplus Lines Association of Florida in Palm Beach, the Georgia Risk and Insurance Management Society in Atlanta and the North Carolina Surplus Lines Association in Raleigh. In Washington DC, the Chairman and Mr. Cockell met Mr. Howard Baker, Chief of Staff and Assistant to the President and were entertained to luncheon by Sir Antony Acland, HM Ambassador to the United States.
0 Sep 87
Daily Telegraph: Lloyd's set for bumper profit rise to £295m
LLOYD'Stotal profits will reach £295m for the 1984 underwriting year (the last for which the books have been closed) compared with £179m for the previous year according to the estimate by Chatset, the company which produces annual league tables for syndicate performance.
Itbeat the official Lloyd's release of the totals by just 48 hours. It also examined who gets the profits, and yesterday launched a blistering attack on Lloyd's agents for the disproportionate fees they charge members.
Chatset alsoforecast that 1985 would produce better results still and 1986 would be a "vintage" year. But the 1987 underwriting year may show a slight decline, with 1988 falling further.
John Rew, a Chatset director,warned that methods for calculating underwriting limits and commissions are changing, and Lloyd's agents will as a result get 23 per cent more of the profits from next year.
"Is thereany justification for these increases by the managing agents when for the 1984 account salaries charged to Names will amount to approximately £45m and profit commission £90m, totalling £130m, while the Names who bear the risks will receive £205m?" asks the introduction to the latest league tables book.
Commission agreementshould have "deficit clauses" allowing members to get something back when syndicates make a loss.
For instance,profit commissions on profitable Sturge syndicates could not be set against the big loss on its 210 syndicate.
Memberson "all Sturge syndicates received about £4m after deduction of salary and profit commission of £6m." It is not right the risk takers should get only 40 per cent of the profit, Mr Rew added.
Hazell's syndicate 190made a loss of £4m for members over the past two years "whilst the managing agent took salaries plus £2. 5m in profit commission".
The book also highlights adanger from a specialist arrangement sometimes called "time and distance policies." This provides a future repayment with interest for a current premium.
Butpaying out reserves for such policies is "mortgaging the future" said Mr Rew. For instance Merrett Group syndicate 417/418 in 1984 could take in £10. 3m profit from this accounting policy, out of a £12. 6m total profit.
This sort of "policy benefits this year to the detriment of future years so members should consider leaving," Mr Rew added.
The bestresult in 1984 was marine syndicate 741 with a 36p.c. profit. The top 10 marine syndicates are a fair sample of the market but biggest losers all have problems overhanging from previous years.
Biggest loserwas aviation syndicate 496, which has since closed down, with a 63 per cent loss.
As Charles Sturge of Chatset pointed out, neither the best nor worst performers among non-marine syndicates were typical - thebest were specialists and the disasters were hit either by American casualty losses, especially Darrah Trucking, or professional indemnity through Shand Morahan (three of the bottom 10 performers).
(This is misleading. Lloyd's published a £35-805m pre-tax profit for the entire market and, provided figures showing a £179-135m pre-tax profit excluding PCW syndicate losses.)
0 Sep 87
Lloyd's Global Report and Accounts at 31 December 1986- 1984 Year of Account: Chairman's Statement - Statement by Mr Peter Miller Chairman of Lloyd's
Given therecent spate of good results from the insurance company sector would be perhaps surprising - and certainly disappointing - if the Lloyd's results (albeit under our three year accounting regime, for 1984) did not have some favourable characteristics. In fact the overall results for 1984, constitute a record profit for the Lloyd's market of almost exactly £300 million, excluding PCW, while the outlook for 1985, at least overall, looks likely to improve on that figure and 1986 is spoken of, almost reverently, as a vintage year by those who are not given to the hyperbole of the connoisseur of fine French wine, where a vin du siecle occurs at least once a decade.
Theresults of the four individual markets in Lloyd's are substantially different not only by result (for 1984) but also in prospect (for 1985, 1986 and beyond); as usual the detailed comments from the chairmen of the four market associations form part of this report and give a clear picture of results and prospects in their respective areas. The report also includes the overall results broken down into the nine individual accounts which form the basis of our statutory return to the Department of Trade and Industry. The analysis within this return and the global accounts cannot be equated exactly with business written by a any of the four main markets (for instance, aviation insurance and some non-marine insurance is often written in the marine market). The specific business written by individual syndicates, however, is revealed in the syndicate reports which are filed centrally at Lloyd's and are publicly available.
As last year, and again in theinterests of presenting a fair picture, figures in this report are shown alternatively including and excluding the results of the PCW syndicates. At the same time we have made some further minor improvements to this year's presentation and look forward next year to incorporating some major changes, for example premiums shown gross of reinsurance, the effect of profit commission earned by underwriting agents and investment return gross rather than net of tax (which two latter items are at present roughly self-balancing).
There areseveral favourable aspects of the overall results which should not go unrecorded. First, there is a record overall profit which I have already referred of £300 million. (This excludes the PCW result but the total including these syndicates would nevertheless have been a record; in this commentary I will continue to exclude PCW). The percentage of overall profit on net premium has increased from 7 per cent in 1983 to 10 per cent in 1984 and, in money terms, from £179 million to £300 million in the same period. It is particularly welcome to see a return overall to underwriting profit before consideration of investment income. In the immediate outlook, that is to say for the 1985 and 1986 accounts, we can look for further substantial improvements again overall. Looking further ahead I must draw your attention to the very proper caveats of the individual chairmen of the market associations. On the one hand and for example, the marine market, which has produced impressive results in recent years, faces a seemingly endless shipping recession (in spite of slight signs of improvement) and an oil and energy industry which is recovering but slowly. At the same time it faces increasingly severe competition from underwriters abroad attracted, in part, by the favourable results achieved in London. On the other hand we have the prospect in the motor market of a welcome return to profitability. In the long term the motor market's profit record has been second only to the marine, but it appears that it may be 1987 before the market as a whole returns to its previous profitable ways.
However, there isone factor which continues to dominate the whole Lloyd's market and indeed it is perhaps no exaggeration to say it continues to dominate the whole world insurance scene. I refer, of course, to the general liability account.. I have in previous years drawn attention to the enormous losses made in this area and I must do so again. The overall loss on this account shows a welcome reduction from last year's figure. However, I have to say that the problems facing those underwriting this account, while perhaps reduced as a result of the reforms in the law of tort in the United States, are nevertheless far from resolved. Two facts seem to me to stand out; first, that this account produces 12 per cent of Lloyd's premium income and almost 100 per cent of our losses. Second, almost exactly 50 per cent of our reinsurance to close (£2,000 million out of £4,000 million in round figures) has to be devoted to the claims outstanding within this account; on a premium income base of some £400 million any under-reserving must have a sharply disadvantageous effect. In spite of all the efforts that have been made, quite extraordinary court awards and judicial interpretations continue to come from, in particular, the American scene.
There aretwo quite different problems in the whole of this area. First, whether the amounts put aside to meet these claims will be sufficient, a problem of the past which underwriters must do their best to solve. Second, how far it is prudent to commit underwriting resources in the future to a class of business hedged about with such dangers and uncertainties. The problem extends beyond the insurance industry; society, that is to say the general public and its political leaders, w ill have to reflect and should, sooner rather than later, act to clarify how they feel that their damaged citizens should be fairly compensated.
The results under review in this report have messages not only for the members of Lloyd's (and it isencouraging to see the tremendous growth in Lloyd's capacity from £5 billion to £10 billion in four years and membership increased from 23,500 to 31,500 in the same period) but also for the holder of a Lloyd's policy and perhaps for the public at large.
As to the holders of Lloyd's policies, it is interesting to note thatsecurity behind their insurance, as set out on page 38, remains as strong as ever. For example, the fact that premium income written (before ceded reinsurance) shows a ratio to surplus of 1: 1; this demonstrates the conservatism and therefor financial strength of the Lloyd's formulas. At the same time, it must be a welcome fact to the public at large that the contribution of Lloyd's and its brokers to the invisible earnings of the United Kingdom increased from a figure of £1,872 million in 1985 to £2,446 million in 1986. There can be no doubt of the tremendous growth achieved by Lloyd's in the period under review in this report. It is clear that there are difficulties (as always) which face the market. It is particularly disappointing to observe the number of direct trading doors closed in Lloyd's face over the last decade while the one notable door which should have been opened, namely free trade in services within the European Economic Community, remains as effectively closed as it has ever been. The opening of this and other doors to direct trade by Lloyd's must be an abiding priority for the market - and it is a matter where the Council of Lloyd's will assist to the utmost of its ability.
Statement by Mr.Christopher Rome, Chairman, Lloyd's Underwriters' Association
Last year my predecessor concluded his review by expressing a degree of cautious optimism about the marine market's future performance. This has proved to be well-founded as the1984 account has produced an acceptably good result, especially when the market conditions prevailing at that time are taken into account. Indeed our result, excluding cargo, bears a very close resemblance to the 1983 account with a profit of just below 26 per cent being generated, as opposed to just over 28 per cent for the previous year. The cargo (goods in transit) result has remained predictably mediocre.
Thehull market had been enjoying a moderate improvement in its trading conditions, and the incidence of major losses appeared to be on the decline. The trend now seems to be changing without claims experience worsening. In March 1987 we saw one of the most tragic disasters in recent years with the loss of the Herald of Free Enterprise and following this our market endorsed a proposal to increase the limits of liability in respect of passengers carried on British flag vessels. The shipping recession shows no real sign of abating and now seems almost permanently entrenched. This has led to an increasing tendency for owners to "flag out" their ships in order to obtain the tax advantages as well as the reduction in operating and crewing costs which certain foreign flags have to offer. We suspect that this can only lead to a general lowering of standards and will prove to be a short-term expediency rather than being in the long-term interests of the shipping industry.
Thecombination of the modest improvement in the hull market's trading conditions and the diminished volume of business have combined to generate some of the intense competition. It is fuelled by excessive capacity and threatens to wipe out the gains we have made in recent years.
Thehostilities in the Gulf are of considerable concern to us all, and at the time of writing, 334 vessels have been attacked since May 1981 and of these, 114 have been totally lost. As we know, the attacks are not directed solely towards Iranian and Iraqi vessels and losses on vessels of nearly all nationalities have led to claims - mines do not discriminate between flags. Last year 107 vessels were attacked, a record which now seems certain to be exceeded this year. Our market endeavours in insuring vessels under these adverse conditions is a contribution to the major effort which is now being made at governmental level to keep lines of trade in the Gulf open. Whilst rating levels have been adjusted to meet the risks, the market's exposure to losses remains huge.
The "energy account" has benefited from a slight recovery in the price of oil. Whilst exploration is still necessarily at a low level, some new projects are going ahead and this has created a degree of optimism. As far as rigs are concerned though, about 50 per cent of the world's total number of mobile units are still laid up. Values have been severely depressed, and a worrying feature of the situation is that large numbers of laid-up rigs are concentrated in storm prone locations.
Thetotal overall profit on the goods in transit account is no more than the interest the market earned on the invested premiums. This really sums up the state of the account quite appropriately. Rates continue to fall as a result of increased competition and lack of business. London has, in recent years, lost a great deal of its traditionally direct cargo business and much of this is now placed with overseas insurers who reinsure the business under treaties, some of which are placed in the London market whose security is always attractive to the reassured. The judgment of ceding companies often leaves a lot to be desired and this, coupled with additional discounts, premium reserves and other disincentives, really calls for a close examination of this method of trading.
I believe the open years will produce generally favourable results and that themarket will perform satisfactorily for the immediate future. The current signs are, however, that the improvement will not last. Profits have attracted capacity for which there is simply insufficient business available which will cause a downturn in the underwriting cycle, continuing until those who have generated irresponsible competition have done themselves, and the market as a whole, enough damage.
Statement by Mr.Bryan Kellett, Chairman, Lloyd's Underwriters' Non-Marine Association
Although thefigure is marginal, it is pleasing to be able to report a profit in the non-marine market amounting to £314,000 on a premium income of £1,198 million.
Theresults of the non-marine market are, once again, dominated by the loss in the general liability section, which for the 1984 year of account amounts to £170 million on a premium income of £365 million. A substantial proportion of that loss results from the need, as in previous years, to add to the reinsurance to close item as the result of reassessment of liabilities on business written in prior closed years of account.
This class of business, much of which comprises policies issued to insureds in theUnited States of America, continues to be adversely affected by certain features of the legal system of that country.
One such feature is thecontingent fee system whereby lawyers are rewarded by sharing in the damages which they are able to secure for their clients, often leading to spurious cases being pursued. Another is the system of awards by juries in civil damages cases where they are encouraged to think of the insurance industry as having a "deep pocket" from which victims may be compensated, regardless of whether or not there is fault on the part of insured defendants.
Theproblems are considerably compounded by the time which may elapse between the occurrence giving rise to injury and an eventual court ruling that this was in some way due to the negligence of the policyholder.
Thus, underwriters of this class of business are faced withtwo problems. Firstly, they are being called upon to indemnify insureds in respect of losses for which they had not expected to be held liable. Secondly, the computations of the amounts - which will be needed to pay losses already incurred and which should be charged as premium on new business - will be based on inadequate and unreliable data.
Recently we have seen theintroduction and adoption of the claims made policy by many syndicates. In simple terms, under the provisions of this policy, the date of loss is the date upon which it becomes apparent that a claim may be made against the insured. The use of this type of policy may go a long way towards easing some of the problems in this section.
Agood level of profit has been achieved in the accident and health, property, and pecuniary loss sections and, although only just offsetting the loss on the general liability section, the overall result is a considerable improvement on the record loss reported last year.
Followingseveral years of extremely poor results in the insurance industry generally, a dramatic improvement in premiums and terms was achieved by non-marine underwriters during 1984, especially in the property section.
The1985 account should reflect this, but it was also, unfortunately, a year in which the market suffered several moderate sized catastrophes. These will fall more heavily on syndicates, because of the generally increased level in the amounts being retained by them under their own reinsurance arrangements, resulting from the same hardening of market attitudes. Nevertheless, I am optimistic that non-marine underwriting will, after the disappointing results of the recent past, again produce significant profits in that year.
Furthermore, whilst no underwriter likes to predict the result of an account which is only eighteen months old, I will disregard caution and suggest that1986 has the early signs of being a great vintage year for the non-marine market, and that prospects for the current year are promising.
Statement by Mr.John Tilling, Chairman, Lloyd's Aviation Underwriters' Association
I am pleased to report anoverall profit of £42 million arising from the 1984 account made up of an underwriting profit of £29 million plus investment income of £37 million less expenses of £24 million. This result reflects the beginning of increased rates at that time together with an absence of any substantial liability losses. Nevertheless the market suffered a high frequency of hull losses predominantly from manufacturers' hull policies in addition to a substantial hail storm loss at Munich.
The1985 underwriting year will prove to be the worst ever for civil operators and the calendar year is marked with losses from all sections of the account. The outcome of this year is still difficult to predict with hull all risks and war risk underwriters arbitrating the proximate cause of the Air India loss. The currency relationship between the US$ and the Japanese Yen has been to the detriment of those underwriters involved in the Japan Airlines loss and the deterioration for those insurers is very substantial.
Althoughtoo early to predict the outcome of the 1986 underwriting year the signs are more encouraging and underwriters remain hopeful. The two losses of significance during 1986 involved an Aeromexico DC-9 in a collision with a light aircraft over California resulting in substantial third party losses on the ground. In addition the loss of space Shuttle Challenger will involve products underwriters. Following the 1985 loss frequency, underwriters faced very substantial increases not only in reinsurance costs but in their first loss retentions.
The considerations of theaviation hull war and allied perils market are quite different. The underwriting factors of this market simply seem to worsen as increased acts of violence and terrorism against aircraft occur. Nevertheless underwriters continue to respond to the requirements of operators.
Inlast year's statement my predecessor commented upon tort reform in the United States appertaining to products liability. Although some progress has been achieved I do not think that all the hoped for benefits are likely to come to fruition.
Currently thesatellite market is relatively quiet due to the unavailability of a regular launch vehicle. The United States' Shuttle will not be available in the near future for commercial use and the market awaits the return of Ariane, the European launch vehicle. There is the possibility of the reintroduction of some of the US built expendable launch vehicles and the Chinese and Russians may also provide suitable options.
In spite of all the difficulties facing underwriters theindications are that the premium income capacity of the market will increase in real terms for the 1988 year.
Statement by Mr.Lionel Marchant, Chairman, Lloyd's Motor Underwriters' Association
As forecast by the Association's chairman last year, the1984 account has closed with an overall loss of £24 million. The prediction that the worsening pattern of claims to premiums would continue has been proved correct and the market has accordingly responded with remedial action. Competitive pressures, however, made it difficult to obtain realistic premium revisions until the 1986 account. Whilst the 1984 account is obviously disappointing, I believe that the returns for 1985 will show an improvement. Regrettably an overall loss must also be anticipated for that year.
In contrast the1986 account has benefited from substantial premium revisions from the beginning of the year, particularly in respect of policies issued to vehicle fleet operators. During 1986 realistic premium revisions became available to underwriters on policies issued to private motorists following publication of losses sustained on the motor accounts of the composite insurance companies; this trend seems likely to continue throughout 1987.
In addition to the premium revisions by individual underwriters, theLMUA has continued its involvement with the Motor Insurance Repair Research Centre, at Thatcham. The centre was established in 1969 by Lloyd's and the company market in order to investigate vehicle repair methods and costs and to recommend the most effective techniques. Since the majority of claim payments are in respect of vehicle repair, it is helpful to underwriters to have the benefit of a specialist body to monitor the efficacy of the repair of every make of car. Over the years many of the recommendations made by the Thatcham centre have become accepted both by the vehicle repair industry and vehicle manufacturers. Increasingly manufacturers consult Thatcham concerning new model design well in advance of production, to ensure optimum repair costs at a later stage. Such co-operation is to the advantage of the policyholder, underwriter and manufacturer.
InMarch 1987 the Motor Insurance Anti-Fraud and Theft Register began operation. The LMUA played a leading role in promoting the register and pursued its implementation with vigour. The incidence of auto-crime related claims is still on the increase and shows no sign of abating. The problem of fraud, insofar as individual police authorities are concerned, is dealt with in varying degrees of interest and effectiveness according to resources. Penalties imposed by some courts on persons apprehended for insurance related offences do not always appear to have a satisfactory deterrent effect. These, and other factors, combined to provide the impetus for the register. The operation of the register is simple. When a ‘total loss' claim is received, details of the vehicle and claimant are entered on the register. Before agreeing the payment of a total loss, insurers can now interrogate the register to ascertain if there are any ‘matches' already recorded. If the claim appears to be duplicated, further investigation can be made before any payment is made. Although the register is still in its infancy, it has already yielded some success in ‘matching' information.
Soaring claims and repair costs have served to stress the importance of soundly based motor insurance and underwriters must be sure that this is not an undervalued service. It is equally important that the policyholder should understand the necessity for an adequate and financially sound policy of insurance. Thelevels of premiums now being achieved must be sustained together with the regular review of individual portfolios.
I am confident that thecombination of wider application of information technology, the continuing work of the Thatcham centre and the information provided by the Anti-Fraud and Theft Register will lead the market to a return to profitability. An analysis of Lloyd's global accounts for the last 35 years shows that the profitability of the motor market is second only to that of our colleagues in the marine market. We look forward to regaining that position.
(On their basis of reporting and accounting, theMarket Associations would disclose the following result:-
Agency feesare included within syndicate expenses. Their reporting, as such, does not include ‘Annual Subscriptions and Levies', payable to the Corporation of Lloyd's £51. 5m (1983
When we asked Mr. Cameron-Webb why baby syndicates were set up, he said:
Mr. Cameron-Webb said that they aimed at writing short-tail business for the baby syndicates because:
‘Well, you could see what was going to happen. I mean, if you were in the TLO (total loss only) market or in the
Mr. Cameron-Webb gave two explanations for the inter-syndicate reinsurances between the main and the baby syndicates:
1. On types of business written by a main and a baby syndicate, the main syndicate would often appear on the slip as the only insurer. This was to save on accounting charges made to the syndicates by Lloyd's. In order that the baby syndicate could get its proportion of the business, a transfer had to be made to it at the year end.
Transfers of the first type were in principle reasonable, although they depended on a proper allocation between the main and the baby syndicate of premiums and claims. Transfers of thesecond type were not reasonable, as effectively they were arbitrary. In practice however the transfers were often not in either category. For many of the transfers, nobody has given us any sensible explanation as to what they represented or how they were calculated. In our view the reinsurances were not genuine, and were a means of transferring from the main syndicates to the baby syndicates underwriting profit or else funds from which investment income and appreciation could be earned.
An example of a reinsurance which was not genuine was in the 1979 underwriting year. In June 1979 the following transfers of premiums were made from syndicate 812, which was the syndicate in the 810 group specialising in war risk business:
These transfers were much larger than the premium income limits of the syndicates in 1979, which were £225,000 for 954 and £160,000 for 893. In thesyndicate accounts at 31st December 1979 and 1980 the transfers were concealed by fictitious accounting entries and adjustments. At 31st December 1981, 90% of the amounts were repaid to syndicate 812. The remaining 10% was treated as a permanent transfer of premium. Thus in addition to this permanent transfer, syndicates 954 and 893 had the benefit of the investment income and appreciation on these large amounts of money for over two and a half years. Without this inter-syndicate reinsurance the profits of syndicates 954 and 893 for the 1979 underwriting year would have been far lower.
Theinter-syndicate reinsurance described above was larger than most. However other reinsurances which were not genuine were made throughout the lives of the baby syndicates. Such reinsurances were the principal means by which the very large profits of the baby syndicates were achieved.
The baby syndicates: amount of business
Another method by which the baby syndicates were favoured was to allocate to them agreater than normal proportion of business considered to be particularly profitable. For example the normal split of business between the main non-marine syndicate 918 and the baby non-marine syndicate 986 was 85% to 15%. In chapter 12 however we have described the professional indemnity policies broked by J H Minet. We concluded that Mr. Cameron-Webb regarded the professional indemnity business as likely to be profitable and thus wanted to write as large a line as possible (see 12.19). For the line-slips starting on 1st November in each of the years 1973 to 1976, the line was 12.22%. Apart from small allocations to two other syndicates, this was split between the main non-marine syndicate 918 and the baby syndicate 986 in the ratio of 73. 3% to 4. 27%, which is approximately 63% to 37%. In fact the business in the long run turned out not to be profitable, but Mr. Cameron-Webb did not know this at the time he wrote his line.
The baby syndicates: errors in accounting
The baby syndicates were also favoured by the methods of accounting.Deliberate errors in accounting were made which had the effect of favouring the baby syndicates at the expense of the main syndicates. We have described a very important example of these errors in chapter 12 on the professional indemnity policies (see 12. 22). There was a series of errors by PCW in the accounting of premiums and claims between syndicates 918 and 986, and in general these errors favoured syndicate 986. In particular the accounting for. the 1973 and 1974 directors and officers policies resulted in a benefit to syndicate 986 of approximately US$400,000.
The baby syndicates: expenses
We describe in chapter 15 how overhead expenses incurred by PCW(S) were recharged to the syndicates. The allocation of the expenses between one syndicate and another was in fact often arbitrary. With regard to the allocation to syndicates 954 and 986, the recharges were substantially less than they should have been on the basis of the net premium income of the syndicates or on any other equitable basis. The auditors in fact pointed this out to Mr. Dixon on several occasions from 1978 onwards, but with little or no effect. For example the auditors recommended that over £30,000 should be allocated to syndicates 954 and 986 for 1979, whereas in fact only £10,000 was allocated. Furthermore in our view the estimate of over £30,000 was too low. A rough calculation we have carried out shows that the total amount undercharged to syndicates 954 and 986 from their inception up to the time of our appointment as inspectors was in excess of £200,000.
The baby Syndicates: conclusions
We have described the various ways in which the baby syndicates were favoured at the expense of the main syndicates in a blatantly dishonest fashion. For the underwriting years up to 1979, the total profits of the baby syndicates amounted to approximately US$7. 73 million:
These profits were earned on net premium income of approximately US$9. 91 million (£5.90 million) (see table after paragraph 14.5).
Themajor part of these profits was obtained dishonestly in the ways we have described. This constituted a serious fraud on the members of the main syndicates. The writing of preferred business in a baby syndicate would not in itself have been dishonest, so long as the risks were written at the same time as the main syndicate and in accordance with a line structure agreed in advance: the practice was widespread at the time and was generally believed to be legitimate, in spite of the obvious conflicts of interest that it entailed. But the operation of the PCW baby syndicates went far beyond the writing of preferred business: large parts of their declared profits were derived from systematic embezzlement of the funds of the main syndicates.
As with the transfers between the main and the baby syndicates, the transfers were by means ofinter-syndicate reinsurances on slip policies which were ‘for declaration only' (see 14.12). The policies were quota share treaties, but were to take ‘Up to 10% any one risk or account'. Such a wording is not consistent with a quota share, the essence of which is that the reinsurer accepts an agreed proportion of a particular class of risk: the reinsured should not be able to vary the proportion at will or to choose which particular risks to cede. Nobody in fact has given us any sensible explanation as to how the reinsurances were calculated. Indeed some of them substantially exceeded the 10% limit of the policies. Probably the reinsurances were designed to produce whatever result was wanted. Indeed Mr. Cameron-Webb admitted that the inter-syndicate transfers in general were used for just this purpose. The reinsurances resulted in:
1. One main syndicate being favoured at the expense of another, depending on the profitability of the business transferred. There were in fact major differences between the membership of syndicate 157 and the incidental non-marine syndicates from which the transfers were made.
Falsification of the syndicate accounts
The matters described in this and earlier chaptersresulted in very serious falsifications of the accounts of the syndicates. These falsifications taken together were so substantial that the accounts were largely meaningless as a guide to the real performance of the syndicates. We set out below a brief summary of these falsifications:
1. In chapter 6 we described the financial aspects of the Sterling Area and the Geneva quota share schemes. We concluded that the proper calculation of the losses to the syndicates as a result of these quota shares was the comparison of
2. In our interim report on Unimar dated 7th April 1986 (see 1.13), we described the losses suffered by the syndicates as a result of the Unimar quota share. These losses were much smaller than those from the Sterling Area and the Geneva quota shares, but still amounted to several hundred thousand US dollars (see chapter 6 of the Unimar report).
3. In chapter 11 of this report we described the various improper features of the Intermediate Programme. The losses to the syndicates as a result of these features are very hard to estimate, although they were substantial. As well as the losses, these featuresinvolved large falsifications of the syndicate accounts, including:
4. Furthermore Mr. Cameron-Webb said to us that Mr. Dixon and himself decided what profit they wanted for the syndicates, and then organised a return from the funds of the Intermediate Programme if the true results of the syndicates did not show enough profit, or they increased the reinsurance to close if there was too much profit.
5. In chapter 12 we described the methods of accounting used by the syndicates in respect of the professional indemnity policies.
6. Earlier in this chapter we described the inter-syndicate reinsurances and other matters, which affected the accounts of all the syndicates, but particularly those of the baby syndicates.
7. In chapter 15 we describe the relationship between the syndicates and their managing agents, PCW and WMD, including the financing provided to the syndicates and the charges made to the syndicates
The combined effect of all these matters, particularly the quota shares (see 1 above) andthe fixing of the syndicate profits by Mr. Dixon and Mr. Cameron-Webb (see 4 above), was such as to render the syndicate accounts largely meaningless as a guide to the real performance of the syndicates.
12 Sep 87
The BPR Principals, Messrs Grattan-Bellew, Parry and Raven forward a circular letter to their Members advising that following the report by Sir Edward Singleton and Mr Douglas Baker FCA of Touche Ross, a Lloyd's Disciplinary Committee was asked to consider a number of contracts placed on behalf of Syndicates managed within the BPR group with off-shore Reinsurance Companies, which are partly or wholly owned by trusts for members of the Grattan-Bellew, Parry and Raven families.A number of inter-group transactions were also examined. In our letter of the 11 April 1986, we indicated that the BPR group would rectify the position if we were satisfied that Names were disadvantaged by the terms of any related contracts.
14 Sep 87
Zurich Insurance Co. -v- Raymark Industries,514 N.E. 2d 150. Court held manifestation triggers coverage. Court concluded manifestation can be either of "disease" (when lungs are significantly impaired) or of "sickness" (a weakened, disordered or unsound condition which has not yet impaired the lungs to the point of being a disease).
28 Sep 87
Letter from Attorneys to interested underwriters re environmental claims matters:The London market faces an enormous problem with the presentation of pollution claims. There are already many more assureds concerned with pollution than were concerned with asbestos. The number of pollution coverage lawsuits involving underwriters already exceeds the number brought during the whole of the asbestos problem.
28 Sep 87
Lloyd's List: U.S. Courts set to tackle asbestosis in seafarers.
The U. S legal system is preparing to head the way in the international scene in handling thegrowing number of asbestosis claims from seamen - but the issues involved are complex and daunting.
0 Oct 87
In October, the Chairman, (Peter Miller), together with Mr. Christopher Rome, Chairman of Lloyd's Underwriters' Association and Mr. Bryan Kellett, Chairman of Lloyd's Underwriters' Non-marine Association went to Genoa where they took part in a convention organised by the National Association of Risk Managers and the Genoa Chamber of Commerce. The Chairman and Mr. Kellett later attended the inauguration of the offices in Rome of Lloyd's General Representative in Italy before going on to Zurich where they addressed a meeting of Lloyd's authorised brokers in Switzerland.
0 Oct 87
US Closing Agreement:
Work on thisagreement started in October 1987 when legislation was introduced into the Congress of the United States of America that would have had the effect of terminating the Closing Agreement which governs the taxation of Lloyd's in that country. The legislation was subsequently withdrawn but only on condition that the American Treasury should study the taxation of Lloyd's and its Names in the United States and should, thereafter, negotiate a new Closing Agreement which would be fair as between Lloyd's and other insurance organisations in the United States which purport to do business in the Lloyd's fashion. The US Treasury report was published in February 1989 and recognised that the proper taxable entity in the United States was the individual Name rather than the syndicate or, indeed, Lloyd's collectively.
3 Oct 87
Owens Corning Fiberglass withdrew from the Asbestos Claims Facility.
7 Oct 87
The Membership (Entrance Fees and Annual Subscriptions) Byelaw(No. 9 of 1987, 7 October 1987).
7 Oct 87
The Central Fund (Amendment) Byelaw(No. 10 of 1987, 7 October 1987).
Pursuant to AHERA, theEPA issued its final "Asbestos-Containing Materials in Schools" (ACM) rule requiring public and private elementary and secondary schools to implement programs to control ACM in their buildings. The schools and School Districts were required to prepare a management plan for inspection, abatement and removal of ACM and to obtain State approval of their asbestos management. The rule applied to over 100,000 schools across the USA. The School Districts were given until 12 October 1988 to complete their management plans or to be subject to a $5,000 per day penalty. The implementation of these plans must begin no later than July 1989 and must be completed in a "timely fashion". It is understood that almost all of the primary and secondary schools throughout the country are currently taking steps to comply with these rules.
15 Oct 87
Lockwood -v- AC&S, Inc., 744 P. 2d 605 (Washington Supreme Court. Court applied drift theory. (Plaintiff was a rigger in a shipyard who worked in same area as insulators installing asbestos.)
B Kellett,Chairman of Lloyd's Underwriters' Non-Marine Association, states, inter alia, in relation to the 1984 year of account:- "Although the figure is marginal, it is pleasing to be able to report a profit in the non-marine market amounting to £31,000 on a premium income of £1,198m.
The results of the non-marine market are, once again, dominated by the loss in the general liability section, which for the 1984 year of account amounts to £170m on a premium income of £365m. A substantial proportion of the loss results from the need, as in previous years , to add to the reinsurance to close item as the result of reassessment of liabilities on business written in prior closes years of account.
This class of business, much of which comprises policies issued to insureds in the United States of America, continues to be adversely affected by certain features of the legal system of that country
One such feature is the contingent fee system whereby lawyers are rewarded by sharing in the damages which they are able to secure for their clients, often leading to spurious cases being pursued. Another is the system of awards by juries in civil damages cases where they are encouraged to think of the insurance industry as having "deep pockets" from which victims may be compensated, regardless of whether or not there is fault on the part of insured defendants.
The problems are considerably compounded by the time which may elapse between the occurrence giving rise to injury and an eventual court ruling that this was in some way due to the negligence of the policyholder.
Thus, underwriters of this class of business are faced with two problems. Firstly, they are being called upon to indemnify insureds in respect of losses for which they had not expected to be held liable. Secondly, the computations of the amount - which will be needed to pay losses already incurred and which should be charged as premium on new business - will be based on inadequate and unreliable data.
Recently we have seen theintroduction and adoption of the claims made policy by many syndicates. In simple terms, under the provisions of this policy, the date of loss is the date upon which it becomes apparent that a claim may be made against the insured. The use of this type of policy may go a long way towards easing some of the problems in this section.
Following several years of extremely poor results in the insurance industry generally, a dramatic improvement in premiums and terms was achieved by non-marine underwriters during 1984, especially in theproperty section.
Furthermore, whilst no underwriter likes to predict the result of an account which is only eighteen months old, I will disregard caution and suggest that 1986 has the early signs of being a great vintage year for the non-marine market, and that prospects for the current year are promising".
October 1987 Storms.
0 Nov 87
Mansion House: An address by Peter Miller
In significant statements during November Lloyd's chairman Peter Miller warned thatover-zealous regulation of the City could be damaging to Lloyd's; that Lloyd's was "constantly monitoring" names' assets because of sharp falls in stock-market prices; and that the US dollar's present low value, against which 80% of Lloyd's business is denominated, was "damaging to our interests," but not necessarily an unmitigated disaster.
He made the last statement before the further very sharp fall in the dollar on November 30. On the question of regulation, which for the City and the financial community generally is being tightened by theFinancial Services Act and for Lloyd's by its own regulations, spurred on by pressure from public opinion, the names and the Neill recommendations Miller said: "I urge all those who have not only Lloyd's good but also the wider City good at heart to take heed that we do not strangle the wealth-producing abilities of the City by over-regulation."
Foreign clients of Lloyd's feared that increasing regulation could damage its flexibility in responding to their needs, he said. He had been told recently by avery large US insurance broker that for the first time in many years it was placing more of its business with a big American insurance company than with Lloyd's.
Miller was speaking at theannual Mansion House dinner, a traditional occasion for financial leaders such as the Chancellor of the Exchequer (British Treasury chief Nigel Lawson), the Lloyd's chairman and the governor of the Bank of England, to make major policy statements.
Miller said he feared that "good ideas" could be taken too far. While agreeing thatdisclosure of information rules had been a means of improving business practices, he said: "We are now getting to the point where two things are in danger of happening. We are urged to publish so much information that the very bulk of it amounts to disinformation and, further, the urge to publish is not so much to inform those to whom it is published but rather .... to protect our own backsides."
Commenting on the world-wide fall in stock-markets (before the further very sharp fall at the end of the month) Miller said its effects could be mixed for Lloyd's.
In the immediate and perhaps in the longer term it could be beneficial, because Lloyd's competitors, the big insurance companies, depended on their assets which in some cases included big holdings of equity shares.Lloyd's depends ultimately for its ability to offer insurance to the world on the individual wealth of its Names.
Lloyd's holds it's trust funds in liquid form, mainly government bonds, and less than five per cent was in equities. Looking further ahead, he said that the reduced value of Names' shareholdings could affect their bankers' assessment of means for guarantees required for the 1989 year.
Despite the crucial role of the bank guarantee Miller said Lloyd's was also "constantly monitoring" the value of Names' assets as a result of falling stock prices. "We have not yet asked anyone to supplement funds, but it is a matter we are examining," he said.
On thefalling dollar value Miller said it could cause problems for Lloyd's because around 80% of its business is denominated in dollar terms. Thirty-five up to 40% of this is business actually coming from North America.
But it was not necessarily an unmitigated disaster as individual syndicates making losses on American business would now be making smaller losses in sterling terms, and could more easily cover those losses with sterling investment income.
The effect of a falling dollar was felt primarily by brokers taking overseas dollar business but Miller said it was impossible at this stage to evaluate the effect on under-writers.
Lloyd's has seen abig increase in US insurance and now has a book of about 45% reinsurance, 40% surplus lines and 15% direct from this source. The Lloyd's chairman said surplus business lines had grown particularly strongly and in the market generally US surplus lines had trebled in the last few years.
0 Nov 87
In November postal ballots were held for six seats on the Council of Lloyd's for 1988 in respect of both working and external members-three working and three external members.
The Electoral Reform Society conducted the ballot.
There weresix candidates for the three working members' seats vacated by the retirement (by rotation) from the Council of Mr. Murray Lawrence, Mr. Ivor Binney and Mr. Michael Cockell. Mr. Murray Lawrence was re-elected and Mr. David Coleridge and Mr. Michael Wade were elected to fill the vacancies for four year terms.
Of the11 candidates who contested the election for three external members to the Council, Mr. Arthur Mark Farrar, Sir Nicholas Cosmo Bonsor Bt and The Rt. Hon. the Lord Rees, QC were elected. Mr. Farrar and Sir Nicholas were elected for four year terms upon the retirement, by rotation, of Mr. Michael Andrews and Mr. Robert Elborne. Lord Rees was elected for a two year term being the balance of the term of office of Mr. John de Courcy Ling MEP who resigned from Council with effect from 31 December 1987 owing to his increased commitments within the European Parliament.
Mr.Edward Walker-Arnott completed his term of office as a nominated member of Council and was re-appointed for a further one year term. His reappointment was confirmed by the Governor of the Bank of England.
The Councilelected Mr. Murray Lawrence as Chairman of Lloyd's for 1988 and Mr. I)avid Coleridge and Mr. Alan Parry as Deputy Chairmen of Lloyd's for the same period.
4 Nov 87
The Syndicate Accounting Byelaw(No. 11 of 1987, 4 November 1987).
This Byelaw requires the Managing Agent to prepare an annual account and personal accounts for each syndicate managed by it at 31 December each year. Paragraph 4, of Schedule 4 states that:-
"The annual report shall include such particulars as will give a fair presentation of all transactions and arrangements entered into by the Managing Agent for the account of or otherwise concerning the Members of the Syndicate, which were entered into or which subsisted at any time during the period beginning on the1st January of the earliest year of account to which the annual report relates and ending on the reference date, and in which:-
(ii) any related Company of the Managing Agent; or
(iii) any executive of the Managing Agent;
had, directly or indirectly, a material interest".
Schedule 8 to the Byelaw requires the underwriter's report to include a description of the reinsurance arrangements in force for the relevant years of account.
This Byelaw came into force in 1988 and implements a number of the recommendations of the Neill Committee as well as other changes considered necessary following a review of the existing rules. The changes will enable members to assess better the stewardship of their underwriting. They include additional disclosure requirements relating to the business underwritten (both actual and anticipated), the investment return, reinsurance ceded, the reinsurance to close and the anticipated outturn on the open underwriting accounts.
4 Nov 87
The Disciplinary Committees (Amendment) Byelaw((No. 12 of 1987, 4 November 1987).
6 Nov 87
Approval of the Council of Lloyd's has been given in respect of the acquisition of theBellew, Parry & Raven Group by Sturge Holdings Plc and a final sale and purchase agreement was completed late yesterday. A circular is being sent out to shareholders shortly; its main details are:-
a) Theconsideration amounts to £15 million which has been satisfied by the issue and allotment of 2,576,551 new ordinary shares and £3.5 million in cash.
b)Immediately following the acquisition of the BPR Agencies, Sturge will rationalise the businesses acquired into three groupings under a holding company, Oxford Agency Holdings Ltd;
i) Oxford Members' Agency Ltd which will be responsible for the administration of all 750 direct Names of the BPR Agencies, of which 152 are residents of the USA
ii)Oxford Syndicate Management Ltd (OSM) which will be responsible for managing ten syndicates; seven Non-Marine and one each of Aviation, Motor and Life.
iii)A R E Chambers Underwriting Agency Ltd which will continue to manage two ongoing Marine Syndicates.
c)Sturge also intends to enter into an agreement with Stoxman Ltd, a company owned by the managing director and certain active underwriters of OSM, whereby Stoxman will acquire 33 1/3% of the issued share capital of OSM for a consideration of £3.5 million to be satisfied in cash.
d) Thegross premium income capacity of the syndicates managed by the BPR Agencies is £214 million of which £18 million is provided by the Sturge Group. In addition the direct Names of BPR Agencies have gross premium income capacity on syndicates managed by other Lloyd's managing agencies of £113.8 million including £17.4 million on those managed by the Sturge Group.
e) Thecombined profits before tax of the BPR Agencies for the year ended 30 September 1986 amounted to £832,000. After adjusting for expenses which the Sturge directors believe will cease or will reduce under the new management, they estimate that the 1986 profit would have amounted to not less than £1.7 million. Combined net assets of the BPR Agencies, as at 30 September 1986, amounted to £230,000.
f) The vendors have indicated that theprofit commission retained in respect of the 1984 underwriting account (to be included in the accounts of the BPR Agencies to 30 September 1987) amounted to approximately £1.8 million ( 1983 underwriting account £1.35 million) and salaries (fees) receivable in respect of the year ended 30 September 1987 will amount to approximately £2 million (1986 - £1.62 million). Profit commission receivable by the BPR Agencies in respect of the open years' underwriting accounts 1985, 1986, and 1987 will be included in the results of the Oxford Group for the years ending 30 September 1988, 1989 and 1990 respectively
g) . Thethree principal vendors, Messrs Grattan-Bellew, Parry and Raven, will no longer be directors or in any way involved in the management of the Oxford Group of Companies.
The acquisition willincrease the number of Names for whom Sturge Group underwriting agencies act as members' agent from 1,928 to 2,678. Further, the number of syndicates managed by the Group's agencies will increase from sixteen to twenty-eight in the marine, non-marine, aviation and motor markets. Their combined gross premium capacity, based on the 1987 underwriting account, totals £1,215 million compared with Sturge Group's total of £1,001 million prior to the acquisition.
Mr David Coleridge, Chairman, in his letter to shareholders states that the board believes that this acquisition represents a major opportunity to make a substantial addition to the Sturge group's underwriting presence in the Lloyd's market. Themajority of this increase, being in the non-marine market, gives the enlarged Group a better balance of underwriting capacity across the various markets and reinforces the Group's position as the largest group of underwriting agencies within Lloyd's
At the time of announcing theSturge Group's interim results to March 1987, the directors forecast that, in the absence of unforeseen circumstances, consolidated profit before tax for the year ended 30 September 1987 would be approximately £11.6 million. Mr Coleridge says he has no reason to believe that this forecast should not, at least, have been attained and, looking to 1988, he remains confident of another satisfactory result. The Group also includes Wise Speke Ltd, one of the largest regional firms of stockbrokers in the United Kingdom.
14 Nov 87
Gas-platform explosion, Pampa, Texas. Estimated loss $337.5m
17 Nov 87
Centennial Insurance Co. -v- Lumberman Mutual Casualty Co., 677 F. Supp. 342, Eastern District of Pennsylvania, 17 November 1987. Court held dumping of toxic waste was "occurrence" arising each time waste was dumped. But continuous nature of dumping precluded coverage.
Letter from Attorneys re: DES.... We note that our recommended reserve for each cancer claim has been significantly reduced this year fromlast year s reserve of $534,375, based upon our re-evaluation of the historical costs of resolving the Assured's cancer claims. Our DES recommended reserves include reserves on an across-the-board basis for the over 750 DES claims filed pursuant to the New York reopener statute in as much as claim specific information is not available for these newly filed claims..
In a significant speech made at the Mansion House, Lloyd's Chairman Peter Miller, stated inter alia thatLloyd's has seen a big increase in US insurance and now has a book of about 45% reinsurance, 40% surplus lines and 15% direct from this source. The Lloyd's Chairman said surplus business lines had grown particularly strongly and in the market generally US surplus lines had trebled in the last few years.
0 Dec 87
The Chairman, (Peter Miller), visited theUnited States again in December where he addressed a lunch-time meeting of the Association of Professional Insurance Women in New York. He later flew to Washington DC where he met Senator Lloyd Bentsen, Chairman of the Senate Finance Committee and Senator Spark M. Matsunaga, Chairman of the Sub-committee on International Trade, Senate Finance Committee.
2 Dec 87
The Members' Ombudsman Byelaw(No. 13 of 1987, 2 December 1987).
2 Dec 87
The Modified Arbitration Procedure Byelaw(No. 14 of 1987, 2 December 1987).
2 Dec 87
The Membership (Amendment No. 3) Byelaw(No. 15 of 1987, 2 December 1987).
This Byelaw provides for the Council tocontrol members' premium income on a year of account rather than on a calendar year basis.
2 Dec 87
Council and Committee (Amendment) Byelaw(No. 16 of 1987, 2 December 1987).
18 Dec 87
The Archer Partnership was reorganised into a corporate structure during the weekend of 18 to 20 December and the business of A J Archer & Partners was transferred on 20 December to A J Archer & Co Ltd.
14 Dec 87
Kaiser -v- Armstrong World Industries, 678 F. Supp. 29, District Puerto Rico, 14 December 1987. In an asbestos property damage case, Court applied manifestation cases to suit for breach of warranty and negligence against asbestos manufacturer (knowledge seen as similar to manifestation, thereby starting statute of limitations).
23 Dec 87
ASteering Committee representing Members' Agents with Names on the Outhwaite Syndicates 317/661 for the 1982 Year of Account instruct Coopers & Lybrand under instruction to Freshfields, Solicitors, to consider the way in which the underwriting activities of Syndicates 317 and 661 have been conducted in relation to the writing of the so-called run-off reinsurance policies contained within or reinsured into the 1982 open year of account. Under the terms of reference, Coopers & Lybrand were, inter alia, "specifically asked to satisfy yourselves that:-
1. Having regard to the audited accounts as at 31 December 1987, that the disclosures given in respect of those policies in those accounts are adequate and fair;
2. Having regard to the syndicates' reinsurance arrangements (for example, conventional, losses occurring and specific reinsurance) in force to protect the year in question, the reserving principles are consistent with the information provided to you by Outhwaites and the audit work performed by Messrs Ernst & Whinney".
Coopers & Lybrand reported to Freshfields on 13 June 1988,referred to their Terms of Reference and stated: "In summary, we were asked to consider and satisfy ourselves as to:-
1. Theadequacy and fairness of disclosures in respect of the run-off policies in the audited accounts as at 31 December 1987.
2.The reserving principles adopted by the agency in respect of the run-off policies, considering particularly whether these principles are consistent with the information provided to us by the agency and the audit work performed by Ernst & Whinney.
3. The agency's estimation of the likelihood of future cash calls being made on the Names, both as to quantum and timing, and the reasonableness of the basis for that estimation.
Scope of Our Work.
The scope of our work is set out in paragraphs 3.1 to 3.3 below. We have not carried out an audit of the syndicates or the agency, nor have we carried out a verification of any transactions, assets, or liabilities of the syndicates or the agency or of their systems of internal control. This report has been produced in the best interests of Names to complement the information and opinions already provided to them by the agency in the syndicates' annual report dated 25 May 1988 and the Freshfields report. We take into account in our comments the regulations covering reporting, accounting and auditing imposed on the syndicates by Lloyd's and also what we regard as best practice in such matters.
3.1 During the course of our work we have had discussions with the management of the agency, including Messrs M Hussey (Chairman) and W E Bloxham (Chief Executive) who were responsible for reserving for the run-off contracts, but not Mr R H M Outhwaite, the underwriter who wrote the run-off contracts. We have also spoken to Messrs M Bolger and D Yandell of the auditors, Ernst & Whinney.We were specifically instructed not to re-audit the information supplied to us, and we have therefore relied on such information and other representations as were made without further verification.
3.2Our terms of reference did not require us to comment on the quality of the audit work performed by Ernst & Whinney, and accordingly we have made no comments on this subject in this report.
3.3The limitations on the scope of the inquiry are set out in Section 1 of the Freshfield report. In particular, we have been denied access to any copies of the information in respect of each run-off contract originally provided to agency, although we have been able to review the contract files maintained by the agency which contain details of loss notifications and other correspondence subsequent to the placing.
Consideration Of Disclosure Given In The 1987 Annual Report.
4.1We are required by our terms of reference to satisfy ourselves that the disclosures made in respect of the run-off policies written by the syndicates into the 1982 underwriting year are adequate and fair. These we have considered in the context of the requirements of Lloyd's Syndicate Accounting Byelaw (No. 11 of 1987, 4 November 1987) which came into effect on 1 January 1988 and was therefore binding on the syndicates, and also in the context of what we regard as best practice.
Description of Business Underwritten.
4.3Schedule 8 to the Byelaw requires the underwriter's report to include a description of business underwritten during the years of account in respect of which underwriting accounts are included in the annual report. The underwriter's report complies with this requirement in respect of the 1985, 1986 and 1987 years of account. The explanatory notes to the byelaw state that the underwriter's comments "should cover the nature of the business underwritten for the members of the syndicate both as to categories and as to the manner in which the business is accepted".
4.4 With regard to the 1982 run-off contracts, we consider that in the interests of Names such disclosure should have included:-
(a) The number of run-off policies written;
(b) The aggregate premium received in respect of run-off policies, analysed by currency if possible;
(c) Comments on the major underlying exposures both as originally anticipated, and as subsequently evident from claims data.
Nevertheless, the limitation on availability of information to the agency due to disputes, as explained in paragraph 4.2 above, creates difficulty in respect of (c) above.
4.5 The underwriter's report describes the major factors responsible for the deterioration in results on the run-off policies during 1987 in some detail.. However, it does not comment on the underlying exposures as originally anticipated at the time of writing the business, nor does it include the disclosures referred to in (a) and (b) above. This information is, however, given in Appendix 3 to the Freshfields report, published 20 June 1988.
4.6 Schedule 8 to the byelaw requires the underwriter's report toinclude a description of the reinsurance arrangements in force for the relevant years of account. The aggregate amounts of reinsurance premiums due to Lloyd's syndicates, to insurance companies authorised to carry on business in the United Kingdom and insurance companies not so authorised is required to be disclosed, although syndicates may avail themselves of an exemption from this disclosure of the split between premiums paid to UK and non-UK authorised companies contained in the byelaw in respect of 1987 and earlier years of account. If this exemption is used, an analysis must still be given between companies, wherever established.
4.7 The underwriter's report. Together with note 3 of the accounts, gives sufficient information with regard to time and distance policies taken out in respect of the run-off policies. However,the required disclosures are not made regarding:-
(a)reinsurance protection for the 1982 year of account other than time and distance policies taken out to protect the run-off policies. Details of specific reinsurance relating to the 1982 run-off contracts are set out in paragraphs 5.11 and 5.12 of this report:
(b)the split of reinsurance premiums paid between Lloyd's syndicates, and insurance companies.
Such information should,in our opinion, have been disclosed to Names and its disclosure would not have been harmful to their interests.
Results of the Underwriting Account
4.8Schedule 8 to the byelaw requires the underwriter's report to include a review of each open year of account, including the underwriter's evaluation of the expected outcome and an explanation if that expected outcome is significantly different from previous reports to the members. In general, the underwriter's report complies with the requirements of Schedule 8 and meets the requirements of best practice, subject to our comments on this aspect of the report which are set out below.
4.9 Appendix 11 to the underwriter's report shows the deterioration on certain of the run-off contracts. The development of losses is shown in original currency on a "from the ground up" basis. This information is not, in our view, adequate to provide Names with an understanding of the full situation. To do this:-
(a) all run-off contracts should have been included in the analysis (for example by adding a balancing line which swept up all the less significant contracts); and
(b) loss developments should have been shown at the level of outstandings in the syndicates' accounts (i.e. net of reinsurance and of the retention by the cedants), with sterling equivalent totals included with reconcile to the losses disclosed in the annual reports for previous years.
4.10 Note 3 to the accounts summarises the amount retained to meet all known and unknown outstandings liabilities of the 1982 year of account or "reserves". Disclosure of the following additional information would, in our opinion, have been necessary to provide an explanation of the differences from previous reports to Names:-
(a) A summary of the cumulative underwriting losses, both before and after reinsurance protection, split between the run-off policies, the general 1982 business and the general business for 1981 and prior years reinsured into the 1982 year, analysing the deterioration from one year to the next between:
(i ) currency movements;
(ii )deterioration due to increased losses; and
(iii)the impact of the amortisation or advancement of time and distance policies.
(b) An explanation of thedifferences between the reserving approach adopted by the agency in previous years and that adopted at 31 December 1987 and an indication of the impact of any change in the basis of reserving on the difference between the reserves as at 31 December 1986 and those at 31 December 1987.
Such information was not provided,although some of the required information is contained in paragraphs 5.1 to 5.25 of this report.
4.11 The graph included in note 3 to the accounts showingthe projected cash flow through to the year 2006 is information in this respect. However, the accuracy of the cash flow forecast prepared by the agency depends on both the accuracy of the reserves set up at 31 December 1987 and the timing of claims payments. Our concerns as to the uncertainty of these mattress are discussed in detail in paragraphs 8.1 to 8.10 of this report. The underwriter's report mentions in general terms the effect which compromise settlements may have on cash requirements, but we consider that further disclosure should have been made of the uncertainties in the forecast to enable Names to appreciate the potential for variation in the anticipated pattern of payments
Contracts In Dispute
4.12In order that Names appreciate the difficulty of indicating the expected outcome of the 1982 underwriting year, the information in the underwriter's report regarding run-off contracts being disputed by the agency should, in our view, have included:-
(a)an indication of why the information originally provided to the syndicates by the ceding syndicates and companies is considered to be suspect or inadequate (without mentioning specific policies): this information is given in Section 5 of the Freshfield report; and
(b)a summary of the amounts in dispute splitting the aggregate amount of reserves at 31 December 1987 between amounts subject to litigation, amounts subject to arbitration and amounts which are not present in dispute.
This was not provided.
Run-off Contracts Written Since 1982
4.13 A summary of run-off contracts written since 1982 is included in Appendix 1 to the underwriter's report.We have not reviewed these contracts as they fall outside pour terms of reference. The disclosure in Appendix 1 to that report appears sufficient to indicate the nature of the exposure to Names. We note that the 1985 year of account into which such contracts were reinsured has been closed to the satisfaction of the agency and their auditors, Ernst & Whinney.
4.14We noted that the 1986 managing agent's report contained the following statement:-
"Tillinghurst, Nelson & Warren Ltd have been retained as Actuarial Consultants to the syndicate. They have recently commenced a review of certain policies which form part of the 1982 account with a vireo to providing the underwriter with advice on future reserving policy".
There is no reference in the 1987 annual report to such services, whether use was made of the actuaries, views in the 1987 reserving, and if not, why not. The comment in the 1986 annual report should, in our view, have been followed up in respect of the run-off contracts in particular. We comment further on the use of actuaries in paragraphs 5.21 and 5.22 below.
4.15We wrote to Mr Hussey, Chairman of the agency, on 29 March 1988 to make specific recommendations as to the appropriate disclosures in respect of the run-off policies in the 1987 annual report. This letter is attached as Appendix B. It is for the agency to decide what disclosures in addition to those required by the byelaw are appropriate, taking into account the commercial sensitivity of such disclosures, the information which it considers to be useful to Names and the information available in its records. The agency has not in fact followed several of our recommendations although it should be noted that such recommendations which have not been followed fall outside the strict requirements of the Lloyd's byelaw. The key information which should, in our opinion, have been disclosed to meet the "adequate and fair" criteria which we had been asked to consider therefore include:-
(a)further information on numbers of run-off policies written and premium income thereon (paragraph 4.5);
(b)further information on reinsurance protection (paragraph 4.7);
(c)further information on the deterioration of the run-off contracts in aggregate (paragraph 4.9 and 4.10);
(d)further information on matters in dispute (paragraph 4.12); and
(e)an explanation of whether further use of actuarial services was made or a reason as to why not (paragraph 4.14).
4.16Certain of the information which is not disclosed in the underwriter's report is included in the next section of this report or in the Freshfields report. Nevertheless, we consider that the underwriter's report would have been the appropriate vehicle for providing such information to Names.
30 Dec 87
Letter from Toplis & Harding to the Insurers at Interest. Theunderlying cause of all the problems which we now confront stems from the enormous increase in the volume of new claims which have developed over the past two years. This increased loss activity emanates from the innovative, but often questionable activity of the plaintiff bar in searching for new occupational sources from which to canvas clients; there is no evidence to indicate that the existence of the Facility has generated this activity. Perhaps more to the point it is an acknowledgement that claims arising from the more traditional shipbuilding industry are now on the decline.
The massive financial burden now facing many producers even from the traditional areas,threatens to exceed the insurance coverage of some of those involved and undoubtedly raises the need prospectively to adjust the allocation formulae to more appropriately imposed share obligations consistent with occupational source.... These underlying tensions have effectively split the producers' membership into two groups and the divisions that have developed is impairing the Facility' s ability to perform its intended functions. It now appears reasonably certain with that within a short time at least three of the producers referred to above will leave the Facility in the belief that in the outside world they will be able to exercise greater control over their cash-flow.... Many complex issues arise in a withdrawal scenario, not least of which will be the re-assignment of defence counsel's role in 65,000 outstanding law suits; waiver of cross claims in the underlying actions and as between a departing producer and the Facility and procedures to address green card and pleural registry obligations.... From an indemnity perspective there is every likelihood that settlement levels will increase as Plaintiff attorneys once again develop the flexibility denied to them by the Facility....
(323) Discussions are now continuing with reinsurers in the United States, Germany, Sweden, Japan and the Eastern Block and I will keep you posted on any progress made. It is a pity that somany so called professional reinsurers are using negative delaying tactics on such an important matter. They now pretend they do not like the US judicial system works. They should have thought of that before they wrote the business, and not now. This letter is written by Robin Jackson, Chairman, Asbestos Working Party.
31 Dec 87
Environmental Claims Group - Quarterly Law Report - Fourth Quarter 1987. Re: Environmental Claims Matters; Quarterly Law Update....
viii. Conclusion: While the legislative and administrative branches of government continue to grapple with the mechanics and funding of CERCLA, thejudiciary is deciding coverage issues at a pace of half a dozen decisions per month. There were no revelations of trends in the current batch of opinions. Rather, they continue their present pattern, some favourable; some not. The bulk of these cases are trial court opinions, which will now wend their way through the appellate process. One thing that is clear, however, is that the battle will continue to be fought state-by-state, court-by-court. We will continue to assert as much influence as possible in pending matters.
31 Dec 87
As at the end of 1987, payments made by Mr Outhwaite totalled US $30m, and the total of noted outstanding claims was US $316m, representing total known liabilities of US$346. These claims figures are constantly changing. By 31 December 1987, the claims against the ceding syndicates exceeded US $773m although, of course, not all this would flow through to the Outhwaite Syndicates 317 and 661. The gross premium from these policies throughout the entire period, in US$, was $24. 3m.(Lloyd's solvency and syndicate reserving is based on net premiums and net claims. The real scenario has been disguised and distorted by the input of both the offshore rollovers and Time & Distance policies which, in reality, deferred the claim payments and, likewise, the statistical input relating to Lloyd's solvency reserves. Until 1988, these were based on the net computation, and not the gross computation which contained the real scenario. The discounting of reserves and losses was not prohibited until February 1986).
31 Dec 87
The Alexander Howden M J Harris Non-Marine Syndicate 947 - Run-off .
31 Dec 87
The Sedgwick Group Annual report 1987discloses:
1.Carol Mosselmans Chairman.
2.Financial Review: The major constituent of the Group's revenue is insurance and reinsurance broking income derived from its three major trading companies, as follows:-
3.General: Quality and service at the heart of insurance. The Group which is active in quality of its services which give it its competitive edge. Because of its size it is able to offer service in many areas of expertise. It is the part of the broker and risk manager's task to use his skill to identify capacity within world's insurance markets and to achieve the most favourable terms for his clients. .... Markets may have grown and changed rapidly but they still rely to a great extent on the integrity and experience of the people within them and on the ability of these people to engender trust. It is this intangible of trust as much as its tangible assets which guarantees Lloyd's of London, in its tercentenary year, its contemporary role. The Sedgwick Group, which is Lloyd's largest producer of premium income, combines the skill of the broker with the expertise and counselling ability of the risk manager. The Group's clients expect it to be experienced in all aspects of their particular business or industry. Companies within the Sedgwick Group are expert at identifying managing and placing risk. The Sedgwick Group does not assume the best solution for the client is to take out maximum insurance cover. One aspect of risk management is to assess the cost of risk and to advise on how to reduce it. .... Sedgwick not only advises its clients on how to minimise expenditure but also on how to minimise risk. Sedgwick Risk Control Services has, for example, devised a computer programme "Cascade", which can be used to record and analyse accidents and, thereby, to identify where and when they will happen. The Group is committed to the policy of keeping employees informed as fully as possible and encouraging their involvement in the performance of their own business and of the Group as a whole. The communication to employees of relevant financial, economic and staff information is achieved through videos, company magazines, news-sheets, information bulletins, financial statements and briefings. The effectiveness of the planned programme of communication is directed and monitored by public broadcasts and communications committees. Training in its broadest sense is given a high priority, both in terms of investment and recurring costs. In 1987, more than 2,000 delegates, within the United Kingdom staff alone, attended management and technical insurance courses. A major initiative has taken place to enhance the formal assessment and development of staff and the Group is confident that these new systems will make a significant contribution to the effectiveness of management succession procedures. In order to develop closer working relationships between Group Companies in North America, Europe, Australia and the United Kingdom, a reciprocal secondment scheme has been drawn up for implementation in 1988. The scheme is intended to provide an opportunity for junior management staff to maximise their personal development.
4.Price Forbes: which places business in London originating from North American clients, was particularly affected by fluctuations in the dollar/sterling exchange rate.
5.James Group: The commercial insurance underwriting market in the United States declined with unprecedented swiftness during 1987. For two years, underwriters had been able to charge high rates and it had been difficult to place property and casualty cover;