Insurance Ombudsman Bureau Byelaw (No. 1 of 1989, 11 January 1989).

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

U. S. Fire & International Insurance Cos. -v- Celotex and Carey Canada. In an Alternative Dispute Resolution proceeding, the ADR judge found that the "asbestosis" exclusions at issue in the 1978 and 1979 policy years excluded only the single disease asbestosis.

Lloyd's into the 1990's, an address by W N M Lawrence

US Tax: New Closing Agreement

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.

The effect of the proposals which the American Treasury put forward, based on their report, would have been extremely adverse for American Names and therefore, by extension, for Lloyd's wider business connections in that country. After intensive negotiations a satisfactory new Closing Agreement was negotiated and will take effect for the 1991 year of account. Given the very unpromising position from which the negotiations began, it is a great credit to the many people both from the market and Corporation who were involved, together with LeBoeuf, Lamb Leiby & MacRae in the US, that a satisfactory outcome was finally reached.

Syndicate Accounting (Amendment) Byelaw (No. 2 of 1989, 1 February 1989).

In addition to the previous practice of deducting income tax at the basic rate on investment income and capital gains tax on investment appreciation, the Finance Act 1988 now requires managing agents to deduct income tax at the basic rate on the taxable underwriting profit, or to offset an underwriting loss against taxable investment income. These changes are reflected in the syndicate accounts which show the syndicate results on a gross of tax basis in accordance with Lloyd's Byelaw No. 2 of 1989.

The Members' Ombudsman (Amendment) Byelaw (No. 3 of 1989, 1 February 1989).

The Unlimited Reinsurance contract, placed circa 13-18 November 1981 with Outhwaite, Merrett etc., involving the Fireman's Fund 1974 reinsurance of the Sturge Rokeby-Johnson Non-Marine Syndicate 210 was capped on 9 February 1989 at $50m with a $160m excess ($35m), following additional agreed payments at specified dates.

Murray Lawrence address: Lloyd's into the 1990's

The history of the last few years is one of major problems overcome. The scandals of the early 1980s have all been dealt with through our own disciplinary system: there are no further ones outstanding.. The worst of them - the PCW affair - once presented us with the prospect of litigation continuing or many years, both here and in America with a consequent immense cost, both in money and to our reputation; ultimately it was resolved on a basis which was accepted by all but a mere handful of those involved.

We have been through the Neill Inquiry and have retained our independence as a self-governing Society. When the last few Neill recommendations are dealt with in the first half of this year, we shall have in place a comprehensive system of regulation and effective means of monitoring it.

It is as well to remind ourselves of these achievements because during the last six years we have faced serious problems which at the time seemed immensely threatening to the future of Lloyd's. Moreover, we have come through them by dint of our own efforts and are a stronger Society as a result. Let us remember these achievements as we contemplate what seem to be the equally daunting commercial problems which now face us. From my own meetings with Names during these past twelve months I well understand how worrying some of these problems are to many members of our Society and I can assure you that they are all of equal concern to the Council and Committee of Lloyd's. I would like to take this opportunity to share with you how we see these problems and how we propose to tackle them.

We are currently suffering from a massive under-utilisation of capacity with many syndicates writing sixty or sixty-five percent of capacity or less. This is not altogether surprising when our membership, capacity and premium income has risen so rapidly in recent years. These increases were of course essential during a period of chronic sterling weakness and at a time when Lloyd's was one of the few markets of the world willing to write business during the crisis of confidence within the insurance industry during 1985 and 1986. At the same time we face rising expenses which are causing an unacceptable increase in our expense ratio. Moreover, we need to spend considerable sums of money on modern technology to allow us both to service our business more efficiently and cost effectively and to open new doors of opportunity in underwriting classes of business not previously available to us

The first relates to the structure of Lloyd's and the way in which we organise our capital base. Escalating costs from the run-off of old years, particularly on the US general liability account are naturally worrying to Names and have been one of the reasons leading to pressure for us to abandon unlimited liability. At its meeting earlier this month the Council reviewed this subject at length and decided to make no change. The principle of unlimited liability is the unique feature which ensures that Lloyd's policies are the most secure policies available and it is, therefore, most important for the future development and prosperity of the Society.

The problem of the run-off of old years is also the cause of most of the syndicate years that have had to be left open, another matter of general concern. The Committee has been monitoring this situation carefully and considering what steps are open to it to lessen this problem. Clearly, we can at best only mitigate it. We cannot eradicate it entirely because we cannot force an underwriter to close a year if he really feels unable to arrive at a figure for reinsurance to close which would be fair and equitable as between the ceding and assuming Names; to do that would be to put him in breach of the law of agency which much of our new regulatory framework is designed to reinforce. We are, therefore, concentrating on attempting to find ways and means by which we can try to ensure that leaving a syndicate open is very much the last resort and never an easy option.

The second group of challenges relates to the need for all underwriters to overcome the challenge that they have always faced and will always face, that is to underwrite profitably in a very competitive and commercially demanding climate. If success can be achieved in this area as I believe it will be, other problems will reduce significantly in scale. That is why improving our commercial position is now our highest priority. The market is tackling this in three ways.

First, we need to ensure that we are an attractive marketplace in which to place business. That covers not only entry to the Room with access to underwriters made as easy as possible but also, and more important, improving our after-sales service, particularly on the claims side and the issue of documentation. The announcement of our intention to introduce a unified claims system, fully computerised through the London Market Network, as from the middle of next year is one major initiative in this area; there will be Others. This will speed up the claims process and will, therefore, make the market more attractive to brokers. During this coming year we will be turning our attention urgently to the question of documentation.

Second, a task-force of underwriters, brokers, agents and senior Corporation staff has been looking at ways of bringing more business into the market through the Lloyd's broker. This is not a problem to which there is one simple unique solution. The recommendations of the task-force cover a wide range of topics, each one of which is being actively pursued. The initiatives we are taking in Europe will plainly be important in the long term but not more so than our ability to secure access to an increased share of the United Kingdom market perhaps though products specially designed for this purpose. In this contest the Council has made it clear that it would be willing if necessary to consider new and wider methods of trading.

Third, we need to get our costs down so that we can transact business more profitably. As you will all be aware, the Corporation expenditure budget for 1989 is being held to the same level in money terms as for 1988, a very considerable achievement when one considers that one quarter of the Corporation costs are outside our control. I believe that this is an example which will be widely followed through the market both in the agency community and amongst the brokers. To help the market in this we commissioned an independent study of the costs imposed on underwriting agents by the need to comply with our new regulatory framework. The study concluded that these directly attributable costs, over and above what would be the necessary to run the agent's businesses efficiently anyway, do not appear to be significant. Nevertheless, with Neill out of the way, one of our major objectives in 1989 is to start work on making our self-regulation more cost-effective and less expensive without in any way reducing its quality.

While all this work continues we must remember that the Council's over-riding responsibility is to ensure the security of the Lloyd's policy; the new requirements for membership for 1990 and beyond will make a significant contribution to this objective. Thus, by making ourselves an attractive market for our producers and clients, through efficient and cost-effective ways of underwriting and servicing our business, we can confidently look to increase the volume of business written. At the same time, by controlling our expenses we should see a much needed reduction in the expense ratio and hence an improved bottom-line result which enhances the return to the Name.

This decision follows a study initiated at the end of 1987, which included a detailed examination of the legal, financial, taxation and transitional consequences of a change to limited liability and the form which such a move might take.

The Chairman of Lloyd's, Mr. Murray Lawrence, said: The principle of unlimited liability is the unique feature which ensures that Lloyd's policies are the most secure policies available to clients throughout the world and it is, therefore, most important for the future development and prosperity of the Society. The Council's reaffirmation of the principle of unlimited liability accords with the conclusions of the Cromer (1969), Fisher (1969) and Bird (1984) working parties.

All three concluded that Lloyd's should retain unlimited liability and that first priority must be given to the interests of policyholders and to the payment of valid claims. The latter conclusion was reiterated in the report of the Committee of Inquiry into regulatory arrangements at Lloyd's under the chairmanship of Sir Patrick Neill QC.

In reaching its decision, the Council recognised the concern of some underwriting members about their exposure to exceptional losses. At the post-Council press conference Mr. Alan Lord, Deputy Chairman and Chief Executive of Lloyd's said: ‘Limited liability is not the only way of attempting to resolve or mitigate this problem. One of the other ways is by ensuring a wider spread of interest in the Society for individual Names. He pointed out, by way of illustration, that this was, in fact a continuing process. In 1983, for example, the average Lloyd's Name was on ten syndicates, whereas in 1988 the average Name was on thirteen.

‘But there arc other ways of doing this,' Mr. Lord continued. ‘One of the ways which has been discussed and will still continue to be looked at is creating for each members' agency part of his capacity as a pool to which some or all of his Names can contribute equally. That is to say, instead of being a Name on say thirteen of the syndicates to which your members' agent has access, you would have a smaller proportionate interest in all of the syndicates to which he has access.

Mr. Lord continued: ‘It's not the only thing that is being looked at and I've no doubt that as our consideration of this continues, other ways of addressing the same problem will present themselves and will be considered. So, we are not unmindful of the concern of Names that their interests should be protected and that they themselves should be protected against unique and particular losses which always occur from time to time in a market which is innovative and risk-taking as this is.'

The Committee of Lloyd's issues the 1990 Financial Requirements for existing Members. Members with declared means of £250,000 or more will need to provide funds at Lloyd's of 30% of overall premium limit, previously 20%. Members with declared means of less than £250,000 but at least £100,000, will need to provide funds at Lloyd's of 40% of overall premium limit. The maximum overall premium limit that a Member complying with the new financial requirements may write will be £2m, previously £1.3m.

Raymark Industries files for Chapter 11 Bankruptcy.

Members' Agents (Information) (Amendment) Byelaw (No. 4 of 1989, 1 March 1989).

Sharon Steel Corp. -v- Aetna Casualty & Surety Co., Civ. No. C-87-2306, Utah District Court, 9 March 1989. Court held EPA administrative proceeding is not substantially equivalent to court proceeding, so insurer had no duty to defend.

Exxon Valdez, stranded and resultant oil spillage, estimated cost U.S.$221,210,000.

ReActions seminar arranged in London, the theme of which was Dealing with US Insolvencies.

In another Pennsylvania case involving the Pollution Exclusion, the Delaware County Common Pleas Court ruled that said exclusionary language of the Harleysville policy did not exclude injuries resulting from substances which emanate from the use of the insured's product once the product entered the market place. The court stated that:

Harter Corp. -v- Home Indemnity Co., 713 F. Supp. 231 (Western D. Michigan, 12 April 1989. Court held EPA's threat to hold manufacturer liable for cleanup costs was not "suit seeking damages"; thus no duty to defend.

Diamond Shamrock Chem. Co. -v- Aetna Casualty & Surety Co., No. C-3939-84, New Jersey Super. Court. Ch. Division, 17 April 1989. Court held discharge of waste chemical effluents into river over period of 6 years in violation of statute constituted intentional, planned act not covered by insurance.

Pittsburgh Corning, at this juncture it is significant to note that for the time frame 1 September 1988 to 24 April 1989, it, through its in-house personnel and outside defence counsel, concluded 1,962 cases by way of settlement, dismissal and verdict at a total cost of $12,429,611, for an average of $6,335 per case and that during this same period it incurred defence billings in the sum of $12,001,891, or at the rate of almost one dollar expense for each dollar of indemnity. Most notable of the cases recently tried involving this account was the multiple plaintiff case in West Virginia which involved 313 bodily injury claimants which were consolidated for trial on the liability issues only. After a nine week trial, Pittsburgh Corning was found to be liable to the plaintiffs for compensatory and punitives, the punitives to be assessed on a basis of a multiplier of three. Other major producers also involved in this case were Fibreboard and Celotex. Owens Corning was also a defendant, however, they settled out before trial.

Although Pittsburgh Corning has prepared appropriate post-trial motions, should the verdicts stand as presently entered, then potentially the case could involve overall damages upwards of $300m.

County of Broome -v- Aetna Casualty & Surety Co., 146 A.D. 2d 337, 540 N.Y.S. 2d 620, 3d Dept., 4 May 1989. Court held discharge of pollutants is not an "occurrence" because insured was "aware" of pollution for years. No evidence that damages were neither expected nor intended.

Daily Telegraph: Underwriter lured into fraud, says QC

IAN POSGATE, the Lloyd's underwriter, was recruited to a scheme to swindle millions into a secret offshore empire after being tempted by vast rewards, a court was told yesterday.

A gang of four insurance executives needed the income that Posgate nicknamed Goldfinger, could provide to pull off their coup.

He said: "The others involved had a choice - divert his premiums without his knowledge and risk exposure, or bring him in with golden handcuffs to assure his assistance.

"It is quite clear the others chose the course of bringing him in, offering him a reward, and to which reward he succumbed."

Mr Hill described Kenneth Grob, former Howden chairman, as the conspiracy's leading light, who had directed operations. Jack Carpenter, former Howden underwriter, had handled the insurance and reinsurance deals.

The fraud meant moving millions into holding companies in Panama and Liechtenstein, and founding insurance companies abroad. The five had also used Howden and Lloyds funds between 1979 and 1982 secretly to buy the Swiss-based Banque du Rhone et de la Tamise from Howden.

But the fraud was discovered when the broking firm was bought out by American-based Alexander and Alexander.

Mr Hill said an investigation was launched and a team under Mr Anthony Shearer, of accountants Deloitte, Haskins, and Sells, moved in.

"There was a determination to lie and to persist in lying which would have survived the investigation had the team not been as young, healthy, persistent and skilful as it was," he added.

Grob, of Eaton Square, Belgravia, denies 16 counts of theft, four of handling stolen goods, four of false accounting and three of publishing false statements, involving money stolen from Howden and various syndicates.

Posgate, of Notting Hill, west London, and Carpenter, of Billinghurst, West Sussex, deny conspiring to defraud Howden and various Lloyd's syndicates via reinsurance transactions to purchase the Banque du Rhone. Carpenter denies a further charge of conspiracy to defraud.

Two of the group are not in court. Ronald Comery has died since the affair began and Allan Page is too ill to stand trial.

Multiple Syndicates Byelaw (No. 5 of 1989, 10 May 1989).

This byelaw prohibits an underwriter, whether or not an active underwriter, acting as such for more than one syndicate concurrently without the consent of the Council. It also prohibits a managing agent permitting an individual employed by it from acting for more than one syndicate concurrently without the consent of the Council. The byelaw specifies circumstances in which the Council may grant such consent and makes provision for the imposition of conditions in relation thereto. The byelaw also imposes on managing agents requirements concerning syndicate reinsurances where two or more syndicates are managed by the same managing agent or by associated managing agents, whether or not those syndicates have an underwriter in common.

(2) Paragraph 3 and 21 shall not apply until 1 January 1991 as respects any two or more syndicates for which the same individual was acting as underwriter on 11 May 1989. Explanatory Notes Section 1 - Introduction

3. The Multiple Syndicate Byelaw (No 7 of 1985) no longer has effect, except for arrangements existing on 11 May 1989 (until 31 December 1990). The Code of Practice for Underwriting Agents and Active Underwriters - Multiple Syndicates (9 December 1985) and the amendments to the Code of Practice for Underwriting Agents and Active Underwriters - Multiple Syndicates (12 May 1986) remain in force for the time being. This is explained in more detail in note 37 below.

4. Readers of these explanatory notes should also refer to the Syndicate Accounting Byelaw (No 11 of 1987), which contains requirements concerning the disclosure of information in syndicate annual reports. Explanatory Notes, Section 5 - Reinsurance Arrangements Paragraph 22 "Commencement and transitional provisions"

37. "This byelaw shall come into force on 11 May 1989 and any new arrangements which commence after that date will need to comply with the byelaw. Arrangements in place on 11 May 1989 will be allowed to continue as regards the positions held by the underwriter concerned i.e. it will not be necessary for applications under the byelaw to be made during the transitional period if the arrangements remain unchanged but a different underwriter is appointed."

In Re -V- New York City, 542 N.Y.S. 2d 118, New York Supreme Court. Court adopted drift theory in Asbestos Litigation. Exposure is a question of fact for jury.

Daily Telegraph: Underwriter lured into fraud, says QC

IAN POSGATE, the Lloyd's underwriter, was recruited to a scheme to swindle millions into a secret offshore empire after being tempted by vast rewards, a court was told yesterday.

A gang of four insurance executives needed the income that Posgate nicknamed Goldfinger, could provide to pull off their coup.

He said: "The others involved had a choice - divert his premiums without his knowledge and risk exposure, or bring him in with golden handcuffs to assure his assistance.

"It is quite clear the others chose the course of bringing him in, offering him a reward, and to which reward he succumbed."

Mr Hill described Kenneth Grob, former Howden chairman, as the conspiracy's leading light, who had directed operations. Jack Carpenter, former Howden underwriter, had handled the insurance and reinsurance deals.

The fraud meant moving millions into holding companies in Panama and Liechtenstein, and founding insurance companies abroad. The five had also used Howden and Lloyds funds between 1979 and 1982 secretly to buy the Swiss-based Banque du Rhone et de la Tamise from Howden.

But the fraud was discovered when the broking firm was bought out by American-based Alexander and Alexander.

Mr Hill said an investigation was launched and a team under Mr Anthony Shearer, of accountants Deloitte, Haskins, and Sells, moved in.

"There was a determination to lie and to persist in lying which would have survived the investigation had the team not been as young, healthy, persistent and skilful as it was," he added.

Grob, of Eaton Square, Belgravia, denies 16 counts of theft, four of handling stolen goods, four of false accounting and three of publishing false statements, involving money stolen from Howden and various syndicates.

Posgate, of Notting Hill, west London, and Carpenter, of Billinghurst, West Sussex, deny conspiring to defraud Howden and various Lloyd's syndicates via reinsurance transactions to purchase the Banque du Rhone. Carpenter denies a further charge of conspiracy to defraud.

Two of the group are not in court. Ronald Comery has died since the affair began and Allan Page is too ill to stand trial.

Lloyd's Market Certificate Byelaw (No. 6 of 1989, 10 May 1989).

Carey Canada Inc. -v- California Union Insurance Co, et al, (Case No 83-1105) and The Celotex Corporation -v- California Union Insurance Co, et al. (Case No. 86-1142).

The trial court, in the U. S. District Court for the District of Columbia, upheld a broad construction of the "asbestosis" exclusions contained in several excess layer insurers' policies issued to Celotex and Carey Canada and found in the consolidated cases that:

In the Celotex and Carey Canada case of January 1989, the ADR judge found that the "asbestosis" exclusions at issue in the 1978 and 1979 policy years excluded only the single disease asbestosis.

Syndicate Audit Arrangements (Amendment No. 2) Byelaw (No. 7 of 1989, 7 June 1989).

Lloyd's Brokers (Amendment) Byelaw (No. 8 of 1989, 7 June 1989).

Underwriting Agents (Amendment) Byelaw (No. 9 of 1989, 7 June 1989).

Membership (Amendment No. 5) Byelaw (No. 10 of 1989, 7 June 1989).

The Management Committee of the Board of the Asbestos Claims Facility continue to meet on a monthly basis to deal with the various legal and financial matters that arise in the three year wind down period required under Delaware law. The principle activity is directed at containing expenses of operating the organisation over this period. To this end, negotiations are in hand to extinguish certain leases on premises used by the Facility which create penalty prospects due to the general decline in rentals since the leases were originally entered into. It is still uncertain whether the I.R.S. will press claims against the Facility although tax counsel considers that the Statute may now have run in respect to 1985 revenues. Assuming that we see no reduction in the various liabilities that may arise, it has been projected that there will be a significant shortfall in the Operating Fund. In this event, I again remind the Market that it will be necessary to reintroduce surcharge which would initially fall due from those policies which met billings on which no surcharge was levied. I have no doubt that our attorneys will deal with this subject when preparing Year End reserve recommendations. There continues to be concern over billing response time taken in the London Market; although billings from the Facility are greatly reduced it is still essential that the late payers in the Market take steps to improve their performance.

Interest has been expressed on the progress made by the Center for Claims Resolution and for your information I attach a report prepared for the Working Party which provides an overview of the progress made to date. With the major role being played by London Market interests, it is of paramount importance that billings are satisfied within a 30 day turn round. The Finance Committee of the Board have already found cause for criticism in two instances and if the Market slips again there will be interest levied or advance billings will be adjusted to reflect a 60 day prospective advance as against the 30 day approach with which we are familiar.

On the legal front I am pleased to report that litigation filed against Facility Members which required the services of Counsel for London interests arising out of claims in Guam has now been dismissed so far as London is concerned. Another matter filed more recently in California and known as the Shindlebower Suit has also been dismissed but is presently subject to Appeal. You should also be aware that in the W. R. Grace litigation involving alleged asbestos property damage by School Districts in Texas, the attorney acting for the insured has sought to extract an assignment of rights against first party coverages as part of the terms of the underlying settlement. Although there should be no involvement of first party policies and this unusual step may be an isolated development, it is something that the Market should be alive to.

Thus, since the inception of the Center, average new filings per month are running at 2,025. Claims activity in what have become known as the non-traditional occupations, mainly rubber and steel, account for 17% of new filings and are still regarded to possess lower indemnity exposure. Of new matters reported for March and April, over 1,700 cases were filed by-one law firm in Ohio which are Maritime matters. At an earlier stage, similar cases were filed under the Jones Act but were dismissed for lack of medical proof. The same cases have now been re-filed against Producers but it is anticipated that the courts will dismiss unless better evidence of a compensable condition is available. Thus, although it is possible to identify some of the reasons that account for the increase in filing activity, it is clear that new filings are still at an unacceptably high level.

In keeping with previous years, representatives of the Claims Committee are now working with our U.S. Counsels and Grant Thornton in developing information necessary for future reserve considerations. The annual Reserve Meeting will take place in the week of 19th June and will be attended by representatives of Mendes & Mount, Lord Bissell, Ropes & Gray and certain members of the Claims and Reinsurance Committees which will this year include Jim Teff, Barry Seymour and Chris Ventiroso. In addition, Philip Frost will be in attendance bearing in mind the substantial involvement of Toplis & Harding (Market Services) Ltd. in these matters.

The issues that require to be addressed become more complex each year although the Center is making good progress in containing settlement levels and related defence expenditure. Producers who departed the Facility are experiencing significant increases in defence outlays and some are now facing substantial compensatory and punitive awards. However, it is too early to forecast how the experience of former Facility Producers will conform to the reserve projections made by Counsel.

Coverage disputes in which the Market is involved and which are becoming more active are the forthcoming trial in U.S. Gypsum and the Alternative Dispute Resolution proceedings in respect to Celotex. The U.S. Gypsum matter concerns alleged coverage for asbestos property damage; the first Phase of the trial is expected to commence next month and will be confined to evidence of coverage over an extended period of some forty years. Phase II will deal with the applicability of coverage to asbestos property damage and is expected to commence in October. It appears likely that both Keith Rayment and Jim Ayliffe will be required to testify in court on these matters.

The A.D.R. process involving Celotex has now held three Hearings before the Mediator, Professor Harry Wellington in the mediation stage of the procedure. The London representatives named above who were in attendance with Counsel report that meetings have been contentious and, although we are now at a stage where settlement proposals are available on some matters, it is likely that other issues may prove to be irreconcilable and in this event a full and costly arbitration phase will develop. One area which is now being pressed by Celotex relates to resolution of the product/non-product issue. You will recall from my earlier advices that this relates to claims made against a producer which is not based on a product theory but more in the area of third party exposure. In the event that non-product liability arises. it will attach to General Liability coverage rather than Products and particularly for Insureds who are near exhausting product aggregates this will become a key issue. Basically it is anticipated that this will initially be a Primary concern and you will recall that the Facility Agreement provides a capping on General Liability occurrence limits. The Excess Market will only be involved in the event non-product matters in any one year exceed the underlying capped limits. However, in the case of Celotex, some underlying in all limits have exhausted which leaves London Excess insurers directly involved in the issue

Finally, so far as the problems relating to outward reinsurance are concerned, the Working Party have arranged for a meeting with Colin Croly of Barlow, Lyde & Gilbert which will take place before the end of July. Thereafter, I will provide you with full details of Counsel's recommendations.

The Center for Claims Resolution has now been in operation for over six months and the purpose of this report is to provide an overview of the activities of the organisation and to detail the progress that has been made to date.

The Center was established on 2nd October, 1988 to succeed the Asbestos Claims Facility and to continue the handling of asbestos related bodily injury claims for those Producers who continued to support the need for a common defence mechanism in the handling of outstanding claims. As a consequence of the departure of certain major producers from the Facility in its last year of operation, the producer membership of the Center is in the main composed of smaller producers who in overall terms represent some 21% of the generic share handled by the Facility. Although smaller, it was considered that the Center was clearly viable in view of the very high level of defence cost to indemnity ratio that traditionally had been experienced for smaller defendant accounts.

As a result of the adverse publicity that had been given to the divisions within the Asbestos Claims Facility, the Center's initial objective was to re-establish creditability with the Courts and the Plaintiff Bar. This was achieved by careful publicity with the emphasis being placed upon speedy settlement of meritorious claims at an earlier point than at the door of the Court leading to a business plan which would provide an effective alternative to the tort system and the attendant legal costs that arise out of litigation.

When the Center commenced operation in October 1988 it assumed an outstanding case load of 66,400 claims in which some of the 26 member producers were named defendants. Of the total caseload claims from the traditional sources such as shipyards, construction and insulation industries amounted to 57,500 with the balance represented by the non-traditional areas which are in the main the rubber and steel industries.

During the past six months the Center in adopting these standards has dispensed with 12,829 claims of which 2964 represent separate dispositions with a further 9865 claims subject to block settlement resolution. On almost all block settlements that have been concluded, their terms provide for staged payments over a future period ranging from six to eighteen months. The total cost committed to the disposition of all settlements amounts to $108.5 million which produces an average per claim indemnity cost of $8,500. By comparison, the average per claim settlement levels within the Facility were approximately $64,000 per case which would translate to $13,400 per case for the reduced membership of the Center. Although this tends to reflect that to date there has been an appreciable drop in settlement levels, average levels are materially influenced by both disease mix and the impact of block settlements so that with only six months' experience no firm conclusions arise other than the fact that the Center has been very successful to date. Discussions are at an advanced stage with certain Plaintiff Counsel on further block settlement agreements which in total cover some 24,000 outstanding claims but it remains to be seen whether terms satisfactory to the Board will be developed. A major consideration to many producers and their insurers is the cash flow implications of the settlement strategy. It was originally projected that indemnity expenditures during the first year of operation would be in the region of $150 million, whereas with the remarkable progress now evident, it is likely that the annual outlay will be slightly over $200 million and the Board are anxious that these revised projections are adhered to.

A major incentive for producers and insurers alike towards the Center was the substantial economies that would be possible in defence cost outlays by co-ordinated handling. Even so, the Facility incurred over $130 million in defence costs during its last year of operation and it was obvious that the Center to be viable would have to reduce expenditures on legal costs. The Center at its inception placed less reliance on outside counsel performing more work in house and adopting a more active involvement in settlement negotiations. In adopting these changes, the Center estimated allocated costs during the first year of operation would be in the region of $60 million. London Market observers were sceptical that so significant a reduction would develop over the short term. However, during the first half year of operation, the Center has incurred $35 million in defence costs and has made a commitment to the Board to keep within a $70 million budget for the full year. The containment efforts continue as more staff are taken in house and at the present time the Center is arranging to dispense with the services of some 30 outside counsel and thereafter will only be dealing with 34 legal firms across the United States. Additionally, an alternative handling-procedure is now under discussion with 100 plaintiff law firms which contemplates claim presentation to the Center prior to the filing of suit which will enable settlement consideration to be given without involvement of outside defence counsel. These proposals are still under discussion although present indications are that they are receiving a favourable reaction. In the event that the programme gets underway, the Center Board have been advised that projected allocated costs for 1990 should be in the region of $35 million.

From the facts outlined above, it is clear that the Center has established creditability with the courts and the plaintiff bar. The performance to date has demonstrated its ability to handle settlement volume at an economic level and also to contain wasteful outside legal costs. The organisation is a producer controlled operation and has achieved the success to date from developing and extending the best features from the former Asbestos Claims Facility. Insurers have no Board vote although the London representative, Keith Rayment, is an ex officio director representing the interests of all those insurers who have contracted for the adjusting and legal services afforded within the operation. The London Market continues to be the most significantly involved insurer on billings for Center membership of which some 40% flows through to London interests.

At this stage it is quite evident that the decision of insurers, and particularly London to provide support to the Center has substantially reduced outlays on legal costs which would have been incurred had the Center not come into existence. The concerns that originally existed on whether an organisation representing 80% of the producers in the Facility but only 20% of former shares would be taken seriously appears to have been eliminated by the Stature which the Center has developed. It was also suggested that the plaintiff bar would take advantage of early settlement with Center interests to provide a war chest to more aggressively pursue defendants outside the organisation. However, to date, there is no tangible evidence to show this to be so for it would appear that outside defendants' experience is based to a great extent on their individual claim handling philosophy.

The Center's future activity will be dependant upon continued support from insurers in the form of a financial retainer to ensure ongoing legal and adjusting services. In order to implement future business planning, the Center will require an early indication of the support that may be forthcoming and it is anticipated that discussions between insurers will take place by mid-June. A report on the views expressed and any proposals that arise will be provided to the Market together with any recommendations that the Working Party may decide to make.

General Meeting of Members of Lloyd's: Statement by Murray Lawrence, Chairman - Insurers to the World

Ladies and Gentlemen, we meet here today as partners in an enterprise known throughout the world as Lloyd's of London. Lloyd's has a long and distinguished history from which we benefit and a future for which we have a responsibility. Lloyd's underwriters have been described as the "Insurers to the World" and this is a description which we must strive to justify and build on.

When I addressed this meeting last year, I spoke of challenging days ahead and the past 12 months have, for many of us, borne that out. The Lloyd's market is involved in a period of unprecedented structural change as well as commercial challenge, but I believe that - even displaying my natural caution as an underwriter -we have many well founded reasons for optimism.

I would like to share with you some of the important issues facing Lloyd's today - with many of which you will be familiar - and to take the opportunity of updating you on the wide-ranging and positive steps your Council has been taking to address them. I hope to demonstrate that while much remains to be done, considerable progress has been made.

Lloyd's faces a series of crucial questions concerning both its trading structure and efficiency in fast changing and increasingly competitive markets. Our task is to build on what sets Lloyd's apart and makes it a world leader in the insurance industry, while at the same time challenging those aspects of the way we carry out our business which are no longer effective or relevant in today's market place.

Let me first tackle regulation. We have, with a speed and thoroughness which I suspect the rest of the City must envy, all but completed the programme of major changes embodied in the 1982 Lloyd's Act and refined by the Neill Inquiry. The main building work is now behind us.

We are now moving on to the second phase which will be to simplify, codify and consolidate the existing regulations so that the new requirements, while no less effective, will be more flexible. The object will be to reduce the detail, the paper and the cost but at the same time leave the essential quality of the regulation intact. Regulation at Lloyd's must be as cost effective and unbureaucratic as possible if it is ultimately to be in the best interests of our insureds and our Names. This exercise will involve a review not only of the details of a particular regulation but also a testing of the value of the existence of the rule itself.

We shall be looking first at an area which I know is a major irritant to many of you - the quantity of information required to be circulated to all Names. We are reviewing approaches which will emphasise the responsibility of the members' agent and allow him flexibility in agreeing with each of his Names the degree of information which that Name wants. This will hopefully result in a great reduction in the amount of paper which the average Name will receive.

Work on regulation involves not only the Council in making proposals and rules but also, very importantly, the market and membership in responding to consultative documents in a full and timely manner. For example, at present views are being sought on the consultative document on "Proposals for Introducing a Compensation Scheme for Members at Lloyd's" and we have so far received a disappointing level of response. The consultation process is an essential part of our regulatory activity and works properly only when each of us makes the effort to think about proposed regulations before they are enacted. Input from the market is vital if we are to be successful in re-examining the detail of our regulation and in striving for improvement.

The problem of years left open is probably the major matter of concern to Names and we have been looking long and hard at ways to improve the situation. The seriousness of this issue and the importance of resolving it is, I believe, fully appreciated by the market, and it is encouraging to see that at 31 December 1988 the number of years left open has reduced from 120 to 114. But more work needs to be done, and we are considering measures to try to ensure that any agent who takes this route does so truly as a course of last resort and never as an easy option. However it will be difficult to eliminate the problem entirely because an agent in calculating the reinsurance premium to close a year must be fair to both the ceding and assuming sets of Names in arriving at that premium. There will be occasions when there are sufficient uncertainties which make this so difficult that the decision has to be delayed until a later year. These uncertainties are apparent in their most extreme form in the Outhwaite syndicates 317/661 and I should like to say a few words on this situation.

There seems to be a perception that the Council of Lloyd's and the 12th floor are passive in this matter and merely reject any proposal put to them. I can assure you that this is simply not the case. For over a year a considerable proportion of our time has been spent on the problem, listening to the many ideas and suggestions that have been made, diONT>the number of Names per se but the aggrega