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Seeks to Cash in on U.S.-British
following statement was issued by the ANA in response to Lloyd's of London
chairman Lord Levene's news conference at the National Press Club in Washington
DC and accompanying press release
on April 10, 2003. Levene/Lloyd's are basically asking for preferential
treatment of Lloyd's syndicates in regard to their U.S. reinsurance writings.
To: National Desk
With a sense of timing more associated in American minds with English comedy than business, Lloyd's of London appeared in Washington one day after the fall of Baghdad to lobby Congress for regulatory relief. At a press conference, Lloyd's outlined efforts to remove a requirement that it maintain U.S. trust funds equivalent to 100 percent of its outstanding reinsurance liabilities.
Citing the "unbreakable bond" formed by the Iraqi war efforts and stopping just short of wrapping himself in the American flag, Lloyd's Chairman Lord Peter Levene is asking U.S. regulators and legislators to abandon a 73-year-old protection for American insurance customers that guarantees U.S. insurance claims are properly collateralized.
"Bi-lateral relations between the U.K. and U.S. is no reason to undermine U.S. policyholder security by releasing billions of dollars from Lloyd's U.S. trust funds," said Bradley Kading, senior vice president, Reinsurance Association of America.
While the 300-year-old foreign insurance society has issued a call to be treated "as a loyal partner," it has remained silent on its dismal performance from 1997 to 2001 when it lost more than $14 billion (8.7 billion pounds). Lloyd's has admitted in numerous press accounts that its net loss from the September 11, 2001 attacks was around $2 billion, indicating that flaws in Lloyd's underwriting and reserving practices -- not acts of terrorism -- are the root cause of their alarming level of losses.
Maintaining its U.S. trust funds at 100 percent of liabilities is the price Lloyd's must pay for not operating as an "admitted" carrier under U.S. regulation. Admitted carriers must meet stringent captial and surplus requirements and are capitalized with blue chip assets, while Lloyd's is capitalized with IOUs, "promises-to-pay" pledged by its members.
Responding to Chairman Levene's assertion of Lloyd's good reputation and relationship with the U.S. being built on trust, Jack Shettle, Chairman, American Names Association stated "if Ronald Reagan was responding to Lloyd's plea for regulators to reduce its trust fund requirements he would say, trust, but audit."
"'Trust' has no place in the vocabulary of a regulator, especially one who has a sacred duty to ensure that policyholder claims are properly collateralized and paid timely," said Ernest Csiszar, Director, South Carolina Department of Insurance and vice president, National Association of Insurance Commissioners (NAIC).
In its press release, Lloyd's justifies its request by saying that deregulation would "permit insurance to be priced more competitively and economically." The fact is that Lloyd's is notorious for undercutting the pricing of top-rated firms by as much as 50 percent to 75 percent in order to generate cash flow and retain business in the U.S. market. Reducing trust fund security requirements won't reduce costs to policyholders, it is simply a ploy by Lloyd's to underpin its currently underfunded liabilities that are the result of its predatory pricing practices.
Lloyd's also contends that it is subject to detailed regulatory oversight in England. However, based on a Private Act of the U.K. Parliament in 1982, Lloyd's is a "self-regulating insurance enterprise." That means that Lloyd's Council has unilateral authority to govern and regulate Lloyd's insurance syndicates without outside interference.
The only external agency with any responsibility to "monitor" Lloyd's is the U.K. Financial Services Authority ("FSA"), which is supposed to verify on an annual basis that the Lloyd's market is "solvent." The FSA and its predecessor the U.K. Department of Trade and Industry ("DTI") are currently under investigation by the European Commission due to the U.K. government's failure to conduct audits of Lloyd's since 1972.
The American Names Association -- is a non-profit corporation dedicated to protecting the interests of its members who have provided capital to Lloyd's insurance syndicates as underwriters known as "Names." Since ANA members could be subject to liability for unpaid claims on Lloyd's policies written in past years, the ANA supports current regulatory policy as outlined by the National Association of Insurance Commissioners ("NAIC"). In addition, the ANA believes that Lloyd's trust funds should be subjected to regular independent audits, verifying that estimated liabilities are accurate and trust fund balances are maintained at statutorily required levels.