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EU takes action over Lloyd's regulation
Insurance Times Reporter - 12/20/01
The European Commission is to take action against the UK government over its regulation of Lloyd's, in a move that could force changes at the 300-year-old insurance market.
The Commission's decision to open formal proceedings - the first step towards taking legal action - could trigger a wave of multi-million-pound lawsuits against the government from some 20,000 Lloyd's names.
The wealthy private investors incurred losses of around £8bn at Lloyd's in the late 1980s and early 1990s. They have lost several legal actions against Lloyd's, through UK, US and European courts, where they alleged that they were wrongly persuaded to invest in risky syndicates.
The Commission said yesterday there was prima facie evidence that the government breached European law governing the insurance industry.
It will now issue a letter of formal notice accusing the government of non-compliance with the EU's 1973 non-life insurance directive, which requires member states to ensure that insurance businesses have enough assets to cover their liabilities.The government will have two months to reply.
If the Commission is not satisfied with the reply, it can order the UK to change its practices and take it to the European Court of Justice if it refuses.
A requirement for more thorough monitoring would force Lloyd's to file details more frequently about its reserves and claims.
According to the Financial Times, industry experts say Brussels' concerns over the regulation of Lloyd's have been compounded by fears that the events of 11 September could trigger a global crisis in the insurance industry. Lloyd's faces its largest ever single loss of £1 .9bn net of reinsurance from the terrorist attacks.
The Commission's move follows complaints from Lloyd's names and members of the European Parliament's petition committee.
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