"Myths & Facts About Lloyd’s"
[With endnotes linked to source documents]

American Names Association
Released July 2005

Updated May 2006

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with endnotes and source documents, click below:
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Senior staff at the New York State Insurance Department ("NYSID") and other state insurance departments across the country have been alerted to the current and significantly large deficiency in the Lloyd’s U.S.-situs reinsurance trust fund.[1]

A far-reaching and dangerous result of regulators’ failure to enforce Lloyd's compliance with state laws across the country requiring it to post collateral equal to 100% of its syndicates' outstanding reinsurance liabilities, is that it has enabled Lloyd’s to put another generation of U.S. ceding companies and their policyholders at risk of not having their claims paid in full.

One of Lloyd's fundamental deceptions is their long-standing practice of writing new business without having deposited the required amount of reinsurance collateral to cover outstanding liabilities from previous syndicate years of account. These collateral deficiencies raise serious doubts about the collectability of reinsurance recoverables listed as assets on the balance sheets of U.S. ceding companies with outstanding claims against Lloyd’s syndicates from prior years of account.[2]

One of the questions this raises for the nation’s insurance regulators is what would happen if the NYSID actually compelled Lloyd’s to bring its U.S.-situs reinsurance trust fund collateral balance to a level equal to its gross outstanding liabilities. If required to, could Lloyd’s comply?

One thing certain is that a public announcement that Lloyd’s had again failed to comply with statutorily mandated collateral requirements would motivate Lloyd’s attorneys,executives, lobbyists and public relations specialists to turn up the intensity of their ongoing misinformation campaign. Not only would such a PR/lobbying effort continue to mislead U.S. corporate executives-- especially risk managers-- it would also mislead key governors, legislators, and regulators responsible for public policy and regulatory enforcement decisions concerning Lloyd’s U.S. operations.

When facing questions and challenges as to the sufficiency of its U.S. reinsurance trust fund collateral, Lloyd's has consistently refused to respond publicly, and has instead addressed these issues orally behind closed doors with insurance regulators and others. Lloyd's primary position is that regulatory standards should be weakened to "legitimize" Lloyd’s multi-billion dollar reinsurance trust fund deficiencies, instead of Lloyd’s having to strengthen that fund in order to maintain collateral equal to 100% of its syndicates' outstanding reinsurance liabilities.

Following are some of the standard explanations that are likely to be used in Lloyd’s myth-information campaign designed to confuse regulators and others, and thwart remedial action. Also included are facts that debunk the myths.


MYTH – The U.S. economy could not function without Lloyd’s coverage.

FACT – After extensive research on the subject, an astute insurance industry analyst concluded a few years ago that "if Lloyd’s were to cease writing coverage in the U.S. tomorrow, the void left in the marketplace would be the same size as the hole left in a glass of water after an inserted finger is removed."

FACT – There are dozens of executives at insurance/reinsurance companies and trade associations who will confirm that more than enough expertise and capital is available to cover any risk currently underwritten by a Lloyd’s syndicate.

FACT – No self-respecting supply-side business proponent apprised of the facts would ever entertain as true the notion that any one company (or insurance market or franchise operation) is indispensable in today’s sophisticated, highly competitive and well-capitalized insurance marketplace.

* * * * * * * * * * * * * * * * * * *

MYTH – U.S. companies and their insurers need Lloyd’s reinsurance
coverage, and must take credit on their balance sheet for reinsurance
recoverable from Lloyd’s to remain profitable.

FACT – If Lloyd’s failed to bring collateral held in its reinsurance trust fund to the proper level and lost its accreditation in New York or the entire U.S., companies still wanting to place coverage with Lloyd’s could use accepted alternatives to trust fund collateral to take credit on their balance sheets for reinsurance recoverable from Lloyd’s. One way is for the ceding company to retain unearned premium. Another is for Lloyd’s syndicates issuing reinsurance cover to post a Letter of Credit payable to the cedant equal to 100% of written premium.

Of course, these alternatives are only appropriate if implemented at the inception of coverage. Once actual losses have materialized, sufficient collateral must be on deposit in Lloyd's US Reinsurance Trust funds to pay outstanding claims in full.

* * * * * * * * * * * * * * * * * * *

MYTH – New York law only requires Lloyd’s to keep cash and
securities in its U.S.-situs reinsurance trust fund equal to Lloyd’s
of outstanding reinsurance liabilities.

FACT – An aggregate of $8.1 billion (As of December 31, 2004) in reinsurance recoverables from Lloyd’s are listed in the "Schedule F" portion of annual Convention Statement filings of U.S. insurance companies.[3] The current, aggregate Schedule F recoverables from Lloyd’s for U.S. insurers represent the de facto minimum of outstanding liabilities that should be fully collateralized by cash or equivalent deposits in Lloyd’s U.S.-situs trust fund.

It is reasonable to accept a small margin of error between the balance in Lloyd's US-situs reinsurance trust fund collateral account and the aggregate Schedule F reinsurance recoverables held as assets on US insurers' balance sheets. There is a necessary and dynamic ebb and flow created as new liabilities are notified and outstanding claims are satisfied. However, a swing of more than 5 to 10% between Lloyd's estimates and US ceding insurers' actual reinsurance recoverables due from Lloyd's indicates a collateral deficiency.

The Schedule F figures are part of the annual Convention Statements filed - under oath - by senior executives of US insurers' with their state insurance departments. They provide insurance Commissioners/Departments with a convenient and cost-effective tool, using figures already in hand, to ensure that Lloyd's US reinsurance trust fund collateral levels are adjusted annually in accord with its known liabilities. The Schedule F figures are a reliable, independent benchmark that supercedes Lloyd's interim estimates.

* * * * * * * * * * * * * * * * * * *

MYTH – U.S. regulation, not Lloyd’s business practice, is what
needs to change to benefit U.S. policyholders.

FACT – Lloyd’s and other non-U.S. carriers can forgo the supposed burden of holding collateral in U.S. trust accounts equal to 100% of outstanding liabilities by domesticating their reinsurance operations in the U.S. If they did that, instead of posting collateral in U.S. trust funds, they would simply have to comply with the same auditing, capitalization and reserving requirements as their U.S.-domiciled competitors. This would create the truly "level playing field" Lloyd's chairman Peter Levene has been pleading for.

FACT – It defies imagination why U.S. regulators allow Lloyd’s to continue writing coverage in U.S. markets and not comply with either the 100% collateral requirement for non-admitted alien reinsurers, or the laws and regulations governing U.S. domiciled reinsurers.[4] One of Lloyd’s rationales for not conforming to either of these U.S. standards is that the U.K. Financial Services Authority ("FSA") is "regulating Lloyd’s," and that this should exempt them from complying with U.S. laws.

FACT -- Other state insurance departments should take a hard look at their reliance on the NYSID to supervise Lloyd's U.S. trust fund accounts. Recent amendments[4] to New York's Regulation 20, governing credit for reinsurance in that state, appear to give the NYSID superintendent broad discretion in granting ceding insurers credit on their balance sheets for reinsurance from non-admitted reinsurers like Lloyd's. It is not clear, however, why such discretion is necessary, unless Lloyd's reinsurance trust fund does not contain a balance equal to their current outstanding reinsurance liabilities.

FACT – It is naïve and arguably negligent for any U.S. regulator to assume that the FSA and/or Lloyd’s Franchise Board and/or Lloyd’s Council will ensure compliance to standards that are anywhere close to those mandated under U.S. law. Such a position would also require U.S. regulators to ignore Lloyd’s abysmal loss/profit history over the last seventeen years.

* * * * * * * * * * * * * * * * * * *

MYTH – Lloyd’s and Equitas’ U.S. outstanding liabilities and trust
fund balances do not need to be audited by U.S. insurance regulators
because both of these enterprises are "regulated" by the Financial
Services Authority ("FSA") of the U.K. Treasury Department.
Additional scrutiny/oversight would be duplicative and inefficient.

FACT – A New York State Insurance Department ("NYSID") "Report of Examination" (i.e. audit) dated May 1995, revealed an $18 billion deficiency in Lloyd’s U.S. trust funds.[5] Additionally, Lloyd’s suffered $12 billion in marketwide net losses from 1997 to 2002. Nonetheless, neither Lloyd’s nor Equitas’ outstanding U.S. liabilities and corresponding trust fund balances have been audited again by the NYSID.

FACT –The FSA does not audit the outstanding liabilities of Lloyd’s syndicates (the groupings of actual insurers and reinsurers), nor Equitas (the reinsurer of all Lloyd’s non-life liabilities on 1992 and prior years of account), nor their respective U.S. or U.K. trust fund account balances.

FACT – The publicly available information on the FSA’s mandate has been modified numerous times in recent years. A careful reading of the 'Financial Services and Market Act, 2000' and its subsequent modifications, however, reveals that the FSA’s remit with regard to Lloyd’s is still in reality limited to assuring itself that Lloyd’s Corporation and Council (the regulatory authorities within the "Society of Lloyd’s") have a suitable set of guidelines for overseeing the brokers and underwriters within their market. In other words, the FSA delegates the actual supervision of the syndicates to "Lloyd’s". [6]

Consequently, this does not result in supervision anywhere close to the standards called for under U.S. law. It amounts to a continuation of the same "self-regulating" regime that was in force during the 1988 to 2002 period, during which Lloyd’s publicly admitted net losses of more than $25 billion.[7]

To date, outstanding liabilities totalling more than $30 billion remain unpaid:

  • $8.3 billion from the 1992 and prior years of account [Equitas], and
  • $13.0 billion from 1993 to 2002 [attributable to more than 100 syndicate-years-of-account in run-off] [8], plus
  • a large portion, estimated at upwards of $10 billion, of Lloyd's gross liabilites of $15 billion-plus resulting from hurricanes in the southeastern United States in 2005.


* * * * * * * * * * * * * * * * * * *

MYTH – Compliance with the requirement that alien reinsurers like
Lloyd’s keep collateral on deposit in New York at 100% of gross
outstanding reinsurance liabilities is unnecessary because Lloyd’s
has an "unmatched reputation for paying all valid claims."

FACT – One need only look at the difficulties facing U.S. companies with claims against Lloyd’s 1992 and prior year policies and treaties that are still unpaid by Lloyd’s and/or Equitas to measure the impact of allowing Lloyd’s to operate in the U.S. without regular audits verifying that its U.S. trust account balances equal or exceed its outstanding liabilities.[9]

FACT – One adverse consequence of the current policy of the NAIC and NYSID that allows Lloyd’s to avoid complying with the 100% collateral requirement is that a severely under-collateralized Lloyd’s, and its alter ego Equitas, are able to motivate both insureds and reinsureds to settle claims or commute policies at cents on the dollar due to the fear that no money will be left at the end of prolonged litigation.[10] Lloyd’s directly, and via Equitas, cries poor to policyholders, cedants and claimants, and simultaneously tells regulators, legislators and rating agencies that their solvency is secure and their reinsurance collateral requirements should be reduced by 50% or more.[11]

FACT – There are numerous insurers and reinsurers that have a reputation for paying claims fairly and timely, not only matching, but surpassing Lloyd’s reputation in this regard. And, they do it while complying with applicable U.S. regulations.

FACT – U.S. domestic companies have been put into receivership for proportionately smaller deficiencies than Lloyd’s currently has, even though those companies were paying claims in a timely fashion.

* * * * * * * * * * * * * * * * * * *

MYTH – Lloyd’s aggregate results for the last two years of account
have been "profitable," helping them cover heavy losses that market
underwriters/syndicates suffered in recent years.

FACT – Lloyd’s is a marketplace in which a few dozen groupings of capital providers known as "syndicates" underwrite insurance risks via separate, annual venture enterprises. Each Lloyd’s underwriter, whether an unlimited liability individual or limited liability corporate trader, is only responsible for a specific, several share of any risk covered by a Lloyd’s direct policy or reinsurance contract in a given syndicate year of account. Since underwriting Members subscribing to a profitable syndicate in the past two years were not necessarily on loss-making syndicates in prior years, it is uncertain to what degree a present-day marketwide profit impacts unmet liabilities from the past.

FACT – In news stories and speeches beginning in 2003, Lloyd’s executives have promoted the idea that generating a profit should be the primary measure of the financial health of an insurance enterprise.[12] This position may be opportune at present, but it raises serious questions about how to view Lloyd’s tens of billions of dollars in losses from 1988 to 2002, and how to deal with Lloyd’s when it slips back into a loss-making mode.[13]

FACT – When U.S. regulators do not subject Lloyd’s to regular audits and require them to comply with laws governing collateralization of their U.S. trust funds there is no assurance whatsoever that Lloyd’s claims of profitability are correct.

* * * * * * * * * * * * * * * * * * *

MYTH – Lloyd’s is responsible for paying large 9/11 claims and
must be shielded so it has a chance to "trade through" its difficulties
and satisfy those claims.

FACT – It is nonsense to think that a Lloyd’s annual venture syndicate can improve or supplement the fortunes of a poor performing syndicate from a prior year of account. This makes it doubly important that U.S. regulators make certain that Lloyd’s keeps collateral in its U.S. reinsurance trust account equal to 100% of all its syndicates’ outstanding reinsurance liabilities and 30% of their surplus lines liabilities.

FACT – Making matters worse are Lloyd’s declared net losses of approximately $9.5 billion for coverage issued from January 1, 1997 to September 10, 2001, which were apparently not properly collateralized before the World Trade Center towers were toppled.[14] These losses are in addition to the $8 billion gross / $3 billion net losses Lloyd’s estimated its syndicates incurred on 9/11/01.[15]

* * * * * * * * * * * * * * * * * * *

MYTH – Assertions that policyholders and cedants are in jeopardy
due to Lloyd’s under-collateralized U.S. multiple beneficiary trust
funds are incorrect because Lloyd’s New Central Fund is available
to cover any losses not met by Lloyd’s underwriters.

FACT – As the ANA documented in a series of letters in 2004 between the Chairman of Lloyd’s and the Chairman of the ANA, and in numerous White Papers and presentations to U.S. insurance regulators and legislators, the transformation of Lloyd’s from a "market" into a so-called "franchise" operation absolves its capital providers for post-2004 syndicates of any contractual obligation to provide funding for its so-called New Central Fund, which covers unmet obligations of Lloyd’s syndicate years of account from 1993 to 2004 inclusive.[16]

FACT – Most of Lloyd’s underwriters that provided capital for Lloyd’s 1993 to 2004 syndicate years of account, have a limit to their liability to policyholders and cedants from that period.[17] Any comfort that regulators, policyholders or cedants may have derived from the existence of Lloyd’s New Central Fund is based on the illusion that someone would be obligated to continue replenishing that fund until claims are fully paid for the still open syndicates from 1993 to 2004 years of account. The lack of ongoing funding for more than 100 open syndicate years of account from this epoch has created a situation similar to that which led to the creation of Equitas in 1996, but this time there is no pressure on Lloyd’s from U.S. insurance regulators to gather billions of dollars to fund an Equitas-like pool from which to pay these outstanding claims.[18]

The result is that, like Equitas, under-collateralized Lloyd’s syndicates can leverage U.S. policyholders and cedants to accept cents-on-the-dollar adjustments to their outstanding claims from these past years of account.[19] Ironically, this behavior is occurring at the same time that managing agents for Lloyd’s current capital providers are writing new business (and renewals) using the same trade name and some of the same capital that was used to write what we now know was under-funded coverage in those prior years.

Would U.S. regulators permit a U.S. domestic insurer or reinsurer to address solvency issues in this way, and still continue operating in U.S. markets?


1.     ANA Calls for Increase of Lloyd’s U.S. Reinsurance Trust Fund Collateral
        transcript of ANA presentation by Jeffrey Peterson to the Reinsurance Task Force of the         NAIC, Dec. 15, 2003

        Re: Minutes of December 6, 2003 Meeting of the Reinsurance Task Force
 ANA Letter to Hon. John Oxendine, then-chairman of the RTF, January 22, 2004, requesting         corrections to the minutes of the December 15, 2003 RTF meeting.

2.    ANA Attorney Letter to CEO's/CFO's of "Final Four" Accounting Firms, April 19, 2004

Exhibit A: Fact Sheet
The Eight Most Important Issues Affecting U.S Ceding Companies' Reinsurance Recoverables at Lloyd's

Exhibit B: ANA White Paper, April 2004
The Evolution of Lloyd's Chain of Security

Exhibit C: Chairmen Dialogue
The Unanswered Question in Lloyd's Franchise Plans
A series of letters between Lloyd's Chairman Peter Levene and ANA Chairman Jack Shettle Sr., February 10 to March 22, 2004

Exhibit D: aggregated "Schedule F" table for U.S. cedants
Premium Ceded to Lloyd's and Net Recoverables from Lloyd's, listed by U.S. Insurer

Exhibit E:
Lloyd's Letter Referring to "New Central Fund" (post-Equitas)

3.    Schedule F, 2004: Premium Ceded and Net Recoverables by Group
       compiled by www.ScheduleF.com, as of December 31, 2004

4.    New York State Insurance Department Regulation 20 (full text available available through        www.westlaw.com)

8th Amendment - Brief & Text
9th Amendment - Brief & Text
10th Amendment - "Proposed"

5.    New York State Insurance Department Report on Examination of Lloyd's - May 1995

6.    The "Financial Services and Market Act, 2000" describes the FSA’s functions with respect        to Lloyd's as follows:

"Section 314 (1) The Authority ("FSA") must keep itself informed [emphasis added] about

(a) the way in which the Council supervises and regulates the market at Lloyd’s; and
(b) the way in which regulated activities are being carried on in that market."

       Lloyd's Sourcebook clarifies the full extent of the FSA's delegation of actual regulation of its        syndicates and members to Lloyd's and the Council of Lloyd's, exactly where it was before.

7.    Chart of Lloyd's Net Losses 1988-2001

8.    Excerpt from 'UK Run-Off Survey - Non-Life Insurance', by KPMG, September 2005

       Run-offs outstrip Equitas liabilities, says KPMG study - Lloyd's List, Sept. 8, 2005

       Lloyd's post-1993 runoff liabilities climb - Business Insurance, Sept.19, 2005

9.    Meltdown at Lloyd's: A Few Topical Issues - September 2004

       Lloyd's of London: The Curious Case of Equitas Re - October 2004
       Articles by Richard J. Astor

10.  Recent articles on Settlements of Claims by Equitas (Summer 2005)

11.  As Lloyd's and Other Reinsurers Tally Losses from Hurricane Katrina, Debate Over U.S.        Trust Funds Resurfaces - BestWire, Sept. 16, 2005

12.   Letter to the Editor of BestWeek - ANA, Sept. 26, 2003
        Regarding A.M. Best article, "Lloyd's CEO Calls for Industry 'Transformation'

13.  Chart of Lloyd's Net Losses 1988-2001

14.  Chart of Lloyd's Net Losses 1997-2001

15.  Lloyd's Numbers in the News
       A table of excerpts, and selected articles on Lloyd's losses from events of 9/11/01
       (articles from Aug.30 to Nov. 27, 2001)

16.  Chairmen Dialogue: The Unanswered Question in Lloyd's Franchise Plans
A series of letters between Lloyd's Chairman Peter Levene and ANA Chairman Jack Shettle        Sr., February 19 to March 22, 2004

17.  Limited and Unlimited Liability Membership in Lloyds - from Lloyd's website

18.  Excerpt from 'UK Run-Off Survey - Non-Life Insurance', by KPMG, September 2005

       Run-offs outstrip Equitas liabilities, says KPMG study - Lloyd's List, Sept. 8, 2005

       Lloyd's post-1993 runoff liabilities climb - Business Insurance, Sept.19, 2005

19.  Recent articles on Settlements of Claims by Equitas (Summer 2005)

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