Lloyd’s of London, the 300-year-old catastrophe reinsurer, announced on Thursday the biggest shake-up in its history and said its losses for 1990 and 1991 would reach the astonishing sum of $6 billion.
The losses, the firm said, were announced belatedly because, under the Lloyd’s system, it takes time for claims to be filed, assessed, paid out and recorded.
In describing what it called its “blueprint for recovery,” Lloyd’s said it will cut its staff, change its underwriting policies and invite limited-liability corporate investors into its market to supplement money put up by “Names,” its designation for its individual investors.
“The alternative is bleak,” Chairman David Rowland said in a statement. “Should membership and market not unite behind this plan, then Lloyd’s may have no future.”
To become a Name, an investor must pledge all his or her assets to pay for any losses incurred in the insurance underwriting operation, “down to (his) last pair of cuff links.” But for years, a Name was guaranteed an annual return of about 10% on the investment--without having to put up any cash, only to pledge it.
The affluent grew even more wealthy with their investment in the London institution, which earned a worldwide reputation for insuring anything from an oil tanker to a movie star’s legs.
But half a dozen years ago, the Lloyd’s market began to go sour.
It quickly became apparent that Lloyd’s underwriters had failed to charge sufficient premiums to cover insured disasters. The firm was battered by losses from hurricanes, ship sinkings, earthquakes, oil rig explosions and huge pay-outs for asbestos damage in lawsuits filed in the United States.
The losses wiped out the personal assets of hundreds of wealthy investors whose liability was unlimited, reducing many famous Britons to near penurious circumstances. Many Names, including Americans, filed lawsuits against the underwriting syndicates that make up Lloyd’s for incompetence and malfeasance. The matters have not yet been adjudicated.
In announcing its staggering losses, Lloyd’s also predicted Thursday that it would make a small profit for 1992, followed by “very substantial profits” for 1993. It said that, under its new plan, corporations will be invited to invest in the insurance market; administration of the firm will be streamlined, with about 2,500 jobs, or 20% of the staff, cut in the next two years.
Lloyd’s troubles have caused the number of Names to drop from about 32,000 in 1988 to about 20,000 now. Proposals for settling legal disputes will be set out in a report to be published next week.