Lloyd’s Vote OKs Corporate Investments : Insurance: Members of the world’s largest carrier end 300 years of tradition to support the introduction of such capital.
Lloyd’s of London, the world’s largest insurance company, voted Wednesday to change more than 300 years of history and accept investment backing from corporations.
Members of Lloyd’s overwhelmingly affirmed proposals supporting the introduction of corporate capital. Almost 13,000 members sided with the management recommendations made last month in favor of the changes, while fewer than 700 cast dissenting votes.
This effectively ends Lloyd’s centuries-old tradition under which individual investors, known as “names,” stake their entire wealth on providing clients unlimited liability coverages, in exchange for a share in the insurance company’s once-huge profits.
Wednesday’s vote--reached at a long meeting at the firm’s headquarters attended by about 1,000 names--promised to breathe new life into Lloyd’s.
“I’m delighted that we reached the conclusion that we did,” Lloyd’s Chairman David Rowland said after the vote.
Rowland had argued in favor of accepting corporate investors, declaring, “If we don’t move forward in this way, I do not relish the prospect of watching our decline as others revel in the business which traditionally has been ours.”
The firm--which has become renowned for its willingness to insure everything from ships to racehorses to dancers’ legs--has experienced unprecedented problems recently: Major disasters, including hurricanes, earthquakes and floods, have drained many names of their fortunes, hindering their ability to supply funds to pay insurance claims.
In addition, long-dormant liabilities from asbestosis and environmental damage in the United States combined to push Lloyd’s losses up to the equivalent of $9 billion from 1988 to 1991.
Wednesday’s vote means that 16 companies--mostly banks and financial firms that have already indicated an interest in investing in Lloyd’s--can proceed with their plans to pump money into the London market.
These firms, including some U.S. banks, have pledged about $1.5 billion to the insurance and reinsurance market. Now that Lloyd’s members have officially backed the plan, more money is likely to flow into the London financial institution, especially because companies that invest before competitors do will receive certain preferential rights.
Unlike past Lloyd’s practices, when names never could be sure of their potential liability, investing companies will know in advance how much money they can lose when disaster strikes.
Small investors interested in Lloyd’s will also be able to invest in the larger companies entering the market without any risk beyond their personal stake in corporate shares of stock.
Industry analysts had warned that if the members had failed to back the recapitalization plan, Lloyd’s could have become a marginal player in the insurance world.
Previously, being asked to become a name was a guarantee to making money. Names pledged their fortunes against potential losses but rarely had to actually put up cash, and they could invest the money elsewhere. In good years, the pledges never needed to be collected. But in recent bad years, the Lloyd’s investments made many of the rich--in America as well as England--suddenly poor.
Many names still face additional “cash calls” to cover losses already incurred. Some of those who lack the money to pay are negotiating new terms with a special Lloyd’s hardship committee. Others have filed for bankruptcy. Many names are suing Lloyd’s, claiming that its underwriters were incompetent or, worse, issued dangerous policies, leaving names to pick up the check.
A group representing about one-third of the names made a deal with Rowland and Lloyd’s Chief Executive Peter Middleton on Tuesday afternoon, Bloomberg Business News reported. In exchange for its support of the rule changes, the group won a commitment that Rowland and Middleton would press for a “satisfactory settlement” of the litigation before the end of the year, the news service reported.
