Lloyd’s of London Proposes Radical Reorganization Plan

Lloyd’s of London, Britain’s troubled 308-year-old insurance market, proposed a radical reorganization plan Tuesday aimed at putting problems behind it and ensuring its survival to enjoy a return to profit next year.

The plan, which was expected, involves a $4.41-billion compensation deal for Lloyd’s traditional backers, known as Names, and the creation of a new company, Equitas, to handle the old liabilities that continue to dog the market.

“Unless we take radical action now . . . I do not believe that the Society will be able to survive in anything like its present form,” Chairman David Rowland said in the plan’s introduction.

“To maintain the confidence that is vital for our business, we must reconstruct our finances, maintain our solvency and deal with the problems of the past,” Rowland said.

Lloyd’s Chief Executive Peter Middleton said he would be thrashing out the details of the complex restructuring package with all parties in the market over the next nine months.

Lloyd’s problems stem from an unprecedented wave of catastrophes in the late 1980s and early 1990s, compounded by a growing tide of claims on U.S. liability, pollution and asbestosis policies, often dating back many years.

Lloyd’s announced that it lost $1.87 billion on its 1992 year of account, taking losses over the past five years above $12.5 billion.

The losses have devastated many Names, investors who backed the market with unlimited liability, and led to a spate of legal actions for compensation.

Some 17,000 Names, half of those still embroiled in the market, have been seeking compensation through the courts.

The plan is intended to cap losses for 1992 and previous years by reinsuring them through Equitas at an estimated cost to Names of $4.7 billion. Equitas itself would have assets of $25.19 billion, drawn mainly from existing reserves.

In return, Names will be asked to give up litigation against the market and other contributors to the settlement fund.

The initial response from Names’ leaders was positive, although they emphasized that much work remained to be done before agreement was reached.

In the United States, Richard Rosenblatt of Rancho Santa Fe, Calif., who heads a group of dissident Lloyd’s investors called the American Names Assn., doubted that Names would cheerfully contribute another $4.7 billion to capitalize Equitas.

The plan proposes ending Lloyd’s antiquated three-year accounting system next year, which will help the market by releasing three years of profit in 1996.