Authority raps Lloyd's dollar deficit

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The Independent Online
The New York Insurance Department has criticised Lloyd's of London for breaching state regulations and for running up a $7bn (pounds 4.6 bn) deficit on its United States dollar business. The US regulator has demanded that the market increases its reserves in the US by $500m.

It also emerged that the Department of Trade and Industry in the UK has offered verbal assurances to the US regulator that Lloyd's would continue to be solvent and would be able to fund the $7bn deficit as when claims become payable.

The US demand comes just two days after Lloyd's launched a pounds 6bn rescue and reconstruction plan aimed at solving financial difficulties caused by the 8,000 names refusing to pay pounds 2.2bn of debts.

The United States accounts for 55 per cent of Lloyd's business, worth $7bn a year in 1994. The funds held in the US are worth $10.5bn. Under the calculation made by the US authorities, that figure ought to be $17.5bn.

In a formal statement last night, Lloyd's chief executive, Peter Middleton, claimed the report painted ''a misleading picture". He called the report "selective" and criticised the NYID for failing to take into account all relevant assets.

The 28-page US report says Lloyd's either knew or should have known it was running a deficit on its US assets.

It also criticised Lloyd's for failing to keep proper records of the liabilities and assets of each of the 33,000 names - the private investors who back the market. Since each name is meant to write insurance business on his own account, failure to keep clear records means Lloyd's is unable to be certain all names can meet their debts.

The report says: "This raises concerns that (Lloyd's American Funds), as currently constructed, may not provide the security intended ... to United States policyholders."

Lloyd's has been in effect using solvent names' funds to pay insolvent names' debts. The report says that because "certain names are unwilling or unable to fund their Lloyd's liabilities, it is questionable as to whether it is prudent to make such loans."

New York's superintendent of insurance, Edward Muhl, said: "We have reached an agreement which allows Lloyd's to continue to write new business in compliance with New York regulations while remaining obligated to pay past US liabilities."