Tony Gooda could not have come up with a more inappropriate epitaph. His reassuring comment to new investors on Gooda Walker's insurance syndicates has been shown to be hopelessly optimistic. Losses on the seven syndicates managed by Mr Gooda's firm are estimated at nearly pounds 1bn. Hundreds of elderly investors face financial ruin. Many have been driven to despair. Half a dozen have committed suicide.
The Gooda Walker collapse is the biggest of the calamities that have driven the Lloyd's of London insurance market into losses of pounds 7.5bn or more between 1988 and 1991. Today it becomes the subject of the first of numerous legal actions to reach the courts. The outcome will be keenly watched by others of the 17,000 Lloyd's 'names' who are suing their agents.
Investors claim they are the victims of the negligence of their agents. They say the agents needlessly exposed them to Gooda Walker's fundamentally unsound underwriting strategy. Is this correct - or have the names simply paid the price of exposing their wealth to Lloyd's renowned unlimited liability during a period that saw an unparalleled plethora of catastrophe? The case, expected to run for three months, will decide.
Gooda Walker itself is in liquidation, the affairs of its syndicates now in the hands of a specialist run- off company. The 3,095 names of the Gooda Walker Action Group are seeking to recover pounds 629m from their members' agents, the firms that placed them on the syndicates.
Most of the agents have little in the way of assets. The bulk of any recovery that Gooda Walker names might win would have to come from the agents' professional indemnity cover, the so-called errors and omissions insurance.
Two weeks ago, names won a crucial victory when the House of Lords established that the members' agents are liable for negligent underwriting by Lloyd's syndicates.
What went wrong at Gooda Walker is fairly clear. What is at issue is who to blame. Are the losses the result of incompetence by Gooda Walker's underwriters, or a consequence of the series of catastrophes that hit the world's insurers in the late 1980s?
The battle will largely be fought through expert witnesses. Geoffrey Vos QC, for the names, will try to establish that the Gooda Walker underwriters took on risks that no prudent underwriter should have accepted. A key witness for the names will be Ulrich von Eicken, the former London chief of Munich Re, the world's largest reinsurance company. He will be pitted against Richard Outhwaite, for the agents - a choice of witness rich in irony as he was the underwriter on the heaviest loss-making syndicate of the early 1980s. When the Outhwaite affair came to court, the syndicate's professional indemnity insurers decided to settle the action for pounds 116m.
Rapid expansion at Lloyd's in the 1980s, with its ability to underwrite premiums rising from pounds 3.4bn in 1980 to pounds 11bn in 1988, was always likely to lead to losses, as too much money chased too little business. But the problem was greatly exacerbated by the Lloyd's reinsurance spiral. As risks were reinsured from syndicate to syndicate, an incestuous and dangerous pattern developed.
The complexities made it difficult to identify the risks borne by a particular syndicate. The spiral worked to compound risk rather than to disperse it. The dangers were quickly exposed by the sequence of catastrophes that followed the explosion of the Piper Alpha oil platform in 1988. Hurricane Hugo, the Exxon Valdez oil spill and the European storms of early 1990 brought huge losses in their wake.
Michael Deeny, the concert organiser who heads the action group, said: 'Gooda Walker's underwriters had no idea of how much money they might lose. What's surprising is that even after the catastrophes happened, they still didn't know. A year after the (Piper Alpha) rig had gone down, the underwriter said he thought he'd break even.
'The underwriters never actually calculated what their maximum loss might be. They had the figures to do it. They never ran the (computer) programs to figure out what risk they were running.'
Andrew Pincott, senior partner of Elborne Mitchell, the specialist insurance solicitors who are acting for the agents, insists that the names knew the risks when they became members of Lloyd's.
'Risk-taking is exactly the essence of insurance. Lloyd's has been a very good and very profitable business to be in, as long as there are not too many natural and man- made catastrophes,' Mr Pincott said. 'When there are major natural or man-made catastrophes, the market as a whole loses money.'
A cautious underwriting policy that avoided the risk of losing money in the event of catastrophe would have limited the chances of making much profit, he said.
Aggrieved names call this the 'gambling' defence, and they regard it as self-serving claptrap. According to Mr Deeny, 'if you put pounds 100 on the Grand National, you know you're only ever going to lose pounds 100. Gooda Walker underwriters never knew what risk they were taking. They did not know how much they could lose.
'We were entitled to reasonable competence.'
Most of the Gooda Walker investors are elderly, he said. 'Most of them saw Lloyd's as providing a bit of extra income for their old age. They weren't yuppies. Losses like these are horrific.'
Mr Pincott is naturally sceptical. 'What most names wanted was to make a lot of money,' he said. Moreover, members' agents would not have represented the Gooda Walker syndicates as being low-risk.
Most names accept that there is bound to be a risk of losing money. It is the scale of the losses at Gooda Walker with which they take issue. In 1989, Gooda Walker's worst year, other syndicates writing similar business made a profit, as did most of the world's leading reinsurers.
The second plank to the agents' defence is that there were an exceptional number of expensive catastrophes. But Mr Deeny argues: 'The big failure was in reviewing their own reinsurance programme. Because they never calculated what they might lose, they never did a rational programme for reinsurance.' The agents counter that the more reinsurance protection an underwriter buys for the syndicate, the less money there is available to make profits. 'Risk and profit are symbiotic,' Mr Pincott said.
Gooda Walker names also feel misled over the performance of the syndicates, which for a time were among the most profitable. GW Run-off, the firm now managing the syndicates, suggested that results were inflated by a device known as time and distance policies. It is this issue that prompted an investigation - recently abandoned - by the Serious Fraud Office.
Even if successful, the names could face a lengthy battle to retrieve their money should the members' agents use the full appeals process. The case seems likely to go to judgment, expected in October. This might be the catalyst for the professional indemnity insurers to sit down and negotiate a wider settlement of the many disputes waiting in the wings.
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