City: Of fear and loathing in Lime Street

HERE ARE two very different stories about being a Lloyd's name on the loss-making Gooda Walker syndicates. The first concerns a woman I met at a party last month. Recently separated and going through a messy divorce, she had been put into some of the worst-hit syndicates by her husband in the late 1980s. When she signed the documents, she had little or no idea what she was letting herself in for. With the benefit of hindsight she suspects that her husband was trying to set her up with an income for life so he wouldn't have to worry about her livelihood after he ran off with his secretary.

His motives are irrelevant now. In effect, he has bankrupted her. She faces losses of more than pounds 600,000, will have to sell the family home and live out the rest of her life in relative hardship. Her husband, meanwhile, appears to have escaped almost entirely unscathed. He had made sure that it was his wife signing up for unlimited liability, not himself.

The second concerns a stockbroker I came across in the City recently. Tempted by the huge profits made for 20 years or more from excess loss catastrophe reinsurance, he insisted that his managing agent sign him up for a disproportionate number of high-risk LMX syndicates. He compounded the problem by signing up for a number of stop-loss syndicates - once highly profitable syndicates that insure members against loss. He thus became a classic victim of 'the LMX spiral' - a process by which reinsurance was allowed to spiral around the market so that already gross over-exposure to catastrophe losses became multiplied in the members' hands. You could argue that, unlike the woman in the first story, he had only himself to blame. Unlike her, his own greed led him into deep water. There are plenty like him.

At one time, names clamoured to join these higher-risk syndicates where they made a lot more money than on run-of-the-mill stuff. But most of those badly hit by losses at Lloyd's are more akin to the woman than the man - whether you have made or lost money at Lloyd's largely depends on who your managing agent was. If you were unlucky enough to run into Tony Gooda on the golf course, Charles St George at the race track, or Robin Kingsley at Wimbledon, as likely as not by now you would have been stuffed, a victim of, at best, gross incompetence.

It will be years before the courts finally begin to sort out who was to blame for this monumental debacle. As David Rowland, chairman of Lloyd's, puts it with masterly understatement: 'Any organisation which manages to lose pounds 6bn over four years clearly has a lot to answer for.'

If a good relationship ever existed between market and investors (the names) it has now broken down on a colossal scale - possibly beyond repair. How on earth was it possible for Lloyd's to have allowed a man like Derek Walker, charged and acquitted of fraud in the early 1980s alongside Christopher Moran, (see profile, page 13), to have continued practising? Where there are allegations of fraud there is nearly always management incompetence on a grand scale. But then this is a market whose ways and practices seem more suited to the last century than the 1990s - a market, moreover, which even after the reforms of the 1982 Lloyd's act continues to regulate itself in a woefully inadequate fashion.

Can Lloyd's survive - and does it in any case really matter any longer? With only 1.5 per cent of the world insurance market, Lloyd's is no longer the force it once was. Its contribution to the balance of payments is significant, but the giant Lloyd's broking houses that bring most of this business to London would carry on regardless of what happened to Lime Street's underwriting capacity. Nevertheless, it seems scarcely credible that the Government or the City would allow Lloyd's to go to the wall, with all that would do to London's reputation as a financial centre.

Already the damage is considerable. The chairman of one leading investment bank told me the Lloyd's debacle was colouring the attitude of many potential overseas clients to the City as a whole - that such gross incompetence at Lloyd's had led them to wonder about other, wholly unrelated London markets too.

Mr Rowland can hardly pretend that things are not as bad as they seem, and indeed he doesn't. But the paradox of the present hiatus is that it disguises an improving trend for the market. Premium rates are rising, the claims rate is falling and - astonishingly for a market that has suffered so much adverse publicity - business is on the up. Losses ought to be reduced to about pounds 1bn for 1991 (Lloyd's accounts three years in arrears) according to Mr Rowland. By next year, the market will be back in profit to the tune of pounds 900m if cost cuts come through in the way foreseen in the Lloyd's business plan.

Whether this is enough to rescue the market is anyone's guess. With half the names saying they can't, or won't, pay up and large numbers of them suing for negligence and worse, the upswing may have come too late. Mr Rowland believes there will be no need to repeat last year's general levy on the membership; he is praying that the central compensation fund, which stands at pounds 1.1bn, is enough to meet the liabilities of names who can't pay their losses. But the truth is that nobody knows. Lloyd's seems to think the woman cited in the opening to this piece is in a position to pay, but I can assure the debt collectors that she's not. If she is in any way typical, Lloyd's has a much more serious problem than it cares to admit.

All of which makes Mr Rowland's plan to bring corporate capital into the market on a limited liability basis, a matter of urgency. No details have been released on how Lloyd's proposes to do this - a green paper will be published next month - but it is already clear that nobody in his right mind will invest without a line being drawn in the sand to give newcomers immunity against all past losses; nobody is in the business of charity. Some names still seem to believe their plight could be eased by charging newcomers a substantial entry fee. I would have thought that about as likely as a month of Sundays; the returns have never been good enough to justify that sort of premium. On balance, it seems more likely that Lloyd's will survive than fail, but it will remain a tightrope act for a long time yet.

News
people
Arts and Entertainment
Game Of Thrones
Uh-oh, winter is coming. Ouch, my eyes! Ygritte’s a goner. Lysa’s a goner. Tywin’s a goner. Look, a dragon
tvSpoiler warning: The British actor says viewers have 'not seen the last' of his character
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave long-running series
Sport
Esteban Cambiasso makes it 3-3
premier league
PROMOTED VIDEO
Sport
The Etihad Stadium, home of Manchester City
premier leaguePlus updates from Everton vs Palace
News
people'I hated him during those times'
News
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Sport
Heskey's aim has improved since the end of his English football career

Long after his career in English football has ended, Emile Heskey's impotency in front of goal remains an object of ridicule.

News
i100
News
Dame Vivienne Westwood has been raging pretty much all of her life
peopleFirst memoir extracts show she 'felt pressured' into going out with the Sex Pistols manager
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Lauryn Hill performing at the O2 Brixton Academy last night
musicSinger was more than 90 minutes late
Sport
Lewis Hamilton in action during the Singapore Grand Prix
Formula OneNico Rosberg retires after 14 laps
News
i100
News
Rumer was diagnosed with bipolarity, attention deficit hyperactivity disorder and post-traumatic stress disorder: 'I was convinced it was a misdiagnosis'
peopleHer debut album caused her post-traumatic stress - how will she cope as she releases her third record?
Arts and Entertainment
tvReview: 'Time Heist' sees a darker side to Peter Capaldi's Doctor
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam