Error forces Lloyd's to revise pounds 900m rescue offer: Pounds 22m to be reallocated among names after miscalculation - Chairman of Gooda Walker Action Group urges rejection

DAVID ROWLAND, the chairman of Lloyd's of London, yesterday owned up to an embarrassing error in the pounds 900m rescue plan sent to 22,800 underwriting members of the insurance market this month.

The entire offer has been recalculated and will be posted again after Christmas. Mr Rowland said the error would result in pounds 22m being reallocated between members or names.

Some names were offered too much and some too little. Two were overpaid by pounds 35,000 to pounds 40,000 and two were underpaid by pounds 85,000 to pounds 90,000. However, for most the difference will be small. A total of 9,300 names received too much, but 67 per cent of them will lose less than pounds 2,000. A total of 13,500 received too little, but 79 per cent will gain less than pounds 2,000. The overall size of the offer is unchanged.

The news came as Michael Deeny, chairman of the Gooda Walker Action Group, wrote to members recommending rejection of the offer. He described it as 'a bird in the bush and not a big enough one'.

He said the offer represented not cash but special credits against the future solvency of names. He added that the pounds 900m should have been increased to pounds 1.3bn.

Mr Deeny pointed out that the value of the offer to litigating Gooda Walker names was pounds 223m, but that a Lloyd's legal panel considered action group members had a strong claim to pounds 489m. The panel was chaired by Sir Michael Kerr QC, former Lord Justice of Appeal, and was set up to assess the strength of names' cases for financial restitution.

Mr Deeny said the decision to reject was not taken lightly and that the offer was substantial. The offer to litigating Gooda Walker names, who have been hardest hit by Lloyd's losses, represents around 25 per cent of the total offer by value. Lloyd's has stated the offer will lapse unless it receives 75 per cent acceptance by value.

The error came as no surprise to Mr Deeny. He was one of three members of a Lloyd's financial panel who refused to sign its final report because it had not been allowed enough time to complete its work.

The panel, chaired by Sir Jeremy Morse, formerly chairman of Lloyds Bank, was set up to examine all sources of finance that might contribute to an offer to names.

Christopher Stockwell, chairman of the Lloyd's Names Associations' working party which co-ordinates the efforts of members facing losses, said: 'Names can have no confidence that the new calculation is any more correct than the previous one.'

He said the total of inaccuracies was likely to be far more than the pounds 22m stated by Lloyd's.

The working party has written to all members urging rejection of the offer. The letter states that it fails to protect against future losses, deprives names of their legal rights and is less than the errors and omissions underwriters' liability.

Mr Rowland repeated that the total size of the offer was final. 'We are not playing games.'

He added that Lloyd's had the right to vary the terms of the offer, as it had not gone unconditional. Names who have already accepted and then find the offer to them is reduced can withdraw their acceptance.

Mr Rowland said he was confident no more errors would be found.