Financial pressure mounts on Lloyd's underwriting managers

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Companies managing the affairs of thousands of underwriting members of the Lloyd's insurance market are coming under increasing financial pressure, according to experts.

According to BDO Binder Hamlyn, the accountants that have specialised in Lloyd's affairs, the underwriting agents that look after the affairs of members in the insurance market need to proceed carefully in the light of new financial requirements.

Ian Clark, a partner with the insurance unit at BDO, said: 'The introduction of what in effect is the third revision to the requirements has been made at a time when underwriting agents are facing severe financial pressure.'

Mr Clark has cited the lower charges forced on agents by the departure of hundreds of members who have left the market in the wake of pounds 5.5bn worth of losses in the past three years. He also warns that agents who have locked in their charges on a strictly performance-related basis in the insurance business they manage at Lloyd's are also at risk.

Underwriting agents, who normally take commissions on profits of the syndicates into which they have grouped the members, now have to take account in their financial calculations of any losses that have been generated.

Because many underwriting agents are being sued by their members over the huge losses that have been incurred many agents have been forced to merge or consider insolvency. At present in Lloyd's there are only 114 agency companies left, compared with more than 200 operating three years ago.

In March 1990 there were more than 300 agents operating at Lloyd's. But the flood of departures of individual members means that agency companies have become financially stretched.

Mr Clark warned that agency group structures should adapt in the light of the new capital and solvency rules.

Although the financial rules governing underwriting agency companies at Lloyd's have been tightened they are being phased in up to 1998 to ensure that companies do not face undue pressure.

According to Lloyd's new criteria the impact of its net current asset margin requirement will depend to a large extent on the size of an agent's annual expenditure, the nature of its current assets and its normal dividend policy.