Detailed examination of last week's results reveals that the crisis is so acute it is inevitable that Lloyd's and the market's regulator, the Department of Trade and Industry, will have to implement contingency plans to prevent the market being forced to cease trading.
The accounts also reveal that one cause of the problem is that the market's central fund, which pays out when investors or 'names' default on their debts, stumped up pounds 312m in 1993. - a huge increase on 1992, when Lloyd's spent just pounds 44m on meeting such debts.
A further pounds 661m of the central fund's pounds 903m has already been earmarked to meet future claims that the market fears will not be met by names. Last year, earmarkings stood at just pounds 355m. Only non-earmarked funds count for the DTI's annual solvency test. Under insurance law, any insurer that fails such tests can be required by the DTI to cease trading.
As a result of earmarkings and the payments of central fund cash to policyholders, the funds available for solvency purposes have fallen to pounds 242m. Given that over pounds 600m of central fund resources have been called on to help meet last year's pounds 2.3bn loss, it is inevitable that pounds 242m will not be enough to cover the defaulting names this year.
Lloyd's will be demanding pounds 1.8bn cash from names in July to meet losses. It reports to the DTI at the end of August.
If Lloyd's is not to be prevented from continuing to write insurance business, in effect closing down the market, contingency plans it has drawn up will have to be implemented.
Possible measures include allowing the society to include other assets in the solvency equation. The accounts show that it has pounds 250m of other assets, mainly the buildings on Lime Street that house the market. Lloyd's director of finance, Stephen Hall, says the market already has DTI agreement to allow Lloyd's to include the buildings on the asset side of the solvency equation.
Mr Hall denied this was fudging the figures, claiming that it is not impossible for the market to sell the Lime Street buildings and still continue trading.
More likely is that Lloyd's will make further demands on the already-stretched personal resources of the names. One analyst estimated that it will need to raise up to pounds 500m more from names, on top of the pounds 1.8bn needed to pay for this year's losses. This would be embarrassing for Lloyd's, which has virtually promised the market's new corporate capital investors it will not levy them. Moreover, any plans to raise a levy would be subject to a vote by names at an extraordinary general meeting, which means Lloyd's can not assume success.
Christopher Stockwell, chairman of the Lloyd's names association's working party, said: 'A way will be found to get the society through solvency'. Mr Hall said: 'We have explained our methods to the DTI and they are comfortable with it. We are confident we can pass solvency at the end of August.'