Going for broke: Lloyd's results have raised doubts about its very solvency

LLOYD'S of London, the insurance market, is facing an imminent solvency crisis.

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.'

(Photograph omitted)

Suggested Topics
Start your day with The Independent, sign up for daily news emails
News
news
News
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
Arts and Entertainment
tvChristmas special reviewed
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
PROMOTED VIDEO
News
i100
Arts and Entertainment
Jenna Coleman as Clara Oswald in the Doctor Who Christmas special
tvForget the rumours that Clara Oswald would be quitting the Tardis
Arts and Entertainment
Japanese artist Megumi Igarashi showing a small mascot shaped like a vagina
art
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Life and Style
fashion
Arts and Entertainment
Left to right: Stanley Tucci, Sophie Grabol and Christopher Eccleston in ‘Fortitude’
tvSo Sky Atlantic arrived in Iceland to film their new and supposedly snow-bound series 'Fortitude'...
Arts and Entertainment
tv
News
The Queen delivers her Christmas message
newsTwitter reacts to Her Majesty's Christmas Message
Sport
sport
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

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all