Investors shun Lloyd's trusts

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AFTER well-publicised dbuts, investors seem to have lost their taste for Lloyd's of London investment trusts.

Hailed as saviours of the ailing London insurance market when they were first launched, they are now under fire from investors and analysts.

Shares in most are trading well below their £1 initial issue price. Smaller trusts have also suffered from poor liquidity, and stockbrokers have cut prices to drum up business, but to little avail.

London Insurance Market Investment Trust (Limit), the big daddy of the sector, has fared better than most. Its shares were quoted at 93.5p on Friday, below the £1 issue price but in line with a net asset value of 92.7p a share.

Limit, with a market capitalisation of £260.4m, dwarfs its rivals. Shares in CLM Insurance Fund, the next biggest at £74.1m, are now 86p, against a net asset value of 90.82p. But the sector as a whole has declined by about 15 per cent since last November.

Trusts were one solution to Lloyd's dire need to shore up its disintegrating capital base. Limited liability capital would replace the traditional unlimited liability that Names provided.

The recent shake-out has been triggered by several fears. Under the conventions of the Lloyd's accounting system, underwriting accounts are finalised only three years after the account has closed.

It seems 1993 was a vintage year for insurers. The trusts, most of which were launched in late 1993, missed out on this opportunity. But there is a growing perception that 1994 is unlikely to be as good, while it is clear that pressure on premiums has emerged in a number of areas. The Kobe earthquake in Japan has added to the gloom.

There are also criticisms of poor value. Tony Silverman, analyst at NatWest Markets, says the trusts' funds, mainly invested in a mixture of equities, bonds and cash, yield only 4 per cent or so - until they reap any profits from actual underwriting, and that will not be until 1997. But he fears that in the interim, much of that yield will be eaten up by investment management fees and managing agents' fees.

He also blasts Lloyd's for poor distribution of information to investors. "They have not taken on board the need to keep analysts and investors well informed," he says. Concentration of capital was meant to reduce fee rates through increased competition, but there is no evidence of this happening yet, he adds.

Ewen Gilmour, head of Lloyd's corporate membership unit, concedes there are problems. Fees will gradually come down, he predicts, to the benefit of investment trust shareholders.

On information, Mr Gilmour says: "Our intention is to improve matters. We now have systems whereby price-sensitive information gets out to investors through the Stock Exchange the instant it becomes available. The point is well made, and we won't say we've got it perfect, but we are working on it."

Lloyd's investment trusts, all floated at £1 a share.

Listing date Company Share price (pence)* 24.11.93 Abtrust Lloyd's Insurance Trust 73

26.11.93 Angerstein Underwriting Trust 78

19.11.93 CLM Insurance Fund 86

12.11.93 Delian Lloyd's Investment Trust 85

25.11.94 Euclidian 91

15.11.93 Finsbury Underwriting 87**

8.11.93 HCG Lloyd's Investment Trust 83

8.11.93 Hiscox Select Insurance Fund 95

18.11.93 London Insurance Market 93.5

23.11.93 Masthead Insurance Underwriting 83

22.11.93 New London Capital 66

10.12.93 Premium Trust 68

10.12.93 Premium Underwriting 92

25.11.93 Syndicate Capital Trust 73**

24.11.93 Wellington Underwriting 102 *Price at close of trading on Friday 17 March. **Ex-dividend