Lloyd's pounds 2.8bn offer not enough to buy peace, say names

JOHN EISENHAMMER

Financial Editor

Lloyd's of London's recovery plans were thrown into turmoil yesterday as leading names said the money being offered to them would not buy peace. In a letter to names, however, David Rowland, the chairman, played down expectations of raising any more funds to encourage loss-making investors to settle their quarrels with Lloyd's.

"We are continuing our strenuous efforts to maximise the settlement, but we can offer no assurance that the offer will exceed the target of pounds 2.8bn set in the reconstruction plan," he said.

In a hard-hitting report, the names committee, made up of prominent action group leaders negotiating with Lloyd's on the global settlement, said the pounds 2.8bn on offer to encourage them to make peace was insufficient.

"The committee believes that more funds will be needed to settle litigation, to write off Lloyd's bad and doubtful debts with sufficient equity or fairness to satisfy all the main sections of the society's membership, and to ensure that the most hard-hit names are rescued from penury," the committee said.

"If there is not any more money, you probably won't get a settlement," said John Mays, a leading names' activist, who is seen as one of the moderates on the committee. "We are getting close to the wire, so we have to get on with the negotiations as time is not our friend at Lloyd's."

The report shows that names are being asked to pay pounds 2.1bn to buy "finality" from all their past liabilities. In addition, there will be another pounds 400m of uncollected bad debts, making the total bill facing names pounds 2.5m. Sir Adam Ridley, an executive of Hambros Bank and chairman of the names committee, described the figures in the report as "spine-chilling".

By next spring, the total losses facing the 34,000 names at Lloyd's over the last 10 years will amount to pounds 11.4bn. This includes the pounds 2.5bn "finality" bill for Equitas, the special reinsurance vehicle being set up by Lloyd's to take over all the insurance market's old liabilities, allowing it to begin again with a clean slate, and investors to walk away from the nightmares of the past.

Some 10,000 names, however, face further extreme hardship because their Equitas bills will be greater than their loss provisions set aside at Lloyd's. About 6,000 names will have no finality bill, and may even get some money back, while 17,000 should have enough funds at Lloyd's to cover their bill, even though in some cases people have pledged their homes as cover.

The current settlement negotiations are trying to square the circle of ensuring sufficient names' contributions to make Equitas viable, while trying to raise as much money in the market to make it easier for names to afford the settlement.

The current plan foresees pounds 2.8bn of debt forgiveness and credits to encourage names to settle, and end all litigation, but the report yesterday said the committee was very concerned that this might be "insufficient to settle the growing mass of litigation which currently threatens the society".

Names have said they are looking for another pounds 1bn on top of the pounds 2.8bn. Lloyd's is currently negotiating with brokers and managing agents, as well as outside auditors, to increase the settlement assistance pot for names. The main hope for more money is the auditors, especially after the recent Lloyd's court ruling which went against Ernst & Young. But analysts are sceptical that much more money will be found.