Lloyd's deal 'wrecked' by penny-pinching offer: Chatset blames underwriters for failure of settlement

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The Independent Online
LLOYD'S underwriters were accused yesterday of wrecking a pounds 900m settlement offer to names at the end of last year by being 'less than honest' about how much they could afford.

Chatset, which publishes league tables for the insurance market, said that up to another pounds 400m could probably have been put into the settlement offer by errors and omissions (E&O) underwriters, who insure other Lloyd's syndicates against damages claims from members.

The allegation that underwriters were 'trying to settle on the cheap' came as part of an analysis of Lloyd's losses, which Chatset expects to more than halve to pounds 1bn for the 1992 year of account. Chatset said it was the unwillingness of the E&O underwriters to increase their pounds 400m contribution that prevented agreement on the settlement.

Yet, it added, many underwriters had later admitted in their annual reports that as a result of the failure of the offer they had had to increase the money set aside for reserves against future claims.

Chatset argued that if they decided to raise their reserves after the failure of the offer they must have had the resources beforehand, and could therefore have afforded to put more into the settlement.

Charles Sturge, of Chatset, said: 'Probably another pounds 300m to pounds 400m could have been put into the settlement offer. A large number of syndicates in the market were being less than honest when making statements to the financial panel about what their exposure was.'

The panel investigated how much the market could offer. But Chatset blamed panel members for allowing themselves to be fooled by the E&O underwriters.

The Chatset forecasts show an improving picture for names, with basic underwriting losses for 1992 likely to be pounds 135m. The equivalent official Lloyd's figure for 1991 was a pounds 615m loss.

But Mr Sturge expected the overall 1992 result to be hit by further costs from earlier underwriting years, by deteriorating investment performance and by bad debts, which he said were a new and worrying factor in the market. This would bring the overall loss to pounds 1bn.

In 1991, Lloyd's lost pounds 2.05bn after allowing for pounds 530m of double counting.

Chatset's 1992 forecast is of a basic underwriting profit for the market of pounds 800m, although this does not indicate the overall result because of variables such as bad debts, investment performance and new claims relating to past years.

Chatset believes bad debts caused by defaulting insurance companies may be costing Lloyd's pounds 300m to pounds 400m, which Mr Sturge said was a 'very serious figure for the market'.

The forecasters also expect lower investment performance could knock pounds 200m to pounds 300m from the market's returns.

Overhanging hard-pressed names are deferred calls for cash of nearly pounds 2.4bn says Chatset, on top of pounds 1.7bn actually being demanded from names in July.

Chatset repeated its proposal that Lloyd's central guarantee fund should be abolished and the market's pledge always to pay claims abandoned. There were gaping holes that would anyway exhaust the fund and force a new levy on members, the report claimed.

The market should instead allow syndicates to default on claims, at least to the extent that individual names failed to find the money to pay them.

If it continued to insist that all claims be paid in full, Lloyd's and its membership would be pulled apart, said John Rew, co-author with Mr Sturge of the report.