Lloyd's looks at two-year accounting

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The Independent Online
LLOYD'S of London is to consider allowing underwriting syndicates to close accounts after two years rather than three so investors receive profits sooner faster, writes Diane Coyle.

The change would be introduced in stages, with syndicates closing their 1992 accounts at the end of 1994 in the usual way. They would also calculate 1993 results and could make part of any profit from that year available to help their investors pay 1992 losses. From the end of 1995, syndicates would close after two years.

Consultations on the move will take place over the next few weeks. Huge losses - pounds 2bn for 1991 - have forced Lloyd's to reform its often archaic procedures. The three-year timetable dates from the era when it was the typical length of a ship's voyage. Corporate investors, allowed into Lloyd's for the first time this year, are particularly keen to obtain a faster return.

Many syndicates would face little difficulty in closing accounts earlier, but others would have to increase their reinsurance to close - the insurance they take out to cover any remaining claims after the closure of each year's account. Motor claims are known very quickly, but any liability claims involving potential legal action can take years.

Richard Macve, Professor of Accounting at the University of Wales in Aberystwyth, said: 'Three years is either far too long or far too short. There is no reason two years is more obvious, except that there is obviously commercial pressure to speed things up.'