The losses have hit syndicate 745, in which the 1,750 members are grouped, and have been caused by larger-than-expected payouts on insurance claims arising from European storm damage in 1990. First indications of the trouble were revealed by the Independent last week.
As a consequence of the worsening losses, which had not been anticipated, the syndicate's professional underwriter, David King, was sacked on 14 October by the agency running the syndicate, KPH Underwriting Agencies.
Other underwriting agencies that introduced members to the syndicate have been told that reserves for future losses had been based on the claims payout experience of the losses triggered by Hurricane Hugo in 1989. Instead, the losses from the European storm damage in 1990 - codenamed CAT 90A in the Lloyd's insurance market - have not slowed at the same rate as the losses triggered by Hugo and all the syndicate's assumptions have proved to be erroneous.
Individuals on the syndicate could be asked to pay out between pounds 4,000 and pounds 6,000 from their own private wealth for every pounds 10,000 worth of business accepted on their behalf, to meet the losses.
John Heynes, chairman of KPH Underwriting Agencies, said yesterday: 'Avenues are being explored to seek ways of mitigating the final 1990 result. The balance of the account is expected to return a modest profit which will reduce the final loss to names (the members).'
For Lloyd's the situation represents considerable embarrassment. The former underwriter of syndicate 745, Mr King, who was paid a salary of pounds 150,000 at the agency, was asked by Lloyd's to examine how losses of pounds 63m occurred on syndicate 255, under the management of Rose Thomson Young. The three-man Rose Thomson Young inquiry team was led by Timothy Boatman, a senior partner of Coopers & Lybrand, the accountants.
In a confidential report by KPH for agents who introduced members to syndicate 745, the agency says there is 'every likelihood that the account will have to be left open until a more accurate position on this loss can be assessed'. That means that the books of the account might not be able to be closed, leaving 1,750 underwriting members with losses stretching out into infinity.
Underwriting agents are extremely concerned and may force the syndicate to cease trading by withdrawing underwriting members who have joined since 1990.
This summer Lloyd's reported losses of more than pounds 2bn for the entire market for its 1989 account.Reuse content