Lloyd's names hear an unfamiliar word

Profit is not a word that long-suffering Lloyd's names have heard much of in recent years. So they will be amazed to hear today that they could be in line at some point to profit from the scheme for a grand reinsurance company, Equitas, to take over responsibility for all those old policies, notably pollution and asbestos in the US, that have brought ruin and misery to thousands of Names.

It sounds almost too good to be true, as unfortunately, it does seem to be. The best names can hope for is one day to get back a share of any surplus from the funds they are being asked to put into Equitas to cover all liabilities for policies at Lloyds written before 1993. However, that day could be a long time coming, so only the more youthful and patient among the hordes of loss-making names can even contemplate their Equitas windfalls.

One of the big problems facing N M Rothschild, the merchant bank charged with the thankless task of attracting outside investors to Equitas, has been the difficulty of projecting a claims pattern for all the outstanding liabilities.

Without this, it is very hard to satisfy investors' need to know what sort of returns they can expect.

Some of the latest policies which would go into Equitas were written less than five years ago, which means having to wait another 30 for the claims against them to be run off.

It may not take quite as long as that to assess whether the pounds 16bn proposed for Equitas is sufficient to cover the liabilities, but it will require a good many years.

Moreover, the history of American attempts to set up special re-insurance funds to cover potential liabilities suggests that, far from ending up with a surplus, they usually find the level of claims has in the meantime risen, and the funds provided to cover them turns out to be inadequate. Equitas claims to be different, in that it is trying something on a scale not done before. Hope springs eternal, but don't hold your breath.

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