Lloyd's needs Bank rescue, Chatset says

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The Independent Online

Lloyd's of London will need to rely on support from the Bank of England if is to continue trading, according to Chatset, a firm of independent insurance-market analysts.

Chatset, which has a track record of accurately forecasting Lloyd's results, made the claim as it revealed predictions that the insurance market would report a loss just short of £1.5bn for the 1992 year when it announces syndicate results in a few weeks. If this figure is correct, it will bring the total loss over the last five years to £9.5bn.

Chatset's predictions that a Bank of England loan will be necessary follow concerns that Lloyd's is facing difficulty in passing its annual statutory solvency test, which all insurers must pass to be able to continue trading. The problem stems from the refusal of up to 9,000 names to meet their share of the £8bn losses run up in the last four years. Debts are said to be worth over £1.2bn.

Lloyd's needs to put together a refinancing and restructuring plan this summer if it is be able to carry on trading

names still trading at Lloyd's to hand over more cash to the market to pay defaulters' debts.

Chatset analyst Charlie Sturge said: "What we are talking about is a cash crisis. Lloyd's is worried about whether it has enough cash to survive the next 12 months." He added: "Once a claim cannot be paid, the balloon goes up. A levy has to be imminent."

He said the hole in Lloyd's funding was about £1.5bn. He thought the market unlikely to try to raise so much extra money from names and estimated there would be a call for £600m instead. "The rest would have to come from a soft loan from the Bank of England."

David Rowland, chairman of Lloyd's, said: "Lloyd's is not in discussion with the Bank of England about any rescue package, nor do I foresee the need for any such talks."

On Chatset's trading predictions, Mr Rowland said: "Lloyd's is trading very successfully and all independent forecasts indicate substantial profits for the 1993 and 1994 years of account."

Names were alarmed by Chatset's predictions. Michael Deeny, chairman of the Gooda Walker Action Group, which represents more than 3,000 names, said: "Some of my sources tell me the loss is £1.7bn. It is truly depressing to face the fifth year of enormous losses, the great majority of which were not the result of natural catastrophes, but gross negligence and poor regulation by Lloyd's."

Mr Deeny added: "There have been earthquakes, hurricanes and ships sinking ever since Lloyd's was set up 300 years ago without it losing money like this."

Chatset said it expected the market to return to profit next year, when Lloyd's, which reports its results three years in arrears, unveils 1993 results. Chatset said: "1993 and 1994 are both showing very promising results of around £1bn for 1993 and £800m for 1994."