Lloyd's plans to revamp the market: Help for individuals to limit liability is among possible changes. John Moore reports

DRASTIC reforms in the structure of the Lloyd's of London insurance market could take place in the next few years in the wake of pounds 5.5bn of losses and personal tragedy among the investors who supported the institution.

New moves are under consideration by the market's authorities that could lead to a strengthening of Lloyd's capital base, the employment of long-established financial techniques to reduce the possibility of large losses, more extensive management of the market's financial resources, and help for members who wish to limit their liability.

The plans form a new stage in the reform programme that started in the early 1980s with a shake-up of the market's regulatory procedures. In the past year companies have been admitted as investors for the first time in Lloyd's 306-year history.

Unlike the 18,000 or so individual underwriting members, the companies trade with limited liability. The individual members are required to meet insurance losses to the full extent of their wealth.

In the past two weeks Lloyd's has set up a 'value group' headed by Robert Hiscox, the market's deputy chairman. The group is exploring ways to maintain the momentum established last year for attracting fresh capital.

The 10-strong group will also seek ways in which members can trade portions of their investment entitlements at Lloyd's with others seeking to participate in the market. Lloyd's is attempting to establish a financial value for participation on insurance syndicates so these trades can go ahead. The intention is to provide a further financial resource for members facing huge losses.

This year Lloyd's is expected to unveil a further pounds 2bn worth of losses in addition to the losses already sustained by the market. Many members have been brought to the brink of financial ruin. At least seven have committed suicide as a result of the anxiety brought on by the prospect of huge liabilities.

Peter Middleton, Lloyd's chief executive, is keen that the market should become a more conventional financial institution. He wants Lloyd's to use the most up-to-date techniques in world financial markets for the hedging of risks, and to ensure that investors have some protection against any losses which might hit individual insurance syndicates in the market because of any misjudgement in the initial underwriting of risks.

As part of his other plans he is understood to want Lloyd's to move to one-year accounting in the market as quickly as possible. At present the market uses an arcane three-year accounting system which it claims allows it to assess outstanding liabilities with greater accuracy.

The market's results in the future may not be reported centrally by the authorities. Instead, it may be left to individual companies operating at Lloyd's to report their own figures as this would represent a more accurate picture, once one- year accounting procedures are adopted.

Mr Middleton is also believed to be promoting the idea of more regulated management of the market's total financial resources.

Financial capacity for the acceptance of insurance risks will be controlled in future so that professional underwriters are not forced to reduce premium rates substantially to provide income for any expansion in the membership.

These commercial pressures have contributed to the enormous losses seen in the past few years.

Mr Middleton wants to develop a full financial value for the franchise of the trading name, Lloyd's of London, so that companies operating on the market are obliged to contribute a percentage of their revenues to Lloyd's central fund, which is designed to protect policyholders against any failure within the market.

The chief executive also hopes to develop the concept of trading via computer terminals as quickly as possible at Lloyd's. This could lead to a reduced role for insurance brokers, who bring business to Lloyd's, and an end to 'face-to-face' insurance transactions.

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