Lloyd's rescue plan heads for rocks: Members' ginger groups reject compensation offer - Letter to financial panel chairman reveals divisions

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A pounds 900m rescue plan for thousands of Lloyd's of London underwriting members facing financial ruin could founder following widespread criticism of the deal by leaders of groups fighting for help.

Lloyd's unveiled the rescue plan yesterday. It is designed to help 21,000 underwriting members meet their losses, which have totalled more than pounds 5.5bn in the past three years. A further pounds 2bn of losses is expected to follow next year. The compensation plan is designed to head off damaging legal action that members are proposing to begin. The members have alleged that the losses have arisen because of incompetence, negligence or fraud.

David Rowland, Lloyd's chairman, said that it had been the objective of the market's ruling council 'to provide as full a settlement as Lloyd's could afford'. He told members: 'The total of pounds 900m available through the offer must be contrasted with your own (and your advisers') estimates of that which might result from legal action.' He added: 'Acceptance now will produce certainty as to the amount you will receve for your claims against the uncertain outcome of legal proceedings.'

Lloyd's hopes to gain support from 70 per cent of the members affected by the offer. Members have until the end of next month to accept the package.

''We think the offer is unacceptable and we are rejecting it,' said Christopher Stockwell, chairman of the Lloyd's Names Associations' working party, a ginger group co-ordinating the efforts of thousands of members facing losses. 'The offer is an exercise with mirrors,' he said. 'Most names (the members) will receive nothing except a nominal allowance towards next year's losses.'

He urged underwriting members to resist any further demands for cash by the market's authorities to pay insurance claims. He said: 'There is a case against Lloyd's for the failure of regulation that has produced all the litigation. Leading counsel has put a strong case in court this week that names are not liable for any future cash calls and are entitled to the return of all losses resulting from the failure to regulate.'

Michael Deeny, chairman of the Gooda Walker action group, said: 'For the majority of members it means that they are being offered 30 to 40 per cent less money than they might gain through legal action. Lloyd's has made a real effort. It is a lot of money but I do not think it is enough. I will probably recommend litigation.' Members of his group are to be summoned to a meeting on 17 January to vote on whether to accept the deal.

Colin Hook, chairman of another large action group, said that the settlement did not take into account future deterioration in trading at Lloyd's. 'We expect the proposals to be greeted with far more enthusiasm by the Lloyd's working community than by names,' he added.

In the preparation of the offer a legal panel headed by Sir Michael Kerr QC, former Lord Justice of Appeal, has assessed the strength of the members' cases for financial restitution. A financial panel headed by Sir Jeremy Morse, former chairman of Lloyds, the banking group, assessed the size of the payout.

Mr Deeny and Mr Stockwell were members of the financial panel with Neil Shaw, chairman of the Association of Lloyd's Members, a body representing 8,000 underwriting members of the market. All three felt unable to approve the financial panel's final report and did not allow their signatures to go forward.

In a joint letter to Sir Jeremy, the three said on 2 December: 'We do not consider the work of the financial panel has been completed sufficiently for it to draw all the firm conclusions needed. On a matter of such importance to all names it would be wise to let the work of the panel be completed before an offer is assembled.'

This extremely embarrassing note of dissent will impair Lloyd's chances of success in gaining its acceptance among the members.

Lord Wrenbury, vice-chairman of the Merrett Syndicate 418 Names Association, said: 'I understand the offer is made on the basis that those who accept it must give up their rights to sue those parties who have contributed to it. I doubt very much whether many of us will wish to make ourselves hostages to fortune in this way.'

----------------------------------------------------------------- TOP TEN WINNERS IN LLOYD'S OFFER ----------------------------------------------------------------- Syndicate Total offer manager (pounds m) Gooda Walker* . . . . . . . . . . . . . . . . 234.09 Feltrim* . . . . . . . . . . . . . . . . . . .208.55 Rose Thomson Young* . . . . . . . . . . . . . .59.49 Merrett . . . . . . . . . . . . . . . . . . . .50.56 Devonshire* . . . . . . . . . . . . . . . . . .44.97 King* . . . . . . . . . . . . . . . . . . . . .28.33 Bromley* . . . . . . . . . . . . . . . . . . . 21.84 Octavian* . . . . . . . . . . . . . . . . . . .16.18 Janson Green . . . . . . . . . . . . . . . . . 12.79 Mackinnon* . . . . . . . . . . . . . . . . . . 11.50 ----------------------------------------------------------------- Members whose affairs were managed by these agents are entitled to be offered a settlement. * Members managed by these agents will be offered a share of a further pounds 158.2m because they were introduced to more than one high-risk syndicate. -----------------------------------------------------------------

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