Lloyd's syndicate deals faulted

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The Independent Online
HUMAN error was 'unacceptably high' in reinsurance dealings between a Lloyd's insurance syndicate and a company that is currently under investigation by the Department of Trade and Industry, according to a report to Lloyd's members.

New managers trying to salvage the affairs of three syndicates under the management of the former Feltrim underwriting agency have found that they traded with other insurance groups that subsequently collapsed, and that the records of the dealings were inadequate.

The report, prepared by Additional Underwriting Agencies (No. 7) - a company formed by the Lloyd's insurance market to act as a caretaker for the troubled Feltrim agency - says that syndicate 847, under Feltrim's management, traded with HS Weavers, the underwriting arm of London United Investments.

In October 1990 Peter Lilley, then Secretary of State for Trade and Industry, appointed inspectors to report on the affairs of London United Investments in the most serious investigation into the activities of an insurance company since the DTI probed the collapse of Vehicle and General, the motor insurance group, in the early 1970s.

The inquiry followed an extensive preliminary review by officials after the department had stopped London United's main insurance subsidiary, Walbrook, from underwriting in March 1990 because of a lack of money to meet insurance claims.

London United was the biggest insurer of US liability risks, providing protection for companies against legal liability claims.

HS Weavers, an agency company and part of London United, passed insurance business across to Walbrook.

Mr Lilley, according to the Trade department when it announced its investigation, asked the inspectors 'to look in particular at the circumstances surrounding the payments of commission on reinsurance contracts relating to the company's underwriting subsidiary HS Weavers (Underwriting) Agencies.'

Separate preliminary inquiries were carried out by the Serious Fraud Office and the City of London Police Fraud Squad into the affairs of London United, but because of pressure of work, the SFO decided to leave full investigation to the trade department.

Tony Berry, a senior underwriter working with Additional Underwriting Agencies (No. 7), has told more than 1,500 Lloyd's underwriting members, who are suffering more than pounds 200m worth of losses through their involvement with Feltrim's syndicates, that he has discovered so-called 'fronting' policies effected by former Feltrim professional underwriters.

Business was passed over by Feltrim's professional underwriters to other insurers in London in return for a payment to the syndicates called an 'over-rider'.

Mr Berry has said in the report, sent to members earlier this month, that the companies that Feltrim traded with in this way included the failed Chancellor Insurance group, HS Weavers, and the Israel Reinsurance Company.

Mr Berry tells members that he is 'totally unable' to quantify the liabilities and that the problem has been further compounded because 'we find that none of these arrangements are properly recorded on the underwriting screens'.

Mr Berry says that the syndicates' records, including syndicates 540 and 542, leave 'something to be desired. I would always expect an element of human error . . . In Feltrim's case, the human error element is at an unacceptably high level.'

Because of syndicate 847's involvement with London United's underwriting arm, that syndicate 'may suffer losses following the collapse of the Weavers group'. Syndicate 847 is facing bad debts of pounds 3.1m because of non-payment of reinsurance claims by failed insurance companies, while syndicates 540 and 542 have bad debts of pounds 4.57m.

Sir Patrick Neill is carrying out an investigation at the request of Lloyd's into how the losses on the Feltrim syndicates arose. They are among the largest losses to fall on a small group of syndicates in the market.

Sir Patrick's report is expected to be published in September. So far those criticised in the report have been circulated with the relevant extracts for their comments.