Lloyd's insurer collapses as funds run out

One of Lloyd's of London's oldest insurers announced yesterday it has been forced to close after it was hit by the collapse earlier this year of Independent Insurance.

Cotesworth & Co, which was founded in 1855, stopped writing new business in August and must now run off more than 1,000 policies from two Lloyd's underwriting syndicates it controls.

Cotesworth bought reinsurance cover from Independent Insurance but could not claim on it after the company became bankrupt in June.

This was particularly damaging for Cotesworth because it faced heavy claims following the sinking of the world's deepest oil rig, owned by the Brazilian company Petrobras, in March.

Norman Britten, Cotesworth's managing director, said: "With these two events acting together it became very difficult to keep the company trading."

Cotesworth is a managing agent – a company which runs a number of syndicates. It was forced to close because it ran out of funding and was unable to find a new backer. Its former primary backer, HIH Australia, went into provisional liquidation in March. Cotesworth failed to find a replacement.

The three circumstances marked a sorry end for Cotesworth, whose performance has been above the average of all Lloyd's companies in many of the last 20 years.

Other insurers have been affected by the collapse of Independent Insurance but very few will be damaged as badly as practicallyno other Lloyd's insurer took out reinsurance with Independent Insurance. However, they have been hit by higher reinsurance prices. The cost of reinsurance has risen significantly in the last few months after the collapse of Independent Insurance, which tended to drive down prices by offering competitive deals.

A Lloyd's spokesman said: "Cotesworth faced a particular set of problems which have led to the run-off. The indications for the market more generally are positive."

Most analysts who follow the historic London insurance market agree that it will make a loss of £1.4bn for 1999 but may break even in 2000 and make a profit in 2001. Lloyd's accounts are complied with a three-year time lag, so the final figure for 1999 will not be known until next year.

If Lloyd's does make a loss of £1.4bn for 1999, the liability will be covered by those who have provided the capital for managing agents and their syndicates. Backers historically were Names – the individuals who provided capital with unlimited liability – but now are mainly companies that have invested in syndicates.