Lloyd's may ditch Names' unlimited liability

Lloyd's of London is considering a radical overhaul of its historic make-up, which could end the practice of allowing individuals known as Names to risk all of their assets on underwriting the market.

Lloyd's ruling body, called the Council, will today receive a report suggesting ways it could change its 300-year-old structure. The report has been drawn up by Sax Riley, chairman of Lloyd's, and the management consultants Bain & Co.

Mr Riley and other senior figures are preparing to implement radical change from next year to try to equip the London society, which was founded in a coffee shop, to compete with Bermuda, the fast-growing rival international insurance market, and with massive individual companies such as Swiss Re and America's AIG.

Lloyd's will, most likely, scrap its unique practice of accepting underwriting syndicates which only exist for a year – which means Lloyd's, in effect, disbands and reforms every 12 months. It is also expected to end its system of accounting on a three-year basis.

Companies which underwrite at Lloyd's – known as corporate Names – favour both changes because they would make it easier to plan the development of their businesses and would simplify and reduce the cost of their own accounting systems. But individual Names want the system to stay as it is because it gives them the flexibility to commit themselves to underwriting for just a year at a time. If the yearly reforming of the market was scrapped it is also very likely that underwriting on the basis of unlimited liability would also cease so that unmanageable risks do not build up for private individuals to cover.

Instead the 2,400 remaining unlimited liability Names would be asked to move over to the now more common practice of investing in the market on the basis of limited liability – which means that their exposure to any one risk is capped, so Names' own assets cannot be seized to cover losses.

There are 12,000 voting members, with corporate Names making up 900 of that.