Lloyd's of London yesterday ordered Goshawk, the insurer of the Columbia space shuttle and the collapsed Accident Group, to close in the UK following concerns over its reserving levels.
The insurer has been struggling to quantify its liabilities for some months after sustaining losses on the space shuttle that crashed in February and in legal expenses insurance it provided to customers of Accident Group, which went into administration in May.
Goshawk put itself up for sale in July after its second profits warning and recorded a £30m six-month loss last month. It breached its banking covenants, admitting it had inadequately researched markets and had poor reinsurance cover for the risks it had taken on.
Goshawk's Syndicate 102 will now go into run-off and Lloyd's will appoint a third party to manage its existing policies. Handing over the syndicate to Lloyd's will draw a line under Goshawk's liabilities. The syndicate has £45m of funds, and Lloyd's can draw on a further £20m credit facility from Goshawk's bankers to pay claims. If Goshawk's reserves prove too thin, then Lloyd's central fund, a pool of £800m from other Lloyd's members, will pick up the tab.
Goshawk employs 84 people in the UK. The company declined to say yesterday whether any jobs would be affected.
The move marks the tough new approach from Lloyd's, which is trying to restore its reputation as a financially robust market. For the past 300 years, wealthy individuals called Names have put up their own money to underwrite insurance, but after severe losses in the mid-1990s, many became bankrupt.
Lloyd's no longer accepts new Names on an unlimited liability basis and is moving to a franchise structure. It has been scrutinising Goshawk for some time and decided the risk of letting Goshawk continue to write business was too great.
A spokesman for Lloyd's said yesterday: "Despite working with Goshawk's management, it has not been possible to resolve a number of problems. Lloyd's has taken this action in the best interests of the society and of the syndicate's policyholders, who will not be affected by this decision."
Shares in the insurer, which have fallen more than 73 per cent this year, closed up 5.3 per cent at 35p yesterday on the news that Goshawk's liabilities are now capped. Goshawk said the closure will cause a £35m charge. It is now left with a reinsurance business in Bermuda, which has £261m of assets. A takeover bid is thought to be more likely now that it is free from the Lloyd's syndicate.Reuse content