pounds 6bn rescue plan 'will halt Lloyd's crisis'

BY JOHN EISENHAMMER and WILLIAM GLEESON

Lloyd's of London yesterday unveiled a daring pounds 6bn plan to break out of the cycle of losses, litigation and bad debts which threaten to engulf the world's most prestigious insurance market.

The plan includes a pounds 2.8bn debt-forgiveness and compensatio n package to put an end to litigation by aggrieved names, the investors who back the market with unlimited liability. It seeks to draw a line under the appalling losses of recent years, providing a sound basis for a "new Lloyd's" to trade profitably into the future.

David Rowland, Lloyd's chairman, said in an introduction to the plan: "Unless we take radical action now to produce a solution which is acceptable to our policyholders, our regulators, and to you, the membership, I do not believe that [Lloyd's] will be able to survive in anything like its present form."

Lloyd's names claimed the offer represented a victory for them, but warned that a great deal of detailed negotiation will be needed before they could commit themselves.

The plan involves clearing away almost pounds 6bn of liabilities that Lloyd's will have accumulated by the end of this year, enabling the "new Lloyd's" to begin with a clean balance sheet. The key to success in this hugely complex fund-raising exercise is the ability to get names to agree to end all litigation in return for a guarantee that they will not have to suffer any further losses. "We want to say to names, you are free to resign, and we undertake never to pursue you again for debts," said Mr Rowland.

To achieve this, all pre-1992 claims will be transferred to a special reinsurance vehicle, called Equitas, leaving the "new Lloyd's" unencumbered. Freeing Lloyd's from the this uncertainty is crucial if the market is to attact new capital, notably corporate investors.

"Once we have cleared the balance sheet, I believe Lloyd's will be able be very attractive to new investors - it is a damn good business," said Mr Rowland.

Lloyd's hopes the negotiations over the complex restructuring can be concluded within nine months, enabling the "new Lloyd's" and Equitas to begin operating in the spring of next year. But part of the immediate fund raising will give Lloyd's a years breathing space from its cash-flow problems, enabling it to pay claims over the short term.

Lloyd's said yesterday that by the end of last year, unpaid and deferred names' debts amounted to pounds 2.2bn. The loss for 1992, its latest accounting year, was confirmed at pounds 1.2bn bringing the accumulated losses since 1988 to over pounds 9bn.

Michael Deeny, chairman of the Gooda Walker action group, which has 3,000 members, said "We welcome these proposals. We regard them as a victory for names and an essential development for securing a solvent future for Lloyd's. It was vital that they came up with a plan to address losses caused by appalling negligence. What was announced today is a plan, not a legally binding offer. Until we get an offer, action group by action group, we will continue with the litigation."

Detailed negotiations between names and Lloyd's start today, but the settlement may not end all the litigation. Some action groups are determined to pursue syndicate auditors to make good losses not recovered from Lloyd's agents or through the settlement.

Christopher Messer, chairman of the Janson Green Action Group, said: "The major action groups had specifically said that they wish to be free to pursue the auditors unless they come up with a really substantial sum of money."

Auditors have a substantial amount of professional indemnity insurance with which to pay any claims should the names succeed in court actions.

To wipe the slate clean of the pounds 6bn in liabilities, the Lloyd's plan must solve several problems simultaneously. The central fund will provide pounds 1.1bn and a further pounds 900m will be drawn from the market, including a pounds 450m levy on members, pounds 200m from the underwriting agents, and pounds 250m from mortgaging buildings and other assets.

This will make up the pounds 2bn debt forgiveness for names. A further pounds 800m will go towards settling litigation, drawn from the insurers of Lloyd's agents facing litigation. Altogther this forms the pounds 2.8bn litigation settlement package, which is the first part of the pounds 6bn plan.

The balance will come from the early release of pounds 800m of profits from 1993, 1994 and 1995; an expected pounds 600m in revenues from names still paying off debts, and pounds 1.5bn from names' deposits at Lloyd's. Mr Rowland said Lloyd's will transfer $500m (pounds 312.5m) to New York to satisfy demands from US regulators for more underwriting support.

How Lloyd's hopes to wipe the slate clean

To put the past behind it, Lloyd's needs to clear nearly pounds 6bn of liabilities. Here's how the package should add up.

r pounds 1.1bn from Lloyd's central fund

r pounds 900m raised from the insurance market

r pounds 800m from insurers of the agents facing litigation by names

r pounds 800m from early release of profits from 1993/94/95

r pounds 600m from normal payments of liabilities by names

r pounds 1.5bn from names' deposit fund at Lloyd's

This leaves residual liabilities of pounds 300m to be found.

News
people'It can last and it's terrifying'
Sport
Danny Welbeck's Manchester United future is in doubt
footballGunners confirm signing from Manchester United
Sport
footballStriker has moved on loan for the remainder of the season
Sport
footballFeaturing Bart Simpson
PROMOTED VIDEO
New Articles
Olivia Colman topped the list of the 30 most influential females in broadcasting
tv
News
Kelly Brook
peopleA spokesperson said the support group was 'extremely disappointed'
News
The five geckos were launched into space to find out about the effects of weightlessness on the creatures’ sex lives
i100
Life and Style
techIf those brochure kitchens look a little too perfect to be true, well, that’s probably because they are
Sport
Andy Murray celebrates a shot while playing Jo-Wilfried Tsonga
TennisWin sets up blockbuster US Open quarter-final against Djokovic
Arts and Entertainment
Hare’s a riddle: Kit Williams with the treasure linked to Masquerade
booksRiddling trilogy could net you $3m
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
News
ebooksAn unforgettable anthology of contemporary reportage
News
news Video - hailed as 'most original' since Benedict Cumberbatch's
News
i100
Life and Style
The longer David Sedaris had his Fitbit, the further afield his walks took him through the West Sussex countryside
lifeDavid Sedaris: What I learnt from my fitness tracker about the world
Arts and Entertainment
Word master: Self holds up a copy of his novel ‘Umbrella’
booksUnlike 'talented mediocrity' George Orwell, you must approach this writer dictionary in hand
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Implementation Consultant (VB,C#, SQL, Java, Eclipse, integ

£40000 - £50000 per annum + benefits+bonus+package: Harrington Starr: SQL Impl...

Head of IT (Windows, Server, VMware, SAN, Fidessa, Equities)

£85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...

Technical Software Consultant (Excel, VBA, SQL, JAVA, Oracle)

£40000 - £50000 per annum: Harrington Starr: You will not be expected to hav...

SQL DBA/Developer

£500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Data Warehousi...

Day In a Page

'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

'I’ll tell you what I would not serve - lamb and potatoes'

US ambassador hits out at stodgy British food
Radio Times female powerlist: A 'revolution' in TV gender roles

A 'revolution' in TV gender roles

Inside the Radio Times female powerlist
Endgame: James Frey's literary treasure hunt

James Frey's literary treasure hunt

Riddling trilogy could net you $3m
Fitbit: Because the tingle feels so good

Fitbit: Because the tingle feels so good

What David Sedaris learnt about the world from his fitness tracker
Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Second-holiest site in Islam attracts millions of pilgrims each year
Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering