Radical five-point plan aims to put Lloyd's right: More investment will be courted Action groups remain concerned

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CONFIDENCE in the troubled Lloyd's of London insurance community has been shaken to such an extent that a radical change in its methods of operation will have to take place, the governing authorities of the market have concluded.

In a wide-ranging business plan David Rowland, the chairman, warns that Lloyd's losses could climb to pounds 2.8bn in the last completed trading account for 1990. 'Our current losses are the worst in Lloyd's history. Many members have been brought to the brink of financial ruin, many more are fearful of the future. Confidence in the Society (of Lloyd's) has been shaken. It is now time to take radical action.'

In the 70-page business plan, the first in Lloyd's 305-year history, Mr Rowland and the ruling bodies have identified five main issues that will be dealt with over the next two years.

Lloyd's intends to implement plans to bring more investment into the market; streamline business processes and reduce fees and costs; attempt to deal with the huge insurance liabilities that overhang the market; improve professional standards; and develop business in key markets.

'This business plan sets out a radical programme to restore Lloyd's to its position as the world's most consistently profitable underwriting market,' Mr Rowland said. 'Should membership and market not unite behind this plan then Lloyd's may have no future,' he added.

Lloyd's aims to be making profits for the 1995 trading account of pounds 900m, the largest in the market's history. Because it leaves its accounts open for three years the results will not be known until 1998. By 1995 Lloyd's hopes to have reduced its costs by pounds 190m. As part of the cost-cutting plan, it has set itself a target of shedding 2,500 jobs, reducing total numbers to 9,500. In an effort to set an example, the central administration intends to cut staff from 1,900 to 1,600 by the end of this year. At the end of last year Lloyd's administrative staff numbered 2,200.

In an effort to ring fence the past huge losses, which have brought many members to the brink of financial ruin, Lloyd's intends to set up a new company into which available finances to meet the losses will be channelled. The available money is reckoned to be pounds 4bn. The scheme will apply to all liabilities on policies written up to and including 1985.

The most radical proposal allows underwriting members who join in the future to limit their liabilities. They would be allowed to form limited liability companies with a minimum capital of pounds 1.5m. At present all underwriting members are liable to the full extent of their wealth for losses in the 'unlimited' liability structure. Mr Rowland said that if the present members paid off their liabilities they could change their status into 'limited' liability members.

But the market is not providing direct financial aid to the most troubled members, many of whom have been hit by personal losses of between pounds 180,000 and pounds 1m. Lloyd's said that its authorities remain committed to pursuing a negotiated settlement with underwriting members who are suing companies at Lloyd's over the losses. 'A wider strategy for the collection of debt,' is to be established by the end of June, Lloyd's said.

Lloyd's will be introducing tougher standards for training and qualifications and new controls to prevent concentration of insurance risks. Agents who look after members' affairs will be stopped from charging excessive fees.

'We are confident that this plan provides a sound basis for a successful future,' Mr Rowland said.

*Planning for Profit: a business plan for Lloyd's of London. Corporation of Lloyd's, 1 Lime Street, London EC3M 7HA.

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