This is below the belt for an organisation that has prided itself on its security of claims payment above everything else, and which in response to S&P reasserted the 'unrivalled security' it offered policyholders.
Many Lloyd's people had regarded the market as immune from the kind of financial duress that could prevent policyholder claims being met, said Mr Gardner. But he believed the 'strain of catastrophes, dramatic claims inflation, historical under-reserving and a diminishing and disaffected capital base have meant that such rose-tinted assumptions about Lloyd's future security are not tenable. Lloyd's may prove good security, but the case is not proven.' The assignment of S&P's highest ratings was unlikely, he added, a touch unnecessarily.
Mr Gardner also believed that Lloyd's proposals for managing the supply of capital were optimistic, 'since confirmation is needed that there will be a supply, let alone an oversupply'.
There were many areas where the facts were not known: the true strength of the assets, the adequacy of the reserves and Lloyd's real access to future capital. 'Is the whole edifice only covered by a withering fig-leaf?' he asked.
A key lesson, for Mr Gardner, is that unlimited liability must be ended. But a wider one for Lloyd's is that it must quickly and thoroughly come to a settlement over the claims against the market from members of the worst-hit syndicates. With a Serious Fraud Office investigation of Gooda Walker under way, the civil litigation against the market is now looking much more of a threat, and one that could also deter corporate capital.Reuse content