The reality is that Lloyd's is a relatively small but important player in a competitive international environment, where it has up to 10 per cent of the reinsurance market. Its names now include people of no great wealth, most of whom are protected from total loss by additional insurance or by having shifted assets to other members of the family (many of those now in trouble were foolish enough to dispense with such protection). Its management has suffered from greed, incompetence and poor regulation, exposing it to a series of scandals and ructions over the past decade that would probably have killed off an institution with weaker traditions.
The report by Sir David Walker finds no fraud or conspiracy but is scathing about a number of agents and underwriters whose standards of professionalism, care and diligence fell 'materially below best practice' and whose approach to fiduciary responsibilities was 'lax'. It also says that certain aspects of regulatory policies were 'insufficient to identify shortcomings . . . in a timely way'. Simultaneously, a report by a working party chaired by Sir Jeremy Morse calls for a new tripartite system of governance that would create a clearer distinction between business and regulatory responsibilities.
Lloyd's is now faced with two linked dangers. One is that capital from names will dry up because the risks will seem too great and management too unreliable. The other is that clients will move away. Sir David Walker admits that serious damage has been done to the confidence of names, but says that damage to the capital base of Lloyd's is not irreparable and that confidence can be rebuilt sufficiently to save it and to attract corporate capital 'if firm and early action is taken'.
The remedies offered by him and Sir Jeremy are fairly modest responses to such a major crisis. Both assume that little more is required than some structural adjustments, tighter internal regulation and a rap over the knuckles for those who were carried away by the acquisitive excitement of the Eighties. In all likelihood, however, as the crisis drags on, it will become clearer that Lloyd's must eventually abandon its idiosyncratic exceptionalism. If fear does not do the job, social change will reduce reliance on names. Or, if names become, in effect, investors with liabilities protected by expensive insurance, they will offer no advantage over capital raised on the open market. Likewise, reliance on internal regulation is unlikely to provide sufficient reassurance in the sprawling, competitive world of international insurance.
At some point Lloyd's will have to turn itself into a normal international insurance company, competing on the basis of its rates and expertise, particularly in specialised, high-risk sectors. Customers and investors will then be better served.