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Lloyd's report accompanied by calls for more cash

LONDON: Loss-battered Lloyd's of London insurance market on Saturday welcomed a report which broadly approved its survival plan, although key members of independent monitors for whom it was prepared expressed reservations.

Law firm Slaughter and May compiled the study on the issues facing the marketfor the independent Lloyd's Validation Steering Group (VSG). It said the "reconstruction and renewal" plan was a better option than the market ceasing to trade under the weight of past liabilities.

"In short, if Lloyd's goes into run-off, we think it unlikely that any section of the Lloyd's community will be better off," the report, due to go to member on Saturday, said.

Lloyd's faces liabilities of eight billion pounds ($12.2 billion) or more on past policies, particularly U.S. asbestos- and pollution-related business, that could push it to so-called "run-off", the equivalent of insolvency and ceasing to trade.

The 34,000 individual investors in the market -- known as Names, many of whom face huge personal liabilities and have formed litigious action groups -- will under the Lloyd's recovery plan receive a final bill at the end of May.

By signing "finality" cheques, Lloyd's hopes they will be able to walk away from the market with no further obligations. The cash would contribute to the huge premium needed to finance the huge reinsurance venture Equitas, into which all Lloyd's liabilities up to 1992 will be placed.

But a key member of the VSG and urged an increase in the compensation package offered to Names.

"An increase in the offer is essential," Sir David Berriman of VSG told Reuters. Berriman is also chairman of the Association of Lloyd's Members (ALM).

Alan Porter, one of the three members of the VSG and deputy chairman of the LNAWP, did not sign the report, criticising a lack of financial details about the settlement and Equitas plan.

"Full, true and accurate statements are essential for the credibility of the settlement," he said in a statement.

Rebel Names have accused Lloyd's of scaring members into submission with the publication of the report.

"Lloyd's has attempted to frighten Names into believing it will become insolvent in the autumn and that the Department of Trade and Industry could then acquire draconian powers," the Lloyd's Names Associations' Working Party (LNAWP) said.

But the report also appeared to back calls for a bigger compensation package, saying "an increase in the 2.8 billion pounds ($4.3 billion) settlement fund may be required for the "Reconstruction and Renewal' proposals to achieve acceptance".

An increase in the size of the settlement fund for Names might yet come from the market. Lloyd's is still negotiating with agents, brokers and auditors for additional contributions.

But the size of the offer is by no means the only major issue facing Names as they weigh up Lloyd's complicated plan.

They must consider how final "finality" is. Slaughter and May recommends that the contract reinsuring Names' previous business into Equitas provides adequate "proportionate cover" - so if Equitas does not meet claims in full, it can at least pay enough to deter policyholders from seeking more from Names.

""True finality' in the sense of limiting or "capping' liabilities to policyholders cannot be achieved for Names," says the report. "R&R will, however, enable Names to leave Lloyd's."

The report also asks for information on the financial viability of Equitas to be made available to Names. Equitas will have assets of more than 13 billion pounds including at least 1.5 billion in reinsurance premiums. But not much more is known.-Reuter