Financial storm rocks Lloyd's of London, causing L.A. investors to lose their shirts.

Close to 100 Angelenos who invested in Lloyd's of London are collectively losing millions, as the venerable insurance exchange endures its worst financial crisis in 306 years, according to the director of a local trade association for Lloyd's members.

"So many of us have lost more than we gained at Lloyd's," said George Nordhaus, a Santa Monica publisher of insurance material and 10-year regional director of the Association of Lloyd's Members.

He said many of the remaining 150 members in the association have quit underwriting with Lloyd's, but remain on the mailing list, because they are trapped in Lloyd's three-year cycle for closing out claims and want to get information on the company.

He said membership, which covers investors in California, Nevada and Arizona, has dropped 30 percent, from a high of 214 members three years ago.

After 22 years of investing in Lloyd's and making hundreds of thousands of dollars, Nordhaus said he quit underwriting with Lloyd's this year. In the last two years, he said, he, his former wife and daughter have together lost more than $2 million because of Lloyd's problems and are expecting to lose much more in the coming years. Nordhaus said at the height of his investment with Lloyd's, he was underwriting $4.5 million dollars worth of insurance.

Lloyd's financial woes, brought on by a number of disasters, pollution liability and bad management, have left thousands of investors like Nordhaus panic-stricken. That panic emanates from the fact that not only is their investment in Lloyd's on the line, but so is their whole net worth.

When someone invests in Lloyd's, they agree to total unlimited liability, explained Nordhaus.

"When Lloyd's loses, they come back to you and say, 'Pay your share,'" he said. "They can take your home, car and first-born child."

For years, Lloyd's was a lucrative source of money for its investors, known as "names," the people whose wealth provides the backing for the largest reinsurer in the world.

Under Lloyd's rules, names must prove a certain level of minimum assets, currently around $500,000. Names decide how much they want to underwrite and then they have to come up with 35 percent of that amount up front in cash and securities.

For example, if a name wanted to underwrite $1 million, he or she would have to come up with $350,000 in cash or equivalents.

They then have a member agent at Lloyd's book their business in a number of syndicates, which operate as independent insurance companies.

In a sense, names are like partners in a partnership. Unlike a partner, however, names sign over their entire personal wealth to Lloyd's.

What attracts investors to Lloyd's is that names receive a pro-rata share of underwriting profits and investment income from each syndicate in which they have invested.

Over 300 years, the traditional return on investment was 6 percent of the amount that was underwritten, said Nordhaus. A name underwriting $1 million dollars, therefore, would receive, on average, $60,000 a year in profit, which is actually a 17 percent return on the name's up-front investment of $350,000.

Names can also make money on their up-front investments because that up-front "cash" is actually provided in the form of a letter of credit -- to be cashed in by Lloyd's if needed. In the meantime, names can maintain their cash in various investment vehicles -- certificates of deposits, stocks, etc. -- and earn returns on those investments unless and until the money is called by Lloyd's.

Because Lloyd's accounts are left open for three years to allow claims to be processed, the processing of 1988 claims is just now nearing completion. Preliminary results indicate that Lloyd's will post its first deficit since 1967. The following years don't look much better, either.

In addition to assorted catastrophes, such as Hurricane Andrew and the Piper Alpha oil-rig disaster in the North Sea, Lloyd's is greatly exposed to environmental liability throughout the United States because it provided reinsurance to primary insurers here.

Another L.A. County name, who asked not be identified, said he thought he was well protected because he had spread his risk by investing in 11 Lloyd's syndicates. But almost all those syndicates lost money.

Although he had made $75,000 in profits from the time he first become a name in 1985 until last year, he said, he "blew through that gain in my first losing year" this year. He said he has already paid out $150,000 and doesn't know how much more he is in for.

"If you ask if I'd like to walk away for $250,000, I would say, 'yes,'" he said.

Hugo Standing, former chair of the insurance company Alexander & Alexander of California, said if he didn't have stop-loss insurance -- insurance that covers against unforeseen losses -- he would probably be liable for $200,000 to $500,000.

As is stands now, he said, he has only lost the amount of his deductible -- $50,000.

Nordhaus said he and other names stopped getting stop-loss insurance because it was too expensive.

Unlike many names, Standing said he is somewhat hopeful about the future of Lloyd's and the company's new management team.

He said the main problem with Lloyd's is that it does not have a present-value system, meaning the company maintains reserves for all its outstanding claims. Such a system results in "excessive" reserves because some claims, such as those for toxic clean up, are not payable for 15 to 20 years.

Unless Lloyd's new management team can come up with a battle plan to solve these problems, he said, the whole insurance industry is at risk because it will be difficult for companies to get reinsurance.