LLOYD'S FASHIONS SOLVENCY SOLUTION : REINSURANCE FIRM WOULD GET DEBT.

Byline: Stephanie Strom The New York Times

Lloyd's of London, the grande dame of the insurance business, is on the brink of getting a new lease on life.

On Wednesday, the large majority of its ``names'' - the individuals who pledge all their assets to back the insurance policies sold at Lloyd's - are expected to approve a plan that would restore the venerable British insurance market to solvency by handing off billions of dollars of liabilities to a newly formed reinsurance company, Equitas.

It sounds like a neat solution to one of the most complicated financial messes in history. The names and their agents will pay a lump sum, up to $150,000, to help capitalize Equitas and thereby absolve themselves of additional liabilities.

Lloyd's will kick in some 3.2 billion pounds, or almost $5 billion, freeing it of responsibility for claims arising from outstanding policies written before 1993.

But many policyholders and insurance experts worry that Equitas, even with $19.5 billion in total reserves, will not have adequate resources to meet claims against it.

``Equitas is a giant international insurance shell game,'' said Scott Adams, general counsel for risk management at Dow Corning, which recently won its battle against Lloyd's and other insurers over breast implants. ``It's a very obvious attempt by Lloyd's to avoid what they contracted to do.''

Not even Lloyd's itself can guarantee that the plan will end the woes of its beleaguered names once and for all. The problem policies, many of which were underwritten decades ago and subsequently reinsured by different names, largely cover ``long-tail'' liabilities like environmental pollution and diseases caused by exposure to asbestos. Courts have construed those liabilities much more broadly than the original underwriters had anticipated.

Claims against those policies are not precisely quantifiable, so no one really knows how much money Equitas will need.

The best assurance that Ron Sandler, chief executive of Lloyd's, offered in a recent interview, was that it was ``extremely unlikely'' and ``the remotest possibility'' that Equitas would fail.

But if the bailout plan lacks certainty, it has a trump card that stops its critics dead in their tracks: Without it, Lloyd's would go bust, and the thought of a world without Lloyd's makes many risk managers blanch.

Regulators paint a picture of chaos in transportation, shipping, health care, communications and even the insurance industry itself should Lloyd's become insolvent, not to mention higher prices for the more exotic and riskier types of insurance Lloyd's is famous for.

Many of the world's oil tankers are insured through Lloyd's, as well as telecommunications satellites and intellectual property.

California Insurance Commissioner Chuck Quackenbush estimates that 15 insurance companies in his state that are reinsured through Lloyd's would collapse, and some 40 others would have serious financial problems.

``There is no other insurance market like Lloyd's,'' Quackenbush said. ``Allstate is not going to underwrite the types of policies that Lloyd's underwrites.''

Many risk managers have taken steps to insulate their companies from Lloyd's headaches, buying insurance and reinsurance in new markets like Bermuda and Japan or arranging their risks in tiers so that Lloyd's policies would kick in only after payments from other insurers were exhausted.

Take the Los Angeles Airports Department. Its four airports are insured by three insurance policies.

Should a disaster occur, the department would first receive $150 million from one underwriter, then an additional $200 million from a second group, said Susan Fields, a risk manager. Only if those policies were depleted would $150 million of Lloyd's coverage kick in.

``It would be somewhat difficult if they folded tomorrow,'' Fields said. ``But we could probably replace them with additional insurance from our other carriers or from someone new who wants to break into the aviation market.''

Edward Muhl, the New York state superintendent of insurance, contends that the immediate risk of Lloyd's going bust is far more threatening than the possibility that Equitas might not have enough money to last. Virtually no other insurer, they say, would be willing or prepared to take on some of the liabilities that Lloyd's names underwrite, at least in the short term.

``If that plan doesn't go through, what's the alternative?'' said Vincent Laurenzano, an aide to Muhl. ``The alternative is what's really scary.''

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Photo: Lloyd's of London is expecting to get a new lease on life.

The New York Times