Printer Friendly

What's behind a name?

What's Behind a Name?

It is becoming increasingly difficult to make a living out of insurance. There's more than enough reasons for brokers and insurers to wonder anxiously whether they have a divine right to prosperity any longer. Here are some of them: the emergence of more sophisticated corporate insurance buyers, powerful consumers lobbies, a governmental view of insurance as an exploitable instrument of social justice, competition from other financial services industries, the development of new alternative markets, increasing nationalism, and the legal profession's everpressing need to feed its increasing tribe.

London is no exception to these worldwide pressures. There are, in effect, problems on all fronts. Take Lloyd's for example.

One of the founding members of the Association of Lloyd's Members, the organization set up in 1980 by the name whose individual wealth capitalize the underwriting syndicates that comprise the Lloyd's market, recently wrote a letter to the daily insurance and shipping newspaper, Lloyd's List, demanding a referendum among the names on whether their liability for claims should extend beyond their Lloyd's deposit. Currently, it extends beyond their deposits, to the limit of their entire wealth, in fact, if this is necessary to meet claims.

This is a matter about which Lloyd's names are very sensitive nowadays. In 1985, the results of individual Lloyd's syndicates varied from a 19 percent profit to an 18 percent loss. Currently, the Outhwaite syndicate names together face losses which could reach 1 billion pound sterling, which, of course, would bankrupt some of them.

The argument of those who are urging a change at Lloyd's to limit their liability, in much the same way as a stockholder's liability is limited to the value of his holding, is that the current system represents the law of the jungle. Moreover, it is not in Lloyd's interests to have names bankrupted when the system of individual responsibility could be protected by a collective safety net. The idea is that Lloyd's should not really be a marketplace of competitors but more like a department store where the losses on, say, perfumes will ultimately be covered by liquor, etc.

Well, Lloyd's would not be Lloyd's if such a change came about. That is no reason why it should not, of course, but what perhaps is the effect it would have on the security of the Lloyd's policy. This is why I think it will be resisted to the bitter end by Lloyd's Council.

Currently, Lloyd's boasts in its Global Report and Accounts, as of December 31, 1988, that the ratio of premium income to "means" is 0.9:1. This cannot be understood until you know what is represented by "means," i.e., the name's deposit which he must lodge with Lloyd's as security for underwiting done on his behalf, the name's personal and special reserve funds which are extra amounts held in trust by the name's underwriting agent and the name's personal wealth. Everything else the name is worth above and beyond his deposit and personal and special reserves Lloyd's verifies for all prospective members.

For the year 1988, names' means totalled 7,014 million pound sterling. The means were made up of 3,522 million pound sterling in Lloyd's assets, consisting of 2,831 million pound sterling in deposits, 465 million pound sterling in personal reserves and 226 million pound sterling in special reserve funds, and 3,492 million pound sterling in non-Lloyd's assets.

In 1988, Lloyd's premium income before reinsurance was 6,177 million pound sterling. Thus, the above ratio of 0.9:1 represents 6,177 million pound sterling divided by 7,014 million pound sterling.

What this is all leading up to is that if names staked only their deposits as ultimate sec urity for payment of claims, the change which some are urging, then the ration would be changed from 6,177 million pound sterling to 2.831 million pound sterling, or 2.2:1. This ratio of capital to premium would make Lloyd's no better security than many other insurance companies.

As I said, Lloyd's is not going to let go, without a fierce struggle, its reputation for financial soundness by giving in to the curent demand for "limited liability." But it is a worry that the demand is there at all.

Aviation Losses

The aviation insurance market is one of the numerous sources of extreme anxiety for insurance pople these days. Suffice to say, by way of an endpiece, that worldwide airline premiums this year were $450 million, an amount which would be gobbled up by one wide-bodied jet disaster in the United States. Meanwhile, losses for the year at August 1 were $294 million, on line for an underwriting loss of $54 million by year end.

Chris F. Best is editor of Foresight, a London-based risk management and insurance journal published by Risk and Insurance Group Limited.
COPYRIGHT 1989 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1989 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:Lloyd's of London
Author:Best, Chris F.
Publication:Risk Management
Article Type:column
Date:Nov 1, 1989
Words:807
Previous Article:The boundaries between dynamic and static risks.
Next Article:IRS issues ruling on premiums for transpired events.
Topics:


Related Articles
New London market emerges under one roof.
Losses are big business for insurers.
LLOYD'S DEPOSIT DEFENCE GROUP SEEKS EUROPEAN COMMISSION RESTRAINT OF LLOYD'S
Changes at Lloyd's of London.
WASHINGTON SIGNS ONTO LLOYD'S OF LONDON AGREEMENT WITH NASAA
Kentucky Signs State Agreement With Lloyd's
MARITIME LONDON - A NEW GALLERY - TELLS THE STORY OF LONDON AT THE HEART OF BRITAIN'S SUCCESS IN GLOBAL TRADING.
LLOYD'S FASHIONS SOLVENCY SOLUTION : REINSURANCE FIRM WOULD GET DEBT.

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters