Lloyd’s announced Friday that, in order to build up its Central Fund, it was increasing the monthly levy paid by all 108 syndicates to the Corporation of Lloyd’s from 1.1 percent to 2 percent of monthly premiums, effective as of the beginning of next year and continuing until the end of 2003.
The decision was taken just two days after Lloyd’s announced that it expected losses from the terrorist attacks in the U.S. to be around £1.3 billion ($1.91 billion). The Central Fund is maintained by Lloyd’s to pay claims in the event that a syndicate and its investors are unable to do so. It currently has liquid assets of £323 million ($475 million), and is backed by a reinsurance policy negotiated in 1999 with limits of $ 350 ($515 million) in losses in any one year.
Lloyd’s insurers also pay an annual 1 percent levy directly to the Central Fund. For the moment this rate remains unchanged. Lloyd’s expects to build up the Fund’s value to close to $1 billion over the next two years.
Chairman Sax Riley stated that “Increasing the fund does not mean that we are expecting syndicates to be unable to meet their liabilities. Clearly some business failures are possible, but this strikes us as a sensible precaution when facing so many unquantifiable aspects of the tragedy at this time.”
He also indicated that the anticipated rise in premium rates over the next few years made it the right time to start increasing Lloyd’s reserves.