Lloyd’s Questioned on Liquidity, Exposures

October 3, 2001

Lloyd’s has received a barrage of questions on its total exposures and its liquidity following the release of its projected net loss figure of $1.94 billion as a result of the attacks on the U.S. (See IJ Website Sept. 27). It also faces further claims from an explosion in Toulouse, France on September 21.

Fitch rating agency, which prior to the announcement had downgraded Lloyd’s by a factor of two from A+ to A-, said that Lloyd’s faced gross liabilities of £7 billion ($10.25 billion), and questioned whether the amount of reinsurance calculated in achieving the net figure would be fully paid.

Lloyd’s spokesman Adrian Beeby told the IJ last week that “reinsurance had been a major part of our analysis.” He indicated that the vast majority of coverage was placed with companies outside of the Lloyd’s market and that “ninety percent of it is with companies rated “A” or better by A.M. Best and Standard & Poor’s.” Beeby also said that, while Lloyd’s regularly gives these two agencies access to financial figures which are not publicly disclosed, it does not do so for Fitch, which consequently relies mainly on published accounts.

If there are delays in reinsurance payments, Lloyd’s could face a problem of liquidity, particularly in reference to the trust funds maintained in the U.S. by foreign insurers to guarantee claims payments, which must be kept current. These are administered by the New York State Insurance Department on behalf of the NAIC, and regulators in the U.S. are considering a relaxation of the surplus requirements to deal with the scope of the expected claims and the demands for coverage.

Lloyd’s will apparently also face an estimated $50 million in reinsurance claims resulting from the explosion of the AZF chemical plant, owned by the French petroleum group TotalFinaElf. An act of terrorism has not been ruled out. French investigators had originally said they were “99 percent sure” that the explosion of a large quantity of ammonium nitrate fertilizer had been an accident, but a number of chemical experts have said this could not have been the case.

Investigators have also taken note of an altercation between a truck driver at the plant, who had placed an American flag in his vehicle, and three men, who ‘”appeared to be Arab or North African.” The men allegedly made threatening statements the day before the explosion occurred, but they have yet to be found or identified.

Was this article valuable?

Here are more articles you may enjoy.