NAIC Withdraws Lloyd’s 60% Funding Deal

October 25, 2001

On Tuesday The National Association of Insurance Commissioners reversed its previous decision to permit Lloyd’s to deposit 60 percent, rather than 100 percent, of the amount normally required into its U.S. Reinsurance trust fund based on estimates of its gross liabilities.

The NAIC sited the “need to fully evaluate any liquidity problems on a syndicate-by-syndicate basis prior to granting an extension application to the entire Lloyd’s market,” as the reason for its decision. It reiterated, however, that “one hundred percent of funding of gross liabilities has been and continues to be the legal requirement for credit for reinsurance for Lloyd’s of London Syndicates.”

In a further clarification yesterday Georgia Insurance Commissioner John Oxendine, who heads the NAIC’s Reinsurance Task Force, indicated that discussions with individual state commissioners and with the syndicates would take into account any liquidity problems, leaving the door open to a partial relaxation of the trust funding requirements. He stressed that the NAIC saw “the funding issue as a liquidity concern for Lloyd’s, not as a solvency issue. We continue to be positive about the solvency of Lloyd’s,” Oxendine said.

The decision will indeed mean further strains on Lloyd’s liquidity. Under the 60 percent exception it was already faced with depositing £2.25 billion ($3.2 billion) in the reinsurance trust fund, based on its gross liability estimates stemming from the Sept. 11 attacks. If the full amount is required, Lloyd’s would have to find another £1.5 billion ($2.14 billion) by the November 15 deadline, an almost impossible task. It cannot issue another cash call within so short a time, and the previous one (see IJ Website Oct. 18) was based on the 60 percent requirement.

Lloyd’s has not yet issued a statement or commented on the decision.

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