Lloyd’s is on the verge of undertaking the most radical restructuring of its operating principles since the admission of corporate capital in 1994. Staggering from years of losses, falling market share, and finally the $2.7 billion in estimated net claims from the Sept. 11 attacks, Lloyd’s has apparently realized that it must make major changes in its structure if it’s going to survive.
Lloyd’s Chairman Sax Riley is scheduled to put forth a plan later today, which will propose an overhaul of Lloyd’s three-year accounting system, and its method of underwriting on an “annual venture” basis, both of which date to the era when Lloyd’s began insuring sailing ships and their cargoes.
The changes are largely driven by the demands of Lloyd’s corporate investors, who now provide around 85 percent of its capital. Their accounts, and the reserves they must put aside to assure claims payments, are projected on an annual basis, and, as most of them are public companies, they also prepare quarterly earnings statements. Lloyd’s archaic accounting procedures make this difficult, and is a major factor in directing the recent flow of new capital into the insurance market to places like Bermuda, rather than Lloyd’s.
According to reports, the new rules will restructure Lloyd’s accounting so that it will be done on an annual basis, and will provide for more or less continuous funding of the syndicates managed by corporate insurers and brokers along the lines of other insurance companies.
Whether the reforms will be adopted, and in what form, is another matter. While the corporations dominate the financing of Lloyd’s, they control only around 900 out of the 12,000 votes of Lloyd’s members, many of whom are inactive. A majority will be needed to implement new rules, and in the coming months Riley and Lloyd’s CEO Nick Prettejohn can be expected to be hard at work canvassing the members for their votes.
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