Confirming earlier reports (See IJ Website Jan. 16), Lloyd’s announced that its ruling body, the Council of Lloyd’s, has put forth a radical plan to restructure the way the 300 year old market does business. If adopted, unlimited liability would disappear, as would the three year accounting procedures and the annualized renewal of syndicates.
Lloyd’s announcement detailed the following “key reforms;”
— Modernization of the structure. Lloyd’s existing regulatory and market boards and committees will be replaced by a single franchise board. Lloyd’s will act as a franchisor in the management of the marketplace, with the managing agents as franchisees.
— A change to the way the market reports its results. Lloyd’s current three-year accounting system will be replaced by more conventional GAAP accounting.
— A new vehicle for Names to participate in the market post January 2005. Names will continue to have the opportunity to support businesses in the market on a contractual basis. A number of options will be looked at with the objective of retaining key features of Names current trading status.
— A transition mechanism to support this change. The franchisor will explore avenues for the possible buy-out of all third party capital’s security of tenure. It is intended that Names will be able to participate on syndicates in the same way as they do today, up until January 2005, and that they will receive a cash sum.
— An end to unlimited liability and the annual venture. No new unlimited liability Names will be accepted, and existing Names who wish to continue underwriting will convert to limited liability by January 2005.
Over the next few months the proposals will be debated by all of those affected, and a formal set of proposals will be established. Eventually they will be put to a vote of Lloyd’s 12,000 members. Whether they will be adopted or not is another matter. Essentially these reforms would, as Lloyd’s Chairman Sax Riley pointed out, bring the Lloyd’s market into line with how the rest of the insurance industry is run. Corporate investors, which now provide more than 80 percent of Lloyd’s capitalization, have insisted on the changes for some time, but, as they have only around, 900 votes, they will need massive support from other member, many of whom are inactive, if the reforms are to be adopted.
Riley made the Council’s goal plain, stating, “Our aims are profitability, modernity and transparency. Investors and policyholders have a choice of where they go, and we want them to be able to compare us easily, and favourably, with our competitors. This package of measures, selected from many options examined by the Chairman’s Strategy Group, will help to reshape Lloyd’s of London into a business that will remain a force in international insurance markets throughout the 21st century.”
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