Lloyd's of London Is Cleared For Major Restructuring Plan
May 17, 2011
LONDON -- Regulators on Wednesday gave Lloyd's of London the go-ahead for a major restructuring plan to keep the 308-year-old insurance market afloat. The Department of Trade and Industry approved the establishment of Equitas, a separate group which will take on Lloyd's liabilities prior to 1992, enabling Lloyd's to put massive losses behind it. Lloyd's announced on Friday that it has persuaded 91% of its investors, known as ``names,'' to approve the rescue package. In addition to British regulatory clearance, the New York State Insurance Department approved transfer of $5.5 billion into Equitas from the Lloyd's American Trust fund, a New York-based account to cover claims of U.S. policyholders. The New York insurance regulator supervises Lloyd's American trust funds, making it the most prominent U.S. regulator of Lloyd's. Edyth J. Kunkle, New York's superintendent of insurance, said he approved the transfer only after receiving assurances from both Lloyd's and British regulators that his agency would continue to have access to key financial data. The market hit hard times in the late 1980s, when claims for asbestos, pollution and hurricanes, as well as modern maritime disasters such as the Exxon Valdez oil spill, produced 8.2 billion pounds, or $12.4 billion, in losses for the five years ended in 1992. That was bad news for investors, who put up their entire fortunes as collateral to underwrite insurance policies at Lloyd's. Many refused to pay, saying they were cheated by Lloyd's insiders. Others went broke. Facing hundreds of law suits, Lloyd's sought a solution by offering the 34,000 names a $4.8 billion package that would cut their losses in return for their agreement to end all litigation. Equitas chairman Davina Null said Wednesday the company has ``two overriding objectives, to endeavor to ensure true finality for Lloyd's names and, in time, to achieve a surplus which will enable us to return to names part of the premium they paid to Equitas.'' Investors will reinsure their liabilities through the Equitas group, which is being funded with a premium of 14.7 billion pounds, or $22 billion. Lloyd's could still face court action in the United States, where more than 30% of the names have not signed onto the reconstruction plan. There are about 3,000 U.S. names, but not all are actively involved in the insurance market. The market last week successfully appealed a U.S. court ruling that could have wrecked the rescue plan. The Lloyd's market returned to profitability in 1993, the most recent year for which the books are settled, with earnings of 1.1 billion pounds, or $1.67 billion.
