Insurance crisis threatening Major Conservatives hit by Lloyd's losses

June 16, 1993|By Richard O'Mara | Richard O'Mara,London Bureau

LONDON -- If anything finally breaks the Conservative Party's 14-year grip on power in Britain, it's not likely to be the growing public disdain for its leader, John Major.

More likely it will be Lloyd's of London.

The immense and continuing losses of the British insurance giant have devastated the fortunes of the Conservative Party's core constituency, the well-off urban and rural middle and upper classes.

Under Lloyd's peculiar system, investors with a certain level of wealth -- 100,000 pounds (about $160,000) over and above the value of their primary residence -- must pledge their entire wealth to cover the company's losses. For decades it was a nice way to put savings and investments to work. It assured a steady, almost guaranteed, 4 percent return on assets, such as bonds and stocks, that were already earning income.

These final guarantors of Lloyd's-- nearly 29,000 of them -- are called Names.

But things began to go wrong in the insurance industry near the turn of the decade. Litigation on pollution and public health cases, such as asbestos sickness, and awards against major industries, especially in the United States, hit the industry hard, shook many of the Names out of their complacency and decimated their holdings.

Lloyd's Names had to pay out about $5 billion for losses in 1990, with some being more liable than others because of the way Lloyd's works. Many of them lost their houses, horses, fast cars and heirlooms. Lands held by families for generations went on the block.

Thirty Names are thought to have committed suicide.

Over the weekend David Rowland, Lloyd's chairman, announced that the losses for 1991 are expected to be about as great as for 1990. The total will be revealed in July. Further suicides are expected.

And nobody thinks the situation will end, or even diminish, soon. Said David Shriver, an analyst in NatWest Securities: "If the pressure is being put on the Names now, God knows what it will be like two or three years from now."

This is a safe prediction. Hundreds of pollution cases are still unresolved in U.S. courts and won't be resolved for at least a decade.

One estimate published here suggested the losses might be enough to wipe out Lloyd's, along with a number of U.S.-based insurers.

For the Conservatives, Mr. Rowland's news couldn't be worse. There are 46 Conservative members of Parliament listed on Lloyd's rolls as Names. It is not certain how many will be able to sustain continued losses without declaring bankruptcy.

By law, bankrupts are not allowed to sit in the House of Commons. They must resign and by-elections be called. Thus, Mr. Major's shrinking majority in the House -- now at 18 seats -- could be gone long before a general election needs to come round four years from now. It could disappear down the dark hole where so much of Lloyd's capital has gone recently.

A by-election in May in Newbury saw a solid Conservative seat go to the Liberal Democrats. Another could disappear in July in Christchurch. The country is disillusioned with the Conservatives and with Mr. Major, the most unpopular prime minister since polling began in the 1930s. The Conservative press -- nearly all the national newspapers -- has been trying to stimulate a challenge from within the party.

The latest Gallup polls show a clear and widening preference among voters for the Labor Party. As a consequence Mr. Major, the party leadership, and even the political press have become very preoccupied with the size of the government's majority in the House of Commons. Every seat counts; every seat is being counted.

Last Sunday the Conservative member of Parliament for Gosport, Peter Viggers, fell off his yacht in the Solent, and was pulled from the sea not far from death. On being revived, Mr. Viggers reportedly gasped: "There's no need for a by-election."

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