Reinsurer for Lloyd's approved Equitas' OK is last step in restructuring plan

September 05, 1996|By BLOOMBERG BUSINESS NEWS

LONDON -- Britain's Department of Trade and Industry yesterday approved Equitas, a reinsurance company set up by Lloyd's of London to facilitate its reorganization.

The regulatory agency said the reinsurer has met all conditions set when it was authorized in March, including having adequate funds provided by Lloyd's. The insurance market set up the reinsurer to take on all its investors' pre-1993 liabilities as part of its recovery plan.

The approval marks the final stage in Lloyd's 3.2 billion-pound ($5 billion) debt relief and settlement plan which was accepted by 91 percent of its investors. Those investors, called names, who haven't accepted so far have until Wednesday to do so.

Lloyd's recovery plan was necessitated by 8 billion pounds ($12.5 billion) of losses in the five years through 1992, which left some of its names in financial ruin and prompted 40 percent of its 34,000 investors to sue the market and its agents for negligence and fraud.

"Equitas is a solution to the problems of the Lloyd's market arising from past underwriting losses," Equitas Chief Executive Michael Crall said.

Equitas will discuss any reasonable settlement offer, but won't pay claims that aren't valid, Crall said.

Lloyd's underwriters sometimes paid policyholders more than was strictly necessary in order to retain their business. Investors bore this cost.

Some investors fear that Equitas won't have adequate reserves to meet future claims, many of which will arise from asbestos and pollution damage that can be very costly. If Equitas fails, the investors still are ultimately liable for claims against the policies that Equitas reinsures.

"The fact that it got DTI approval is very important, because the DTI put their own actuaries in to crawl over the work that Lloyd's own reinsurance people were doing," said Sir David Berriman, chairman of the Association of Lloyd's Members. The ALM, the largest independent group of names, has about 9,000 members.

"What gives me comfort is that the DTI insisted the reserves should be greater than originally planned," Berriman said. He said the amount of reserves required "over and above declared liabilities" provides investors with a "significant comfort margin."

This "comfort margin" equals about 1.7 billion pounds ($2.7 billion) in assets that aren't earmarked for expected liabilities.

"I have been concerned primarily to ensure that adequate provisions have been made against current and possible future claims and that the minimum solvency margin that I required has been met," said Anthony Nelson, minister of state for trade and industry.

Pub Date: 9/05/96

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