Lloyd's Closes Goshawk Syndicate 102

By Lisa S. Howard, International Editor

NU Online News Service, Oct. 31, 3:30 p.m. EST,London?Lloyd's of London has forced Goshawk SyndicateManagement Ltd. to put Syndicate 102 into run-off, effective Oct.30, 2003, in the first public display of the power of the newLloyd's Franchise Board.

The Lloyd's Franchise Board, which has been in place sinceJanuary, is monitoring the performance and management of syndicatesto assure that syndicates are operating in a manner that protectsthe Lloyd's franchise.

"Despite working with Goshawk's management and imposingsignificant underwriting restrictions, it has not been possible toresolve a number of problems," said a Lloyd's representative in astatement. "Lloyd's has taken this action in the best interests ofthe Society and of the syndicate's policyholders, whose financialsecurity will not be affected by this decision."

Certain people in the market have had concerns that Goshawk didnot have in place adequate underwriting standards, nor a sufficientunderstanding about what was going on in the business it wasunderwriting, said several market sources.

Goshawk officials were not available to comment.

In a statement, Lloyd's said it will work closely with Goshawkto ensure an orderly run-off of the business and that the actionhas been taken in close cooperation with the Financial ServicesAuthority, the U.K. regulator.

"Losses generated in [Goshawk] Syndicate 102 from the 2001 andprior years have severely depleted Goshawk's funds at Lloyd's, andas a result additional capital would be required to trade forwardinto the 2004 year," said Goshawk Insurance Holdings plc inLondon.

"Goshawk expects that its funds at Lloyd's will be retained byLloyd's to cover losses from Syndicate 102," said the company."This will involve Goshawk surrendering some 45 million of cash andsecurities held by Lloyd's and contributing a further 20 million tocollateralize a letter of credit facility."

Goshawk's liability is limited to its funds at Lloyd's, thecompany said.

The company has a reinsurance business in Bermuda called GoshawkReinsurance Limited, which had its financial strength rating of"A-minus" affirmed by A.M. Best on Oct. 21. "Goshawk will emergefrom this restructuring as a pure reinsurance company," Goshawksaid.

Goshawk got involved in some loss-making lines of business thatwere not adequately covered by reinsurance, said market sources,who did not want to be identified.

"They also got heavily involved in reinsurance of U.S. viaticalinsurers, which purchase term or whole life policies fromindividuals with terminal diagnoses," said one market source. "Thenthe capital sum paid to the individual is funded by a bank loan.The viatical insurer takes over the payment of the premiums to thepolicy. It is a form of reinsurance paid out to the viaticalcompany in the event the individual lives longer than expected."(Viatical is also known as contingent cost insurance.)