Lloyd's Group Balks At Reform Plan

"We support the central proposal–the franchise principle–which is aimed at improving the profitability of Lloyd's by setting standards for underwriting at Lloyd's for all the syndicates and by engaging effectively in risk management," said Michael Deeny, chairman of the ALM, during a press conference to discuss the association's response.

However, he said he was concerned about several areas, which led the ALM to recommend to its members that they oppose the Lloyd's proposals. ALM represents private capital providers at Lloyd's, both limited and unlimited liability members.

"Lloyd's is disappointed that the ALM is advising its members to oppose the reforms," said Lloyd's in a statement. "If Lloyd's is to become a modern, transparent and more profitable business?These reforms must go forward. To think otherwise is to put one's head in the sand."

An oversight of the proposals, according to Mr. Deeny, is the "failure of Lloyd's" to address a major cause of substantial claims against the Lloyd's Central Fund, caused by subsidiaries of international corporate capital members. These Lloyd's businesses are owned by competitors of Lloyd's, and are, effectively, "cuckoos in the nest," he said.

"It is true that their parents can, as they wish, put new funds in to support them, but sometimes their parents may walk away and this has actually happened," Mr. Deeny said. "There's been debate about this issue for years, and about how these companies, these corporates, should provide more capital at Lloyd's, and it's a debate that we think really has to be brought to a head."

Mr. Deeny said most of these international corporate members manage dedicated syndicates supported entirely by capacity from a single corporate member, compared with spread vehicles–with capital provided by a U.K.-based corporate member and by individual Names.

"In each of the three years–1998, 1999, and 2000–the losses of the international corporates have been more than double those of [the spread vehicles]," said ALM in a statement.

Mr. Deeny said ALM also opposes the plan by Lloyd's to seek a new Lloyd's Act because it is the intention of Lloyd's to revisit the one-member, one-vote provisions of the act.

The Council of Lloyd's has extensive powers, only constrained in a specific clause of the act that allows members of Lloyd's to call an extraordinary general meeting to appeal bylaws passed by the Council, he explained. "In that particular kind of extraordinary general meeting?the vote's on a one-member, one-vote basis," he said. "We are reluctant to abandon that last line of defense."

Sept. 12, a different kind of extraordinary general meeting will be held to discuss the resolution to approve the proposals. Votes will be weighted according to members' capacity levels and, as a result, the desires of corporate capacity are expected to reign.

"The reality is that the Lloyd's market only exists today because of corporate capital, and at 80 percent of capacity, people will eventually admit to this," said one chief executive of a corporate capital member, who didn't want to be identified.

As for the possibility of individual members using their one-member, one-vote powers, the chief executive asked: "If individual Names damage the reputation of the Lloyd's marketplace by overturning councils' initiatives, who is the cuckoo then?"

Mr. Deeny said another problem with the Lloyd's proposals is that there is a plan to abolish both the Lloyd's market board and the Lloyd's regulatory board, in favor of creating a franchise board.