Lloyd's Members Group Balks At Reform Proposal

Lloyd's Members Group Balks At Reform Proposal

International Editor

London

While the Association of Lloyds Members backs the establishment of a franchise system for Lloyds, it says that the market's overall reform plan contains a major oversight, as well as aspects not in line with the needs of individual members and the market itself.

“We support the central proposal–the franchise principle–which is aimed at improving the profitability of Lloyds by setting standards for underwriting at Lloyds 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 associations response.

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

“Lloyds is disappointed that the ALM is advising its members to oppose the reforms,” said Lloyds in a statement. “If Lloyds is to become a modern, transparent and more profitable businessthese reforms must go forward. To think otherwise is to put ones head in the sand.”

An oversight of the proposals, according to Mr. Deeny, is the “failure of Lloyds” to address a major cause of substantial claims against the Lloyds Central Fund, caused by subsidiaries of international corporate capital members. These Lloyds businesses, owned by competitors of Lloyds, 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.

He said ALM also opposes the plan by Lloyds to seek a new Lloyds Act, because it is the intention of Lloyds to revisit the one-member, one-vote provisions of the act. The Council of Lloyds has extensive powers, only constrained in a specific clause of the act that allows members of Lloyds to call an extraordinary general meeting to appeal bylaws passed by the Council, he explained.

“In that particular kind of extraordinary general meetingthe votes on a one-member, one-vote basis,” he said. “We are reluctant to abandon that last line of defense.” (On Sept. 12, a different kind of EGM will be held to discuss the resolution to approve the reform proposals. Votes will be weighted according to members capacity levels and, as a result, the desires of corporate capacity is expected to reign.)

“The reality is that the Lloyds market only exists today because of corporate capital, and at 80 percent of capacity, people will eventually admit to this,” said one CEO of a corporate capital member who didnt 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 Lloyds marketplace by overturning council initiatives, who is the cuckoo then?”

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

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 9, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.