Lloyd's Loses Stage In $900 Million Arbitration
NU Online News Service, Jan. 26, 9 :05 a.m. EST?The Lloyd's market said it has lost part of an arbitration in a ?480 million claims dispute ($903 million at current exchange rates) with six companies that provided reinsurance for the fund which pays claims on bankrupt syndicates.[@@]
Lloyd's said that on Friday an arbitration panel had found that Swiss Re was entitled to void its policy, which accounted for 32.5 percent of the protection for the New Central Fund. A spokesperson stressed that the decision is not final.
According to Lloyd's, a final finding on Swiss Re has been postponed until Lloyd's completes its case for claims against the other five insurers. Those proceedings are due to begin Feb. 21.
Arbitrators, Lloyd's said, found that Lloyd's properly interpreted the wording of the policy but ruled for Swiss Re because of the way in which the risk was presented to the reinsurer.
Lloyd's said if it loses its entire case, its central resources would be reduced from ?1.9 billion ($3.57 million) to ?1.6 billion ($3 billion) leaving Lloyd's with a solvency ratio of 247?which, it was noted, was still better than the 227 solvency ratio at the end of 2003.
The impact of a negative finding on the Central Fund net of tax relief would be to drop its net assets from ?801 million ($1.5 billion) to ?525 million ($987 million).
Lloy d's said the disputed contract with the six insurers ran from 1999 to 2003 and covered Lloyd's syndicates' cash calls up to a maximum of ?350 million per year, where such losses exceeded ?100 million, with a ?500 million lifetime maximum limit. Insurers have denied their liability.
A Swiss Re spokesperson, Samantha Whiteley, said the Lloyd's statement was "broadly accurate," but the company could not comment because the case is in arbitration.
In 2003 Swiss Re said that the reinsurers involved in the dispute denied "that claims thus far made against the ?500 million, five year cover issued to Lloyd's, fall under the contract terms.
The reinsurers entered into the contract to pay policyholders' claims in the event that a Lloyd's syndicate became insolvent and the Central Guarantee Fund was unable to do so. Lloyd's has submitted claims for discretionary payments from the Central Guarantee Funds used to protect members' solvency and to fund liquidity requirements, particularly in the United States.
This is not the purpose for which the insurance cover was intended and as such the reinsurers strongly dispute these claims.
Swiss Re is willing to pay claims based on our understanding of the intent of the contract whichprovides ultimate protection for Lloyd's policyholders."
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