What's in a name?
Mark Archer
FOR WHOM THE BELL TOLLS: THE LESSON OF LLOYD'S OF LONDON by Jonathan Mantle Sinclair-Stevenson, £18, pp. 358 In a week in which Lloyd's is expected to report record losses of almost £2 billion for its financial year 1989, with market esti- mates indicating a similar combined loss for the following two years, Jonathan Mantle's exposé hits the bookshops long on sensationalism but short on any radical new lessons to be drawn from the current diffi- culties facing Lloyd's. His claim that Lloyd's tried to pretend it was still a gentle- man's club long after its morals had fallen below those of a Lebanese casino
has aggrieved many Lebanese names able to point to casinos in their country where producing a decent return on capital is a much more straightforward exercise than it is on Lime Street. 'There are a lot of peo- ple who can't tell a loss from a scandal', contends Lloyd's Chairman David Coleridge. Many of the opinions Mantle solicits only help to cloud the issue. 'I would never take on any unlimited liabili- ty', recommends Sir Jeremy Morse, Chair- man of Lloyd's Bank and a non- underwriting member of the Council of Lloyd's, thereby undermining the whole basis of the market.
I never joined Lloyd's [Max Hastings, editor of the Daily Telegraph, replies] because all the stupidest boys I was at school with seemed to go into it, and that worried me.
Mantle, though, supplies a useful history to many issues currently being addressed by Lloyd's. The piecemeal implementation of recommendations from a long line of reports since the 1960s shows how difficult it is for Lloyd's to regulate itself while working names have a vested interest in the market they are meant to police. Sir Ian Hay Davison, who wrote the first externally commissioned report in 1983, retired defeated but provides a telling after- thought:
My original remit was first to catch the crooks, second to write the rule book and third to change the culture of the place so that it was properly regulated. The third I failed to do. It is an insider market. But I don't know how else such a market would work.
Lloyd's is now a more regulated place but this will still not prevent purposeful wrong- doing, as the failure of the DTI to prevent further fraud or secure meaningful prose- cutions in the City has shown.
Recently it was Cameron-Webb, before that it was Roylance and Sasse: Lloyd's has always had its villains. Mantle argues that every time members of Lloyd's have taken legal action they have eventually won some sort of settlement. Before the war, Lloyd's was also more likely to settle out of its members' own funds. The difference now is that the losses are greater and the names affected more financially vulnerable.
In the aftermath of Hurricane Betsy in 1965 and the last capacity crisis, Cromer recommended a reduction in the asset requirement which, continued through the 1980s, brought professional classes with middling incomes and high expectations into Lloyd's just when over-capacity in the world's insurance markets made it difficult for their agents to make a return for them. Excess of loss reinsurance, the 'pass-the- parcel' speciality of agencies such as Gooda Walker, which has brought huge losses in the wake of disasters such as Piper Alpha and Hurricane Hugo, was a symptom of the high risks Lloyd's has always run in making a sufficiently big play of its small hand on the world insurance scene.
Rather than responding to a shortage of capacity by increasing the number of names with insufficient asset backing, as it did in the 1980s, Lloyd's is finally acknowledging the need for outside corporate capital, to be introduced probably by 1994. With the cycle turning up, the serious contra-cyclical investor should be joining Lloyd's. He should wait for the results of Sir David Walker's report on whether there has been an abuse of preferential syndicates by working names, to be published next month, but even after that he should try and get hold of some reliable inside infor- mation. By the time of the next downturn, Lloyd's will have lost some of its exclusivity, but the underwriters carrying the can are much more likely to include Munich Re than a couple of old-age pensioners in Shoreham.
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