CITY AND SUBURBAN
When Lloyd's old-fashioned virtues have to be their own reward
CHRISTOPHER FILDES
Nobody likes paying out a billion dollars, and Piper Alpha is certainly the worst single loss in Lloyd's history. The response, all the same, shows Lloyd's old-fashioned virtues: it can pay, it does pay, it is prompt to pay. In off-the-peg standardised insurance Lloyd's will never compete with the mass producers. It must live by its skills at bespoke insurance, tailoring for risks with large, lumpy, indi- vidual, problem figures — like oil plat- forms. The loss underlines what Lloyd's chairman Murray Lawrence was telling his members at their annual meeting. They may have joined a tax-avoidance scheme, but now they are now in an insurance market. In the days of high tax and weak sterling and exchange control, how pleasant to tuck money away in reserves overseas where the tax was low and the currency was strong, how convenient to have to hold government stock and convert the dividends into capital gains, how sensi- ble to defer tax for years — and, if you happened to run into an insurance loss, to let the taxman take it, offsetting it against your personal tax up to the top marginal rate of 98 per cent. These distortions harmed Lloyd's and led to its worst scan- dals (money tucked away abroad was easy to steal) but they did bring the market all the capital it needed. Now they are gone, and members are going, too, trickling steadily out of the door. It is natural for Lloyd's members to look again at the balance of risk and reward, now that the taxman has taken his thumb off the scales, and some do not like what they see. Their risks, they say, are unlimited, while the agents who act for them can limit their liability while sharing fully in any reward. This is the point of the argument about deficit clauses, now causing such sore feelings in Lloyd's and out. Simplified, it runs like this: a member pays commission on profits, but if he has profits here and losses there, should he be entitled to offset one against the other? Sir Patrick Neill's official inquiry into Lloyd's said yes, a Lloyd's working group has said no, the Association of Lloyd's Members says yes, the Council of Lloyd's will take representa- tions until Tuesday and then decide. Fran- cis Maude, as the minister concerned, appears to be keeping his mind and eye open. Agencies large and powerful, agen- cies small and undercapitalised have lined liP to fight. Unhappy members say that in the last year for which Lloyd's has ruled off its books, the Lloyd's professionals took twice as much out of the business as they did. An organisation which pays out a billion dollars must be concerned about its rate of return.
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