CITY AND SUBURBAN
Here comes the plan for Lloyd's, allowing for wise virgins and non-virgins
CHRISTOPHER FILDES
Now under new management, the old firm of Lloyd's of London is about to reveal its business plan. This is, I think, the first time that Lloyd's has made and published any plan of any sort, other than those for its vainglorious building, so I welcome it. The plan's shape is becoming apparent. It must start with the good news, which is that the insurance cycle has turned upwards, in Lloyd's favour. Competition has dropped out, premiums have risen, margins are healthy, and there is rewarding business to be done, if Lloyd's can find the capital to do it. The trouble is that Lloyd's capital comes from its members, and many of them have been knocked out or been scared out by a series of disastrous years, with the 1990 results (which look dreadful) still to come. The plan must foresee bring- ing in new capital, this time from corporate bodies — Lloyd's lawyers seem to have found a way round the obstacles. New investors are being lined up to take on new risks. What they cannot be expected to do is to take over old risks. They will need to be certain that Lloyd's will not pass the hat round for the 'open years' — the unquanti- fied liabilities, cranked up by American lawyers, still lurking in accounts that Lloyd's cannot close. Some way must be found to insulate these liabilities. I expect the business plan to propose that a new entity should take them over, together with the reserves already made to meet them. It would have to be done on an equitable footing, so that the wise virgins did not sub- sidise the foolish virgins, let alone the non- virgins. After a decade or two, Lloyd's would be able to see whether the reserves were still running ahead of the liabilities, and, if not, could then decide what to do. It might even choose to tell the American legal system to pollute a lake by jumping Into it. In New York last year, meeting someone who called himself an environ- mental lawyer, I was able to tell him that this was a contradiction in terms.
Stormy weather
DEALING with the open years would be the best start on tackling Lloyd's troubles, but only a start. It would still leave all those luckless Lloyd's syndicates which found that they had taken in each others' dirty washing. If there is an instant remedy for them, I have yet to hear it. They will have to fight out their quarrels, with their agents, with the agents' insurers, with the reinsur- ers. . . . Ultimately, what matters is how much of the loss can be recovered from cover placed outside the market and out- side the country — from the chaps in the spiked helmets, as my Lloyd's friends so tactfully put it. The short answer is: not enough. When the bills for 1990 start to go out, Lloyd's will be in for a stormy few months. Much is hoped of the new manage- ment, but what it cannot do now is to con- jure up money. The chairman of Lloyd's, like the Chancellor of the Exchequer, has no money of his own — it all belongs to the members. If he raises a loan to help Lloyd's, he sentences his members to pay interest for ever, like the Chancellor.
Banana conditioners
WHAT Lloyd's new management can and surely will do is to concentrate on Lloyd's best asset, which ought to be its name. If Lloyd's were a franchising operation, like The Body Shop, and instead of insurance sold banana conditioners, its name would have been better protected. A whole lot of duds,. sharps, second cousins, free riders and nodding donkeys would have lost their right to it by now, leaving it to the profes- sionals who would take care of it. Lloyd's has to set and enforce standards, not only of probity but also of competence, appro- priate to the world's best-known name for insurance. Once it can do that, it could and should charge new investors a franchising fee for the use of the name. Lloyd's could always find a use for the money.
Don't lend, lunch
KNOCK, knock! Who's there? Attali. Attali who? Attali and completely over the top. This is the only knock-knock joke yet to have appeared as a City and Suburban headline, two years ago now, but the idea is catching on. Jacques Attali of the Euro- pean Bank for Reconstruction and Devel- opment now finds himself lampooned as the banker who spent more on his head office than he lent to his customers. Well, the man thinks big. He was gazumped in Trafalgar Square, he turned down Embank- ment Place with its view over Waterloo Sta- tion, he inspected the Midland Bank's Lutyens headquarters and thought that the boardroom might do for his office, he stoutly resisted all efforts to put him in Canary Wharf. Of course he has a private jet — he might need it to transport his pri- vate chef. If he has not pumped out more money, that is not for want of wishing. It has much more to do with his shareholders, most of all the US Treasury, who wrote strict limits into his terms of operation and police them closely. They know very well that banks lose their money not by lunching but by lending — and, to bankers, Eastern Europe and the ex-Soviet ex-Union looked the natural sequel to South America. They were full of people with uses for money, but not so full of the workaday skills which let a bank think that it might get its loans ser- viced or its money back. As for M. Attali, he was Francois Mitterrand's guru and (like his twin, Bernard, who runs Air France) will not outlast his patron's reign. That might leave London with a useful institu- tion, which could always hold thes dansants in its marble halls.
Dwarf and Superdwarf
I WORRY about Tim Congdon. Now that he is one of the Treasury's seven advisory super-dwarves, he is eager to convince the other six that money matters — enough for them all to pronounce on it in their reports. So he tells them that he has been consis- tently righter than they have. He has, too, but if they come to think so, and rely on him, he will start to give wrong indications, in accordance with the monetary law of Professor Charles Goodhart and the prag- matic law of Murphy. In any case, he would still have to convince Norman Lamont, of whom it might have been said — as was said of his genial predecessor, Reggie Maudling — that his most evident interest in the money supply was a feeling that there ought to be more of it.
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