Crunch time at Lloyd's: The authorities are about to issue their plan for the market's future

BY THE end of this week the battle- weary members of Lloyd's, and those who depend on it for a living, will know what their leaders intend to do to restore the insurance market's battered reputation.

The Lloyd's business plan - incredibly the first in its 300-year history - is due out tomorrow. It is awaited without great optimism by the professional underwriters and brokers at the market's City headquarters.

Many realise that drastic action needs to be taken. Yet already there are widespread fears that Lloyd's central apparatus will not do enough to curb the anger among the 20,000 underwriting members and put the market on an even keel. The scale of the damage has been colossal. Members have suffered about pounds 5bn worth of losses in the last three years and Peter Middleton, Lloyd's pounds 250,000-a-year chief executive, has confided to colleagues that any other organisation suffering such losses would have gone under. For the moment Lloyd's still functions, but critics argue that it will have to be completely reinvented if it is to survive.

Those who argue that the problems are terminal cite weaknesses in the structure of the market and its capital base. Take the management of the institution. As a market formed of hundreds of businesses, the central authorities until comparatively recently felt that their primary role was to provide the building and the facilities for those trading at Lloyd's.

Traditionalists felt that any conventional corporate management approach could not be imposed on an entrepreneurial marketplace by an institutional bureaucracy. Instead, Lloyd's at its centre behaved like a trade association, representing the interests of the market at home and extolling its virtues abroad.

If remedial action had to be taken within the marketplace it was done by persuasion, exhortation and an appeal to a club-like esprit de corps. Any more interventionist policy was frowned upon by the authorities and businesses operating at Lloyd's.

Mr Middleton is attempting to change this culture. He wants a more hands-on role to be adopted by the central authorities, with poorly-run businesses kicked out of the market before they can cause untold financial damage for the underwriting members whose affairs they look after.

Here is the other central problem at Lloyd's - the underwriting members themselves. Lloyd's relies for its operations on private capital from individuals whose resources are not terribly deep. Lloyd's membership requires individuals to show that they are worth pounds 100,000 and many have joined on the basis of a bank guarantee secured on their home.

The huge disasters of recent years, and the unswerving rule that all members are liable to the full extent of their wealth to meet insurance claims in the market, have shown the fragility of this system. Many members are now facing personal financial ruin and some have committed suicide because of the worsening crisis.

The members are now looking for a financial rescue. If they do not get one they will fight on with hundreds of legal actions against companies at Lloyd's with renewed vigour. Their hopes have been raised by Mr Middleton, who held a six-month ceasefire on Lloyd's own legal actions to recover money from the members. That moratorium runs out at the end of this week and there are no indications that Lloyd's will renew it.

The money is running out fast as existing capital is exhausted. At the height of Lloyd's success in the mid- 1980s there were 34,218 underwriting members. There are now 20,000. Resources supporting Lloyd's business have fallen from pounds 11bn in 1990 to pounds 8.75bn. More members would leave, but 80 per cent of them are trapped on insurance syndicates that cannot quantify their liabilities. Those members need possible profits from elsewhere in the market to offset the huge losses on these unquantified liabilities.

David Rowland, Lloyd's pounds 450,000- a-year chairman who started work last January, has been more hesitant about the prospect of bailing out the members. 'I cannot invent money. I cannot rub a magic lamp for money to appear from it. I try to explain what the situation is,' he said shortly after taking over.

Early this year Mr Rowland and Mr Middleton initiated the business plan, intended to explain how Lloyd's will operate in the future. The anxious members are looking for solutions to the problems of the past.

The signs are not good. Members fear that the plan will reshuffle the chaos, not clear it up. More importantly, professionals operating at Lloyd's are worried about the remorseless downward trend of capital resources and the increasing unwillingness of members to pay up on losses. They want to see some convincing finance in place to ensure that Lloyd's enjoys support from its customers.

The preferred solution by the authorities is to reassert Lloyd's position as an insurance market and hope that future profitability, lower costs, and better practices will encourage new capital and customers to come to the community. That approach could prove too leisurely to revive Lloyd's storm-tossed fortunes.

In the last 20 years the Lloyd's authorities have prepared innumerable reports on the market's affairs, of variable relevance to the underlying problems of the insurance community. The worry is that this week's report will continue the trend.

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