Names face pounds 100,000 bill to end liabilities

JOHN EISENHAMMER

Financial Editor

Thousands of the hardest-hit names face bills of close to pounds 100,000 to end their liabilities at Lloyd's of London.

Confidential estimates put at up to 10,000 the number who could be asked to find between pounds 75,000 and pounds 100,000 to pay their premium into Equitas, the re-insurance company being set up to take over Lloyd's old loss- making policies.

First estimates of the individual Equitas premiums, which will enable names to write a final cheque and walk away from Lloyd's, will be sent out early next month. Although the exact premium bills will only be received at the beginning of June, Lloyd's insiders describe next month's indicative statements as not that unreliable. Lloyd's concedes that a significant proportion of these hardest-hit names will find the big Equitas bills difficult, if not impossible, to pay, and ways must be found to ease the process.

There are about 34,000 names, although only 13,000 are still active in the market. All, however, remain liable for losses that continue to come in for past years of underwriting. Since 1988 Lloyd's has mounted up losses of about pounds 9bn, which threaten to engulf the market unless the settlement is pulled off by the summer.

Key to this plan is the splitting off into Equitas of all policies from years before 1993, which include the worst of the pollution and asbestos liabilities in the US. This would enable a new Lloyd's, unencumbered, to trade into the future. Since 1992, Lloyd's has enjoyed a string of strongly profitable years.

The Equitas premium is money that will have to be found over and above the funds that all names have deposited at Lloyd's. Adding to the complexity is that many names do not have liquid deposits at Lloyd's, but a guarantee secured on their homes. Along with the indicative statement of Equitas premiums in early March, names will receive forms to fill in if they expect difficulties in paying. Lloyd's is working on methods of structured payment that could allow the hardest-hit names periods of between five and 10 years to find the money, and perhaps to move to a smaller house.

More significantly, Lloyd's is confidently expecting to raise more than the pounds 2.8bn targeted for the funds to be used to offset the burden of names' Equitas premiums. Several negotiations with market professionals are not yet over, holding out the prospect of higher injections of money for names' credits and debt relief. Failing that, Lloyd's might consider raising a loan in the market to increase the funds available to names.

An increase of several hundred million pounds for names' relief would substantially reduce the Equitas premiums, to the point where a cap of pounds 50,000 could be put in place, and a substantial majority would find that their funds deposited at Lloyd's cover their bills.

Lloyd's has put off the proposed vote among names underwriting in the past three profitable years on a levy to raise money for the settlement. It will take place alongside the full vote of all names in early June on the global settlement. If accepted, funds should start flowing into Equitas in July.