Lloyd’s “franchise” proposal could signal end of “Names”

In response to criticisms for years of poor financial performance, the world’s oldest insurance market Lloyd’s of London has released a series of proposed structural changes to “modernize” the system. Among the changes put forward to the Council of Lloyd’s for the 300-year-old market is the end of unlimited liability for “names”, meaning individual investors would no longer be allowed to invest all their assets in the market. Under the plan, Lloyd’s intends to buy out all third party capital’s security of tenure. Names would receive a cash payout, but would continue to participate as normal in the market until 2005.

Lloyd’s chairman Sax Riley is also proposing the market convert to standard GAAP accounting, rather than its current three-year system, in a bid to make the market’s financial status more transparent. The modernization plan involves a change to the way the market operates, creating a “franchise” structure. The series of boards, including the existing regulatory and market boards, would be combined into one franchise board — thus Lloyd’s would act as franchisor in the market, with managing agents as franchisees.

The changes have been publicly decried by several names, who see this as an attempt to push them out of the market and appease corporate members. Corporate involvement now accounts for about 80% of the market’s capital. Corporate members see the changes as a positive step towards stabilizing the market.

In releasing the reforms for consultation, Riley says, “our aims are profitability, modernity and transparency. Investors and policyholders have a choice of where they go, and we want them to be able to compare us easily, and favorably, with our competitors.” The proposals are meant to make the market more competitive, particularly against offshore markets, including Bermuda.

The changes should not have a great affect on Canadian participants in the market, notes Nicholas Smith, Lloyd’s Attorney-in-Fact for Canada. He adds that the proposals have not fully been fleshed out and will be put up for consultation and debate over the course of the year. The goal is to create a “vibrant and stronger market”, he says, “and to remove a lot of the mystification” that surrounds Lloyd’s. But, he stresses, “it’s early stages yet…it’s going to be a year of debate”.