Lloyd’s releases proposal for new market structure

In response to criticisms and years of poor results, Lloyd’s of London has released a series of proposed changes to “modernize” the 300-year-old insurance market. Among the changes being put before the ruling Council of Lloyd’s is the end of unlimited liability for Names, meaning individual investors would no longer be allowed to invest all their assets in the market. This would take effect upon acceptance of the proposal for new Names, and in 2005 for existing members. 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 also 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 who act as franchisor in the market, with managing agents as franchisees. Names would still participate in the new structure, investing in market businesses on a contractual basis, and Lloyd’s intends to buy out all third party capital’s security of tenure. Names would receive a cash payout, and would continue to participate as normal in the market until 2005. In effect, Names would no longer be able to invest for just one year, causing the market to be completely restructured annually. The changes have been publicly decried by Names, who see this as an attempt to push them out of the market and appease corporate members, who now contribute 80% of the market’s capital. The proposals are meant to make the market more competitive, particularly against offshore markets, including Bermuda. 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.”