Chapter 3 – webnotes

Chapter 3

Webnote 13: Note on formation, Terms of Reference and membership of Lloyd’s task force *

Task force formation

By late 1990, there was growing concern among Names about open years. Some felt cheated by their agents. There were suspicions that fraud was present and amateurism was rife. The Outhwaite writ had been issued. Legal action had begun on Warrilow 553, and the bizarre case of Oakeley Vaughan. Confidence among Names was faltering. Anthony Haynes, the ALM Chairman, a businessman, was an effective networker and lobbyist within Lloyd’s. With the ALM Committee’s support, he argued that Lloyd’s needed to hire outside consultants to take a fresh look at its growing problems. He approached McKinsey. He recalls their first reaction was negative: “We won’t touch the place; it stinks.” McKinseys saw the ALM as poorly-placed, and perhaps impecunious, to act as a client.

Haynes was keen and persuasive, but mistrustful of involving the Lloyd’s Chairman and Council. McKinseys told him they would be more interested if he could get support from a group of significant agents. He first approached Robert Hiscox, who recalls how a number of people – including senior brokers Ken Carter and Roger Elliot – came to see him in 1989 and 1990 to express their concerns about the future. He says intelligent people all knew “Lloyd’s was in terrible trouble.”  So a group was formed to hire McKinseys, at first to assess the structure and governance of Lloyd’s.

Hiscox had formed his view that Lloyd’s was badly governed over a long period. In 1982, he was among those who had petitioned against the divestment provisions of the Lloyd’s Bill. He recognised the likely need for his own sales force, and saw a statutory ban on brokers owning agents – and vice versa – as a completely unnecessary constraint on Lloyd’s businesses. He still thinks that, in some cases, by depriving some underwriters from the useful supervision provided by larger broker parents “it caused some really, really appalling underwriting and weakness in management.”

Others were concerned about the future. Michael Wade, a specialist in providing personal stop loss (PSL) policies, could see the claims mounting and his customer base shrinking, as Names resigned from Lloyd’s.  Like Hiscox, he had also been a long term supporter of changing the basis of underwriting at Lloyd’s from unlimited Names to corporate members, with shareholders. He saw that these issues could not be solved by simply muddling through. They would require fresh and radical thinking.

Wade had been running a campaign for several years to secure agreement that syndicates needed to build up a reserve to meet unknown future claims. In this he was at complete loggerheads with the Inland Revenue, who wanted to prevent over-reserving which they saw as tax avoidance. The shadowy nature of syndicates – legally, they were just a collection of individuals – meant that extra reserves could not be held at syndicate level. Wade thought this put Lloyd’s at a significant competitive disadvantage. He argued this point over and over again. At one stage a weary Alan Lord, Lloyd’s Chief Executive, himself an ex-Revenue official,  said to his colleagues that Michael Wade was running around “telling every small dog in Lime Street” that Lloyd’s needs to be able to reserve at syndicate level. He said this was doing Lloyd’s reputation no good in Whitehall.

By 1990, after several years’ service on the Council, Wade felt that very little had been achieved. He discussed his concerns with Haynes. Both thought Lloyd’s needed radical examination, and that external consultants should be involved. Wade wrote to David Coleridge, due to be the next Chairman, saying “I can honestly state that I have never been quite so depressed.” He thought the structure was quite unsuited to accepting long tail business and catastrophe risk. He had also been stimulated by a recent paper on marketing and communications, but saw great difficulty in acting on it.

Wade discussed his ideas with David Rowland, now Chairman of Sedgwick, one of the biggest Lloyd’s brokers.  During his term of office on Lloyd’s Council, now nearly over, Rowland had impressed others as concerned, critical and articulate, but he had been pre-occupied with his own career moves and challenges. Notes were exchanged between Wade and Rowland, who agreed that alternatives to the current structure were needed. Rowland favoured a think tank to produce some options “the more revolutionary the better”. He thought unlimited liability would kill Lloyd’s, and “we should start the project now.” Wade approached David Walker: as chairman of the Securities and Investment Board, he was likely to be an influential voice among the nominated members of Council.

Wade told the chairman, Murray Lawrence, that he would resign from the Council if no action was forthcoming. In fact, Rowland, Wade, Haynes and Hiscox were pushing on an open door. It was obvious that problems were multiplying, with no solution near at hand. Rowland sketched out draft terms of reference for a ‘think tank’ to examine the pros and cons of the basis on which capital was provided to Lloyd’s. He sent these to Lawrence. Wade suggested that Rowland should chair the group.

The Council meeting in early October began with a presentation by John Gordon, the Chairman of the LUAA and Managing Director of the Sedgwick members’ agency.  He argued that a long hard look was needed at all the elements of the capital and financial base, not just the question of unlimited liability. The LUAA thought there might be a better way of organising the Society. Issues of equity between Names and reinsurance arrangements also needed a rethink. On governance, the LUAA was ‘delighted’ that Market Association chairmen were now being invited to meetings of the Committee of Lloyd’s. But they also thought there were far too many committees and subcommittees that could delay decision-making. Agency costs needed to fall, competition to intensify and regulation should be by exception.

Gordon’s presentation was well received. There were plenty of concerns around the table about whether Lloyd’s structure was well-suited to compete. There was a debate about how reserving should be done. Alan Lord, the Chief Executive, argued that the taxation implications of syndicate level reserving were very adverse and the matter should be dropped. Lord felt very strongly that this would drive a coach and horses through Lloyd’s position with the tax authorities in Britain and the US: the individual was the insurer and the taxable entity. The concept of syndicate reserving was “filled with danger.” Far better to seek an improved tax position for the individual Name. Gordon’s proposal for a group to examine the whole question of the capital and financial base was agreed as the best way forward. Proposals for its composition and terms of reference would come back to Council in November.

After the Council, Rowland was approached while on a business trip in the Far East, by a telephone call from Murray Lawrence and David Coleridge, current and future Lloyd’s Chairmen respectively. Rowland’s immediate response was to doubt whether he had the time, with his busy role as Chairman of Sedgwick. However he was also attracted by the challenge; it was as obvious to him as others that there were not many suitable candidates to chair this operation. He agreed. Hiscox was very conscious of the failure of many previous enquiries run by insiders to get to grips with the issues. When Rowland was appointed to lead the task force, he recalls thinking “this won’t be a whitewash, this will be good, and Coleridge does not quite realise what he has agreed to.”

Haynes and Hiscox each went to see Rowland, suggesting that he took over the McKinseys initiative. Rowland met consultants Alan Morgan and Charles Roxburgh and agreed. He asked Haynes, who had solid business experience, to be a member of the task force. His prominence as the ALM leader brought a useful political dimension to the group’s make-up. One of the early supporters of the study was Elvin Patrick, almost the only Lloyd’s underwriter of any stature who had been to business school. He and Hiscox were also asked to join the task force. The Group that Rowland assembled was a blend of inside talent with outside skills, including Ron Artus, a Director of the Prudential Corporation.  From the business academic world, Rowland invited John Kay, a young and very articulate economist.

The Corporation provided one of its Group Heads, the present author. From the Council, Rowland chose Matthew Patient, who had the outside perspective of a chartered accountant and auditor. Michael Wade who had pressed so hard for this task force was an obvious candidate. Underwriters drawn from the two main tribes – the marine and non-marine markets were David Mann, a widely respected non-marine underwriter and Raymond Dumas, a clever, well-educated marine underwriter from an established Lloyd’s family. Stephen Merrett , a thoughtful and longstanding member of the Council, with intimate knowledge of the old-year liabilities with which Lloyds had to contend, was another obvious choice.

As the future of the capital base was central to the agenda, a members’ agent was needed. John Gordon fulfilled this role, his popularity outweighing the risk of serious criticism that he worked for Rowland. Irene Dick, a lawyer, had acted as the secretary to the Fisher Working Party ten years earlier. She had supported the then Chairman, Peter Green, when he steered the Lloyd’s Bill through Parliament in 1982. She was an obvious choice as secretary to the task force. She was assisted by one of the corporation’s graduate trainees, Bridget Brown.

Terms of Reference given by the Council of Lloyd’s to the task force in January 1991

“The group’s objective is to look beyond the immediate future and identify the framework within which the Society should, ideally, be trading 5-7 years hence.

The group will have regard particularly for the long-term competitive position of the Society.

The group will examine and assess the advantages and disadvantages of the present basis on which capital is provided to support underwriting at Lloyd’s and consider:

a. The tension between the one year syndicate and the need to reserve, plan and invest for the future of an on-going business; its effect on Lloyd’s competitive position.

b. The attractions and drawbacks of individual membership and unlimited liability to Names and policyholders and the extent to which the Central Fund and other vehicles lead to the mutualisation of liability.

c. The organisation of the capital supporting the underwriting to facilitate an effective response to fluctuations in the insurance cycle.

The group should, taking into account the legal, accounting and taxation consequences, recommend a framework for the future and the methods by which it might be achieved.

The group will keep Lloyd’s Council informed of their progress and aim to submit their report by the end of 1991.  Written submissions will be welcomed from anyone interested by 31st March 1991.”



David Rowland (Chairman)
Lloyd’s Broker

Ron Artus
Director, Prudential Corporation Plc

Andrew Beazley (from August)
Lloyd’s Underwriter
Andrew Duguid
Head of Market Services, Corporation of Lloyd’s
John Gordon
Managing Agent/Retired Member’s Agent
Antony Haynes
Chairman of Association of Lloyd’s Members, 1985 – 1991
Robert Hiscox
Managing/Members Agent

John Kay
Professor of Economics, London Business School
David Mann
Lloyd’s Underwriter
Stephen Merrett
Lloyd’s Underwriter
Matthew Patient
Nominated Member of Council

Elvin Patrick
Lloyd’s Underwriter
Michael Wade
Lloyd’s Broker
Irene Dick
Secretary to the Task Force
Bridget Brown
Deputy Secretary to the Task Force


Note:  Raymond Dumas, a Lloyd’s Underwriter, was a member of the Task Force until May 1991 when, due to other commitments, he resigned.




Webnote 14: Highlights from the 1991 and 1992 AGMs and 1992 EGM *

1991 AGM Highlights

In June 1991 it fell to Coleridge to announce Lloyd’s first overall losses for twenty-five years. He began by pointing out that two thirds of syndicates had reported profits to their Names, and that the pure underwriting year of 1988 had actually produced a small overall profit of £68 million. The need to “strengthen reserves for business written in earlier years” had meant that the final global result for 1988 was a loss of £510 million. He tried to put this into context, saying that many insurance companies in the US had become insolvent. In the UK, the Association of British Insurers had revealed a week earlier that its member companies recorded underwriting losses for the 1990 year of account of £5 billion.

He warned that there were further losses to come, saying that 1988 to 1990 had brought an unprecedented series of catastrophes. These had coincided with a time of low and falling premium rates. There were cries of ‘shame’ from the floor. He said “in addition to the current trading problems, many syndicates with long tail liabilities had taken the prudent step of strengthening their reserves for earlier years of business.” In the mindset and language of an underwriting Chairman, declaring these eventual likely losses now was prudent. In the minds and lives of Names it meant money they had to find. As he put it, ‘facing up to the problems of the past by strengthening our reserves now, however painful in the short term, gives Lloyd’s syndicates an improved competitive position from which to face the challenges of the future.’

On the LMX spiral he said that it was an irony that only a few years ago syndicates underwriting this class of business were riding high in the much-publicised league tables of profitability: members were clamouring to join them. “The fact that this situation has now reversed should surprise no one. High returns in insurance, as in other businesses, mean high risk. In years which the unexpected happens, members of high risk syndicates are likely to face substantial losses.” Hardship assistance existed to help those members of Lloyd’s facing underwriting losses who were willing, but unable, to meet them. It was not a charity but it could tailor make, on an individual basis, arrangements whereby losses could be met in whole or in part, now or on a deferred basis. “Lloyd’s does not drive members into bankruptcy” said Coleridge, as Miller and Lawrence had said before him.

He described the Rowland task force as hard at work examining the way forward. He assured members that its report was eagerly awaited and would receive a most positive response from the Council. He ended with a reassertion of traditional values: ‘facing up to losses is never comfortable, but every trader in a risk business has to recognise that this can happen. Everyone who operates in a free enterprise system knows that the right to reward in the form of profits carries with it a possibility of a loss.’

The tone of many ensuing questions was fairly hostile. One member questioned the idea of making more and more provision in order to meet American social needs. Coleridge agreed with the unreasonableness of this. He said that Lloyd’s had fought every case it could “where there is no cover under the policy or where we consider there is no cover. If the American judiciary decided that a policy should respond, we have to respond to it.” The same problem faced Lloyd’s over pollution. Often the circumstances meant that it was not an accident but ‘totally deliberate.’ He condemned attempts to make insurers pay for this. He assured members that everything that could be done was being done to counter the rising tide of claims on asbestos and pollution.

A member said he had been dealt a thoroughly bad hand: six open years out of his original eight syndicates. He had asked for his complaint against his agent to be heard under Lloyd’s arbitration procedures. His agent had sought an injunction to stop the proceedings. Names, he said, still had no recourse against an incompetent or unsatisfactory agent other than in the High Court. Coleridge sympathised and said that the scheme would be redesigned.

At 12.15, Coleridge earned respect from those attending the meeting with an assurance to those at the back of the line that he would stay there as long as there were members still wishing to ask questions. Someone posed two questions “first, does the Committee/Council owe any duty of care to its members? Answer yes or no.” Coleridge replied that the answer was yes. “The Council of Lloyd’s does have a duty of care. It has a duty of care to see that the Society is properly regulated. It does not have a duty to underwrite on behalf of the members.” This became a long-running issue at meetings like this.

Perhaps no phrase was used so often or became so contentious as the expression “duty of care.” Coleridge unhesitatingly positive reply was without the benefit of legal advice. He answered from instinct. It sounded right. He was a conscientious chairman, adopting a dutiful, almost apologetic stance at this meeting. But it was something of a trap. At the time, Lloyd’s was defending a claim brought by members of the Oakeley Vaughan syndicate on the basis that it did not owe a legal duty of care to them. The day after the AGM, the litigants’ solicitors wrote asking Lloyd’s to drop this defence, in the light of the Chairman’s remarks.

In fact, a duty of care is a precise legal term for what an agent owes his principal under the (unwritten) law of agency. Some agents were found to have acted negligently, thereby breaching their duty of care. But the Council of Lloyd’s has a different set of duties. It is not the agent of Names in the same way as an appointed agent. It is certainly responsible in a broad sense for the interests of Names. It is also responsible for the proper discharge of Lloyd’s duties towards policyholders. It also has some duties in relation to the public interest. In legal terms, it does not owe a “duty of care” to the Names. It proved impossibly hard to explain this – especially in the middle of a heated AGM, surrounded by angry Names who felt badly let down by everyone at Lloyd’s, especially its ruling Council. The issue came up repeatedly. EGM motions were put down, asserting the Council’s ‘duty of care’. But a legal duty cannot be imposed by a resolution, whatever the size of the vote in favour. The resolution was in fact defeated in July 1993 by a majority of just over two to one of those voting. (OLS Sept 1993)

In a Times profile two weeks before his first AGM, Coleridge was reported as saying about Names “many of them will have lost money and make a lot of fuss. The insurance industry worldwide is having a very tough time. Most of the people who are bitching and whingeing are doing it because they don’t like losing. I understand that. It’s human nature to only want to win. No one has been swindled and it has nothing to do with unlimited liability. It is simply pure losses.” He expressed both sympathy and exasperation to his interviewer. The words caused much offence; Coleridge said he had been misquoted.

One member thought global figures were worthless. For 1987, one of the best years on record, his return was 1%, which he contrasted with his members agent’s return on capital employed of 142%. Another sought an assurance that Lloyd’s was now full of competent and honest people. He felt it was high time that unlimited liability went ‘because you do not know, Mr Chairman, I do not know how much pain and suffering, how much stress, how many deaths have been caused by this unlimited liability. I know that my wife has had two breakdowns, largely as a result of this.’ He also contrasted basic features of Lloyd’s structure – three year accounting, one-year syndicates – with those of a Plc. He was applauded.

Coleridge said that he thought he could give an undertaking that, as far as he knew, he knew of no one who was known to be dishonest working in Lloyd’s. On the competence side, ‘I know that this is a subjective decision. Many people in this room will say that every underwriter who has made a loss is incompetent. I do not think it is fair and I am sure this is not what you meant. I suppose it is always a difficult question that on the underwriting side if a substantial loss is made, is it incompetence or is it misjudgement or is it bad luck? He had no doubt that some people were less competent than others, but that all agents tried to employ good competent people. He said the task force would be considering one year accounting. Coleridge concluded ‘I am extremely sorry indeed that your wife is not well and if it is due to her underwriting, which you have told me it is, I stand in front of you and say I am very sorry that we have failed you so badly.”

The 1991 AGM was the first occasion that many members of the market and the Council became aware of Mr Claud Gurney, a member of the famous banking family. He was unconvinced by the Chairman’s answers. He could not help feeling that the Council represented, with exceptions, mostly interest groups – managing agents, underwriters, members’ agents, insiders – and that ‘they as a whole make their business by exploiting outside members such as ourselves.’ He thought successive chairmen had been more concerned to secure knighthoods and pats on the back from government for the contribution to the balance of payments than to sort out the proper taxation of Lloyd’s members. He advised Lloyd’s to play hardball and threaten to move the domicile, and therefore much of the taxation, to Luxembourg. He was applauded. Coleridge insisted that the Council was ‘not the slightest bit run by insiders’, protesting that Names were ‘the most important people in this business’ and always had been.… I do not know what else I can say to convince you that one cares desperately. One stands here upset and embarrassed to have to tell you that we have done extremely badly. I cannot do more.”

Gurney expressed sympathy for the Chairman’s position, but said that it was clear that the Council did not represent the Names of Lloyd’s and that it would not and could not do so until the external Names took control of the Council. A year later, Gurney called an EGM to challenge the Council.

Another member said that when he joined it was not made clear that he would have to pay for several years losses at once. The Chairman said it had never happened before that syndicates had to ask for payment of cash calls as far ahead as now, for 1990.

Another member, concerned about insider advantage, asked if the Council could publish a full analysis showing profit per £10,000 line for insiders compared with outsiders? Coleridge said that to his own knowledge many people working in Lloyd’s had suffered badly, if not worse, than very many external members this year. He said it was a slight myth to think that everyone who worked at Lloyd’s was free of the problems from which external members were suffering. Coleridge declined to publish the details of each individual’s underwriting, but the member asked for an analysis without identifying individuals. The Chairman agreed that it was reasonable for directors and senior staff of the members’ agency to provide information about how they had done.

Another member was ‘shattered’ to have learned that he would be unable to continue underwriting and therefore make good some of his losses. He suggested some form of levy on the central fund for helping people out over a period like this. Coleridge said that the truth of the matter was that it would be very difficult to know whether someone wiped out should continue underwriting because no one could ‘guarantee that lightning would not strike again. You have to be solvent to trade.’

Coleridge was thanked by a member ‘for the extraordinarily patient and sympathetic hearing that he had given’. To this was added a vote of thanks from Robert Hiscox, who said “nobody is more surprised than I am that after 20 years of committee bashing that I have volunteered to propose this vote of thanks to the chairman and his Council. It is not that I have lost my critical faculties. The fact is that I believe that at the moment we have in the chairman, David Coleridge, the best, if not the only man to lead us in what are no less than conditions of war. Despite his incredible gentleness, and his patience, as has been mentioned, with the questions today, he is very tough, as some of us in the market have felt. He does not court popularity.” Hiscox saw reform of the market as a ‘Herculean task’, saying that he understood the bewilderment and anger of those Names who have lost great sums of money. Hiscox appealed for unity: “we must all try to work for the prosperity of the whole society. So often when we attack Lloyd’s publicly we actually only hurt those Names that remain. It is a pity to have Names hurting Names.”

1992 AGM Highlights

This time, David Coleridge began ‘We meet today in the midst of one of the darkest chapters in the long history of our society. No one in this room is more conscious of this than I, because, as your chairman in this difficult period, it is to me that many of you express your feelings.’ He mentioned despair, anger and bewilderment. ‘I want to say at the outset that I understand all these feelings. And I accept that I have a duty to try to explain what has happened. We must play our part in putting right those things that have plainly gone wrong in the past. We must enquire, explain, try to help, and above all learn the lessons for the future. That is the spirit in which your Council approaches the serious problems that confront some of our members today.’

He appealed for perspective: “Greatly troubled though I am by the anguish and the anger, each day I also encounter other sentiments: loyalty, commitment, optimism and determination. I also detect an increasing concern that the activities of a much publicised minority can weaken everyone’s sympathy for them, and harm the reputation of us all, on which our future depends.’ Coleridge then told his membership that the results for 1989 showed a loss of over £2 billion, adding ‘you can imagine that I take no pride in telling you this figure. It is an appalling result, reflecting the extreme losses of a handful of excess of loss syndicates.’

He defended the Council’s recent decision to boost the central fund by £500 million with a special levy on each of three years of trading. He explained that he would have liked “to go further and introduce some kind of scheme to ameliorate the worst losses suffered by some members. These ideas have been publicly aired for some time.” He said “We had several aims in mind. We wanted to enable as many members as possible to continue underwriting and to trade their way out of the current problems. We wanted to reduce the litigation that has been the source of so much damaging publicity. We also wanted to respond to the many Names, members’ agents and the ALM who asked us to explore what could be done.” He regretted that an intensive search had not been able to produce a formula by which these many aims could be achieved, while “preserving fair treatment for all members.”

The main problem was that the losses were so much larger than expected. The Council had not felt that the membership could be asked to contribute a further amount on top of the additional central fund levy. Nor had they believed that it would have been right to mortgage the future by seeking to borrow on a large scale. In any case such a loan would have been a liability and would have needed to be counted as such in the overall solvency position. He thought that the members who had contributed to the central fund would be very unwilling to see a large part of it used “to put an arbitrary cap on the losses of those whose underwriting had been less conservative than their own.” Inevitably, he said, “any formula approach would have meant that some of the beneficiaries would not need the money as badly as some of the contributors. This would have been unfair.” In the end, the Council had concluded that the best thing to do was to continue down the path of the means-tested Hardship Scheme.

Coleridge reiterated that Lloyd’s “would not force its members into bankruptcy and never would.” He went on to say that he was seeking contributions from Lloyd’s firms – agents and brokers and others – towards the hardship fund. He hoped to raise £50 million on a voluntary basis. He also reminded members of the decision to conduct independent loss reviews, so that members themselves could decide if there was a basis for taking action such as suing their agents, or seeking an arbitration.

He said the Council had acted to improve the professional standards of those operating in the market, both by introducing peer reviews and by wider requirements for formal training and market experience. After paying a brief tribute to the imminently retiring Chief Executive, Alan Lord, Coleridge set out to rally his audience by describing the main lines of work that were already underway to fulfil the recommendations of the Lloyd’s task force. He mentioned the planned introduction of a new high-level stop loss scheme, which would in future mean that a Name’s losses could not exceed 80% of his premium limit. He announced that fresh legal advice showed it was, after all, possible to introduce corporate members within existing legislation. He also acknowledged that the Council’s initial reaction to the changes in Lloyd’s governance had been too hasty. Sir Jeremy Morse’s report on this subject would be with the Council the following week and he was quite sure that it would accept the need for reform in this area. The tone of the second part of the speech was distinctly upbeat.

In answering questions, Coleridge adopted the conciliatory and apologetic tone that had been used to such good effect at the difficult AGM a year earlier. But he made few concessions, and was very robust in his defence of that part of the market which had not produced big losses. Amongst other matters, he discussed the remuneration of underwriters, reminding the audience that this usually comprised salary, pension contribution and profit commission. On average, the total amounted to under £100,000. He said ‘I totally understand that when you are losing money, that is £100,000 too much, but I do not think that is an obscene level for an extremely tough job, a job that is incredibly important in trying to make underwriting profits for all your members and it is a responsible job. I do not think that is really a disgrace. There are some who have made considerably more, usually in the area of profit commission where they have been successful.’

Later, he was asked about reports that Derek Walker, the chairman of Gooda Walker, had been paid £300,000. He joined in the condemnation of the scale of Walker’s rewards in the light of the terrible damage he had done. He supposed Walker had thought he had a successful business. ‘He had been making profits before and the whole scene changed and it has become the greatest disaster since the sinking of the Titanic. I imagine that when he took the money that it was not really a known fact that he was absolutely crucifying up to 4000 members of Lloyd’s.’

Coleridge was asked several questions which foreshadowed some of the ingredients of the eventual reconstruction of Lloyd’s. He rejected a loan, but three years later, the Council did raise a loan as part of the settlement package. He was asked by another member about the possibility of raising a mortgage on Lloyd’s buildings to raise a substantial sum towards a fund that would help to compensate the heavy losers. Rejected at the time, this too became part of the package in the different circumstances of 1995/6. He rejected the many calls to mutualise the worst losses, though this too was a feature of the eventual package. One member suggested discounting old liabilities. Eventually, through the medium of creating Equitas as a company, this is precisely what Lloyd’s was able to do, on a very large scale. The member also suggested a limit to provision for US claims. Four years later, US claimants were indeed told they should see the Equitas pot as separate and finite.

This was the first time the wider membership heard what was to become a familiar Irish voice, somehow made more authoritative by an occasional stammer. Michael Deeny raised several points. The first was about the use of ‘time and distance’ policies which he sought to condemn as wrong in all circumstances, invoking the Catholic Church’s concept of “occasions of sin”.  “What is more important, they are invitations to fraud. They produced often fictional profits.” He regarded their tolerance as typical of the failure to regulate the market and protect the Names. He asked why Lloyd’s objected to action groups seeking justice in the courts ‘which is surely the right of those who have been the innocent victims of, at best, gross negligence and, at worst, fraud.’ Coleridge gave a fairly long reply explaining what he saw as the legitimate uses of time and distance policies – essentially to avoid calling up larger reserves from members than necessary, when claims were not expected to be paid for perhaps 10 or 20 years.

Richard Spooner queried the policy of not allowing discounting against future liabilities but strongly defending time and distance policies, which achieved exactly the same effect, with a minimal element of insurance. Coleridge struggled to explain the logic of Lloyd’s rules on this subject. Several years later, discounting played a key part in making Equitas affordable, and Spooner became a key participant.

Deeny also argued that if Lloyd’s underwriters were not willing to provide errors and omissions cover to certain managing agencies, then ‘surely it was only right that those agencies should cease to trade.’ Coleridge explained that the amount of cover available from such insurance was often insufficient to meet realistic claims. It would benefit no-one to shut down all the agents who were without cover. That would mean many more syndicates put into run-off. Much better, he said, to require disclosure of their E&O position. He also acknowledged that Names were ‘totally entitled to go to courts’ if they had a case to bring against their underwriting agent. He and the Council would prefer them to go to arbitration on the basis that it was professional, quicker and almost certainly cheaper.

Questioned again about Lloyd’s own duty of care, Coleridge said that Lloyd’s did not have a legal duty. He said that the question was before the courts at the time and so he would not discuss it further. An external Name, herself an ex-Conservative Party Parliamentary candidate, Harriet Crawley, said that a great many Names, especially those older people on pensions, felt very bitter that their trust had been betrayed. She thought the time had come to end the cosy tradition of appointing as Chairman someone who was also the chairman of an underwriting agency, ‘with a very apparent conflict of interest.’ She thought that was the reason why self regulation had been so slack. The very word ‘Lloyd’s’ was now spoken with contempt in many quarters which saddened her. She called for an independent chairman – a man of wide experience in trade and commerce who could begin to restore Lloyd’s reputation.

Coleridge told her that the Lloyd’s Act required the chairman to be drawn from among working members. He thought it an unfair slur to suggest that an underwriting background precluded one from looking after the whole membership of Lloyd’s. He reminded Ms Crawley that he had no position within his agency while he was chairman. He assured her that he and his predecessors had done their best, ‘irrespective of the fact that we have worked all our lives in this business.’ He thought her remarks unkind. She replied that she was not making a personal comment on his own integrity. It was also ‘unkind to make people in their eighties completely broke, in ill health and ruin them. That is also unkind.’

Many other points were raised. One member suggested that in the absence of errors and omissions insurance, it was time for agents to return to unlimited personal liability for their actions. Another member expressed a fear that corporate members would somehow have advantages over traditional Names. Another asked whether Bill Brown, the well-known LMX broker, would contribute to the new fund to assist members, and how much? Coleridge said he would and the amount would not be disclosed. Someone suggested that it might be possible to approach the Bank of England to ask them to underwrite a loan that would allow Lloyd’s to meet its solvency requirements. He thought it unfair that a special levy had applied to those who were resigning or reducing their underwriting as well as to others. The chairman said everyone had to contribute.

At one point, the well-known underwriter Ian Posgate rose to his feet. When he had lost three jumbo jets through a hijacking, he recovered the lost money rapidly through increased rates. He invited Coleridge to agree that the only way out of the current losses and associated problems was for Lloyd’s underwriters to trade out of them. He believed there were still within Lloyd’s fifty of the world’s best underwriters. He announced that he and his family had expanded their underwriting and intended to continue to do so. He ended by saying ‘Mr Chairman, if some members pluck all the feathers off a bird, it cannot fly. The only way out for Lloyd’s is for the underwriters to trade out.’

Another member pointed out that his agents had sent all their profits to their holding company, depleting their own reserves so that they had effectively no assets. There would be little point in suing them as there was no money in the kitty. This might be legal, but was it ethical? He also asked for a full declaration of interests from all members of the Council. Coleridge pointed out that the Outhwaite syndicate had a high proportion of working Names. He said that he himself was on a large number of syndicates that had been very unsuccessful. ‘Maybe as I have worked here for 40 years I should do better, so I’m rather glad I have not. ….it would probably be worse for me to stand here.’ His questioner suggested that Council members should in future make a declaration of interests as part of the annual report, as had been done in the task force report. Coleridge thought this was a good idea.

Another member queried the degree of support for the high-level stop loss scheme, saying that at the post-task force meeting he had attended, it had not been supported. He was told that 7000 members had attended a total of 52 meetings to discuss the task force report. About 30% were against it. The questioner also proposed that ‘after 300 years it is time for democracy to come to Lloyd’s.’ In future, after debate in Council, matters should be put to Names as a whole on the basis of one Name one vote before they were finally approved.  The Chairman replied that all Names voted for Council members to represent them. It was rather like Parliament.

One of the most forceful comments came from a working member who was on Derek Walker’s syndicate 290. He said the financial editorials had all expressed support for some sort of plan to help the worst hit by the current spate of losses. They were supportive but now the plan had been dropped.  He said ‘in the course of my employment, I have to deal with Names suffering losses of such a degree that money ceases to be of any meaning whatsoever. Do people working in this market or many external Names have any real conception of the sheer unadulterated misery suffered by the few? Can we really blame them for taking the sort of action that they have?’

‘Last year some Names lost more than a quarter of a million pounds by virtue of cash calls alone. Can many people in this room imagine how they would feel with a loss from their 1989 account alone of over 100% of stamp? That is not underwriting. That is totally unacceptable. Just because the problem is big and complicated does not to my mind justify a decision to drop the issue. As a market we do not deserve to trade out of our current state if we cannot in some way help these people who themselves, by virtue of the scale of their own losses, have forced through so many of the current and long overdue reforms which will help our future membership.’

Another member said that he was a member of the ‘disastrous’ Poland syndicates. He had suffered huge losses. He reminded the meeting that he had pledged all his assets to pay for losses, if needs be right down to my last cufflink. ‘Here it is. I have brought it with me. I am prepared again to do that and I am prepared to accept help from my wife and children in order that I may honour the obligation I gave when I joined Lloyd’s. I am however not prepared to do that in order to subsidise some stuffed shirt to stay in his 13th century castle.’ He asked to be able to inspect the details of any hardship arrangements that have been made for others. Coleridge flatly rejected this, saying that such arrangements had to be private. Coleridge said members in hardship were ‘not living the life of Riley. If anything we are going to try and help them more. They have been given a very tough time and I really feel we should try and support the Hardship Committee and see if we can support them with some voluntary funds. You are wrong in thinking that any money is being wasted in any shape or form.’ He was applauded for his defence of these efforts.

The atmosphere remained mostly civil and surprisingly good humoured at times. Mr Ken Lavery told the chairman he was from Canada and he also wanted to complement his endurance in this marathon affair. He said ‘I appreciate how your feet are feeling. It is a different part of my anatomy that is bothering me.’ There were further calls for structured payment schemes so that members could be given time to pay back the losses, continuing to trade out of their position. It was made clear that those able to trade on could carry their losses forward to set against tax on future profits.

One member who described himself as a farmer said he had been ‘inveigled’ into Lloyds by a lifelong friend. He thought Sasse provided a suitable precedent for dealing with the Gooda Walker situation.  He used several agricultural analogies. The Evening Standard had suggested that Coleridge was about to enter a lion’s den, but he saw it as more like a sheep’s pen. He thought the Lloyd’s Act had been defective in allowing, among other things self regulation, which had failed: ‘It is a little bit like having the rabbit cultivate the lettuce.’

This member recognised that Lloyd’s was a free-market and that meddling must be avoided, but he believed ‘the Council and the executive had to bite into the sour apple.’ He was sure that many people had understood the spiral situation and was surprised that the Council had been unaware of it. He was also affronted by ‘the iniquity of the astonishingly high salary levels of certain practitioners… in telephone numbers…and are greater than those of the highfliers in industry. Yet a lot of them have turned in great losses. I believe it is essential these people be pursued, prosecuted and, where necessary, jailed.’  He likened three year accounting to flying blind. He advocated the immediate mutualisation of the £2 billion losses. He said it should be done in “One fell swoop. With respect, fix it or flog it before it goes down the tubes.”

Coleridge reminded the meeting that over two thirds of the membership had a loss of up to 15%. ‘That is uncomfortable but manageable. We have to keep trading.’ He did not intend to flog Lloyd’s; he did not intend to mutualise it: ‘If the Council wants mutualisation, they will have to do so with a different chairman.’ He explained that the losses escalated from over £1.5 billion to more than £2 billion ‘in the space of about two weeks.’  New managers of the loss-making businesses had looked at the books and had a very difficult task. They could not bring forward accurate figures sooner. “That is why I have not been able to do anything for the members who have these horrific losses. We had to use the money to ensure… the solvency of the business.”

Labour MP Peter Hain’s Early Day Motion was condemned by Coleridge as an ‘absolutely iniquitous statement.’ He explained that all insurers sought to limit their exposure and the use of LMX reinsurance to protect the syndicate was not in itself some kind of scandal. If Mr Hain had any evidence of impropriety then he should present it to Lloyd’s. He thought unsubstantiated allegations using Parliamentary privilege ‘an absolute scandal’.

At the end of the seven-hour session, Coleridge was thanked by Stephen Merrett. He mentioned how many questioners had referred “to the way in which you have handled this meeting with enormous consideration and the troubles of the Names with great humility, patience and dignity. I am certain that all of us here would support those things which you have said.” He also thanked all those other people who worked enormous hours in the Corporation and on the voluntary committees and working parties both in this country and elsewhere. ‘I am sure that those of us who participate, not always profitably, in the affairs of the Society, do acknowledge on these occasions the enormous amount that is done on their behalf.’ Coleridge said he was grateful to Merrett personally. He had given him tremendous help by standing in for him and endlessly flying to the United States.

1992 EGM Debate Highlights

The 1992 EGM resolutions are shown below:

‘We request the Council immediately to rescind the Council resolution made on or about June 3, 1992 imposing a 1.66% levy on Names, to deliver to all Names within four weeks a full, frank, written report particularising the capital base of the Lloyd’s insurance market and its present and future capital requirements, and to investigate the fairest way of meeting those requirements from the Lloyd’s community as it will be as at January 1, 1993.’

‘We request of the Council immediately to establish a permanent public up-to-date register, particularising fully, frankly and unambiguously all interests held by or on behalf of individual Council members since 1982 in underwriting agencies and Lloyd’s brokers, together with the dividends, salaries and all other emoluments and benefits at any time and from time to time received by or on behalf of such members directly or indirectly therefrom.’

‘We request the Council immediately to cooperate fully, frankly and actively with all groups representing Names, and provide such assistance (including the publication and diffusion of intelligence and information) as each may from time to time require.’

In preparing for this, the new ALM Chairman put forward a more positive resolution:

‘That the Society has confidence in the Council of Lloyd’s and, having regard to such confidence, expects the Council, without further delay:

– to implement the essential task force recommendations, including, specifically, the separation of market governance from regulation and the formal recognition of the privacy of Names’ rights and the change of attitudes and behaviour that would result from this and

– to encourage the Lloyd’s working committee to make a substantial financial contribution to the problem of distressed Names.

We request the Council immediately to work with Centrewrite limited to develop an effective mechanism affordable to Names presently on run-off years of account whereby they will be released therefrom as at December 31, 1992.’

The debate on the resolutions was held on the morning of Monday, July 27, in the Room at Lloyd’s. The aim was to contain it within the first half of the day, so that business could resume in the afternoon. Coleridge began the session by declaring his own decision not to seek re-election as chairman. He said it had been his sad duty to announce big losses. It had also been his duty to press forward a programme of reform. He said it was an understatement to say that he might have wished for an easier task. ‘Of course, I never believed that it would be. I must confess, however, that I never imagined that it would be quite so tumultuous.’ He and his predecessor had invited David Rowland to form a task force to consider the future of the Society. Its recommendations were seminal and there was now a real commitment to embracing change. David Rowland was now willing to serve as the next Chairman of Lloyd’s.

Neil Shaw, the ALM’s new chairman, spoke on the ALM resolutions. Shaw said much needed to change if Lloyd’s was to survive. Lloyd’s financial results were not all caused by catastrophes, but also ‘by incompetence at the underwriting level, at the members’ agents level, through lack of information… The Lloyd’s Committee must also bear responsibility for our serious problems.’ He was critical of Gurney’s resolutions. His intention was not to approve all past actions of the present Council and its predecessors, or to condone their failure to act when they might or should have done so. The resolution was instead intended to give a qualified expression of confidence in the Council and the changes they would make. Shaw concluded with a call for a much larger contribution from the agents. He wanted much more than £50 million. (Eventually agents did contribute far more.)

Shaw was followed by proponents of the original and critical EGM resolution. Daniel Salbstein said “We looked to the Council for protection, and found what looked like a protection racket.” He described the LMX spiral as little better than legalised theft. LMX spiral losses arose, he said, “through the failure of the Council to require sound reinsurance principles. The Council is the sole regulator. In that crucial duty the Council and their predecessors have proved negligent, indolent and impotent. If the Council had an ounce of honour or scintilla of integrity, all members, other than those appointed by the Governor of the Bank of England, would tender their immediate resignation.”

One member said he had never seen a payday. “In fact I have entered this building just four times and if there was a turnstile on the doors, each visit would have cost me over £75,000.” Another acknowledged that sympathy was well meant. But it did absolutely nothing for those whose lives have been ruined by the institution, and whose entire life savings had been swallowed up by what Sir David Walker had described as “a cavalier approach to Names, disregard of their specific preferences or instructions, failure to inform Names of the risks in writing particular kinds of business and failing to assess adequately the circumstances of individual Names.” At this point he was loudly applauded.

He went on to say “before those members who have been fortunate enough not to be misled, misinformed, misguided or even finally raped by the duplicity of their agents, leap to their feet and say we should have known better, I ask them to be honest enough to admit that in most cases they are just plain lucky to have been introduced to the right one. Do we not all at least start by taking the advice of our agents? Are not they the professionals who are supposed to know? Before those professionals in this building pride themselves in having avoided the pitfalls into which we were pushed, should not some of them be questioning their consciences in not having warned loud enough or long enough of the perils and bad practices that I am now told were so apparent all around me? More applause followed.

This member quoted Edmund Burke: “all that is needed for evil to triumph is for good men to do nothing” to further applause.  “So it is the view of many of us that your Council has, at the very least, not done enough and evil has triumphed. This institution, having encouraged us to join, has not looked after our interests; instead, has stood by while we were swallowed like bait by the sharks swimming in its murky waters.”

He said there was still “a chance for the Council to show faith, to add substance to sympathy, to exercise compassion and to demonstrate a sense of justice in the light of the overwhelming criticism contained in the Walker report.” He said that the Council had asserted that it would not be possible to retrospectively cap the losses, but had not said why this could not be done. “Where there is a will, there is a way.” Promise to find the way, Mr Chairman… Extend that capping backwards in the same way that you are extending it forward and enable us to join you in benefiting from lessons that have been learned, and maybe – just maybe – in 25 or 30 years time some of us might be able to trade out of this mess that you have got us into.” Twenty-two years afterwards, at the time of writing, these remarks could seem prophetic. A comprehensive cap was eventually found, and some of those with losses did survive to make profits.

Claud Gurney, who had called the EGM, said that it was a historic moment to say goodbye to the old order that had blighted the Society since the passing of the 1982 Lloyd’s Act, saying “we are here to draw a veil over a period of mismanagement of our Society, a period characterised by incompetence, bungling ineptitude, widespread malpractice and the continuous and complete disregard for the law of agency from the bottom right up to the top, at which level participation on profitable baby syndicates by successive chairman of Lloyd’s had become the norm.” He said there had been a gradual movement away from insuring unknown and well understood risks of third parties and towards a game of poker as in a Lebanese casino, where the financial stakes were moved around with little or no regard to the underlying risks.

He said the story could have been different: “A wise Council could have put money aside in 1986 to build up the central fund;… ensured that each one of us put up assets adequate to cover the risks that we were undertaking;… made sure that each and every underwriting agency was well capitalised enough or had enough E&O cover to meet the claims for compensation that will undoubtedly follow. But alas our Society has not been blessed with wise Councils.” These were the people who, until literally a few weeks ago, were still publicly stating their beliefs in the “unfettered discretion of the underwriters”, to run up devastating losses: “The people who still today believe that they owe you no duty of care whatsoever.” He was applauded.

Gurney went on to say that Names deserved something better: He called for an independent chairman whom he said could easily be given a job in the market to comply with the requirements of the Lloyd’s Act. (This was done some years later, when Lloyd’s decided to appoint someone without a previous history of working at Lloyd’s.)  He proposed that the mutualisation of old and unaffordable losses should be accomplished by Centrewrite, the centrally-owned vehicle with a remit to try and close some of the troubling open years.  This was a version of what Lloyd’s eventually did through Equitas; but it took years of preparation before it could be done on a sustainable basis.

Colin Murray, Deputy Chairman, acknowledged the problems of open years. But he also said that the great majority of Names were willing to pay those losses and were doing so. While they understood the central fund levy, Names were increasingly reluctant to pay the losses of other Names except where those Names were unable to pay those losses themselves. Murray said that the proposition that mutualising would attract more Names was the reverse of the truth. ‘The concept that future generations will voluntarily pay losses that lie with the current generation is a concept so far from reality that I can hardly believe that any knowledgeable or intelligent Name could propose it.’

Murray said that Centrewrite was working on getting quotations for twenty syndicates but that this involved actuarial analysis and close cooperation with the DTI. “This resolution is, I regret, based upon a total lack of professional knowledge. It is inexpert and, clearly not practicable. The open syndicate problem will only be resolved by professional, expert and practical labour over some years. Centrewrite, working to targets set by the Council, is your only chance to see this problem resolved over time. This resolution offers no help. I urge all of you to reject it.” Murray too was applauded.

From the floor, a member was concerned that there were now 17 action groups and said that if the present Council remained in office, litigation would continue. Many of the action groups would obtain settlements for their members from their agents who would in turn claim on their E&O underwriters. It would be found that many agents will have insufficient E&O insurance cover for the claims and would be liable for the balance, which in many cases they would be unable to pay. ‘Lloyd’s agents will default, following which Lloyd’s will die.’ He asked members to consider whether they wanted a Council which, as part of its job in the past, had not told us everything, had not regulated the market, was fostering endless litigation and yet wished to be above the law itself, was constantly ridiculed by the media, was arrogant and seemingly uncaring and gave the impression of being back door merchants? Applause greeted his wish for something better, starting with a new Council.

John Rew, introducing himself as co-editor of the Lloyd’s league tables, said that his earlier forecasts have been greeted with howls of contempt in January and had been proved optimistic. He said that today’s meeting seemed redolent of the passengers gathering in the saloon of the Titanic for the daily sweepstake on how far the vessel would run in the next 24 hours. He said that even had the passengers and crew then been aware of their impending danger, which was to strike within three hours, they would have been reassured by the statement of Harland and Wolff, the builders, about the unsinkable design of the ship. It would appear, he said, ‘that the same system was in force at Lloyd’s. We trade each for our own part and not for another. This is supposedly a watertight door to protect each Name from bearing his neighbour’s losses.’ However once the neighbour was no longer solvent, the central guarantee fund brought the liability to others. He predicted an even bigger levy or levies to follow. He was right; but the next levy was sanctioned by a vote.

Rew invited members to cast their minds forward to a similar meeting a year ahead. ‘I assure you, there will be few happy faces….We are facing a really grim future….those of you who are smugly feeling that you are through the nasty part and you are going to cast aside those chaps who have got the big losses, do not smile yet. You have not yet felt the heat in the kitchen.’  He said Lloyd’s needed a major refinancing to cover around £5 billion of losses. He said that the total wealth shown by members was £7,500 billion, and that would mean the loss collectively of two thirds of everything Names possessed, on average.

Rew contrasted the position of Names with the many advantages of shareholders in a quoted company: they would have audited accounts covering the 1991 closed underwriting year; they would have a forecast of 1992 and 1993 prospects. For a rights refinancing, this would be in the form of a prospectus backed up by accountants, brokers, actuaries, bankers, letters, certificates, opinions and advice. If the shareholder did not like it he could either sell his nil paid rights or go further and dispose of his holding entirely. And if he had subscribed to the refinancing and then found that he had been misled, he could sue. None of this information was available to Lloyd’s members, nor any of those rights. This, he thought, showed the Council in the worst possible light, as people who were prepared to make decisions and not back them up, nor explain them, nor justify them. He argued that the levy should be spread fairly amongst all the people in the market and not just among the membership.

Colin Murray liked to think and express himself in black and white. He explained with some precision and great emphasis that the Council had made the byelaw imposing the levy under its authority, which was in turn under the authority granted to it by act of Parliament. He argued that in the matter of the solvency of the Lloyd’s policy, ‘our interests as Names coincide entirely with the interests of our policyholders. If we ever were to fail to meet the solvency standard set by public regulation, then the consequent loss of confidence would inevitably deny us the business we need for a successful future. All syndicates on all years of account would remain open for ever and the reserves of each syndicate and thus each Name, adequate or inadequate, would face continuing exposure to claim and to administrative expense well into the next century. The destructive effect of a general loss of confidence would follow, were we even to allow it to appear that we might lack the resolve to ensure valid claims on Lloyd’s policies are met.’

Requirements upon the Council to respond to a crisis may occur at any time, said Murray, because the insurance industry is by its nature subject to fortuitous and unforeseen loss. ‘Therefore, a flexible rapid response must always be a necessary feature of the authority that lies with the Council of Lloyd’s in matters of solvency.’ It was not hard to guess who had forcefully persuaded the Council to impose the levy. His message was uncompromising. In his personal opinion things were getting better. He remembered so well the dark days of 1966. “It was the determination of active underwriters then that dug us out of the hole. We have been over-optimistic in the 1980s and although many people have laid blame on the Council, I wonder whether you might consider if some of the league tables have sometimes implied that the future will mirror the past?” He invited members to read Rew’s own publication, Chatset, on the 1987 account,  “Not only at Lloyd’s, but in all markets, people buy the share that doubled last year, thinking it will double the next year and then they are angry and disappointed when it does not happen…. over-reliance on otherwise excellent league tables can be very dangerous.”

Someone thought Council members should include whether or not they were freemasons, alleging that the Chairman was a member; Coleridge told him he was not. He said he had never thought about it and never been invited. The next Chairman, David Rowland, told the author the same thing: he had never considered it and never been approached.

Richard Platts, who later acted as secretary to the Gooda Walker Action Group cited a passage in the Walker report: ‘Until comparatively recently, Lloyd’s has not sought to exercise a pro-active regulatory role, and for it to have done so would have been counter-cultural. The culture in this respect must change.’ This he said was the key idea: ‘If, on the other hand, Lloyd’s was to practice a vigorous pro-active style of regulation which tried to anticipate trouble before it happens and thus prevent it, we would be spared much agony. That is the heart of the matter.’  Platts said the ‘no duty of care’ argument was a complete denial of what regulation should mean for Names. The job of the regulator is to care. It is to protect.’ At this point there were calls of ‘hear, hear’ and loud applause.  He condemned the decision of the Council, as regulator, to remove the requirement for E&O cover as vandalism, since, in the light of the Council’s immunity, it was the only protection available to Names.

Another member said he had never heard the now notorious term LMX, until the previous year when the losses started. He had given only one instruction to his members’ agent – that he only wanted to be on syndicates that the Managing Director was also on.  This had been observed except in the case of two syndicates: Feltrim 540 and 847. He spoke of a flight of capital as being the crisis now confronting Lloyd’s. He said that insiders had known better than to be on Feltrim, whereas outsiders did not. He told the Council that they “must answer the charge today of having run an institution that has been the subject of the most spectacularly critical report in Walker that can ever have been addressed to a British institution. Your choice is stark: either stop hiding behind 19th century traditions and outdated byelaws and take the courage and sense of destiny to seize the problem and right the wrongs, or leave it for someone else to do it.”

This speaker was then followed by Sir Peter Miller. He said he had been a member since 1958 and that some present might recall that he had been Chairman of Lloyds in the previous decade. “I merely wish to say to the last speaker how wrong he is in trying to drive a wedge in the Society between the so-called insiders and outsiders, as though we who worked in the market were a series of criminals who stuffed the outsiders onto the wrong syndicates.” To cries of “you did”, he said “please do me the courtesy of listening. I, too, am on the Feltrim syndicates. I, too was on the Outhwaite syndicate and I, too was on the PCW syndicate. Thank you very much.”

Dr Mary Archer spoke next. She had been a member since 1977 and said that, regardless of the outcome of the meeting, she was an outgoing member of the Council in that she was in her fourth and final year as an external member, ‘an elected and unremunerated representative of the interests of the external Names, to whom I personally owe a duty in the general sense of care.’ She added that she had the ‘difficult task of chairing the member’s Hardship Committee, which brings me into constant and unremitting contact with the difficulties faced by Lloyd’s at the present time.’ She said the trouble with the resolution was that it required Lloyd’s to provide help to members without qualification. In fact it already was providing a great deal of help and would continue to do so. She urged members to vote against the last resolution.

Harriet Crawley supported the last resolution. She had found the Chairman’s letter “Extremely depressing and very reflective of the dinosaur approach…. We owe Claud Gurney a debt because at least he has specified particular ideas. Without his pressure nothing would have been done. We came away from the AGM empty-handed. Tears were shed but they were crocodile tears. That is not enough.” Coleridge replied “although you speak extremely well, you do not really listen always to what anyone has said. I have been totally committed to change.… I have accomplished more change in Lloyd’s in 18 months then probably happened for a very long period before. I think that you tend, really, with a sweep of your arm to dismiss everything that anyone has ever tried to do.”

On the resolution suggesting Lloyd’s should help the action groups, Coleridge said “I only know that I have spent hours seeing every action group which has wanted to see me and so have my deputy chairmen. I did it this year and I did it last year, and so did the Chief Executive. I have written, personally, over one hundred letters to the chairmen of these action groups. We have done everything we can to assist them. I think it is unkind – I think that is the right word – to make the statements you make because it gives the impression to other people here that none of us care, and that is not true.”

Webnote 15: Further Reactions to the Task Force Report *

In the first few days after publication, much of the national and international press comment focused on the new High Level Stop Loss Scheme (HLSL). Commentators had been wondering whether the task force would come down for or against the continuation of unlimited liability. The task force had been told that a change from limited liability membership was impossible without altering the Lloyd’s Act. This scheme preserved it, but would greatly alter its future impact. It could not be applied retrospectively: that would face all members with unacceptably large bills. Tom Benyon, former ALM Chairman, approved the longer term measures, while regretting the lack of a solution for those with big losses.

An editorial in Business Insurance, a widely read trade magazine published in Chicago, welcomed the report, saying it was exactly what the title said: a route forward, or road map. It also said “it’s tough to teach an old dog new tricks, especially when Fido’s 304 years old. But that’s essentially what a Lloyd’s of London task force is doing, asking one of the most blue blooded of British institutions to radically change its ways, in order to attract the capital required for Lloyd’s to retain its leadership in the world market in the 21st century.” It also applauded the task force for not proposing a bailout for the members who now faced huge losses from past underwriting years. It argued that it was the right of members to challenge their agents in the courts; but to bail out the losers would be unfair to members without losses, and those that had paid them.

The FT reported that brokers were generally enthusiastic. Agents’ reactions varied, but were mostly supportive. Some agreed with the ALM that the Council had been too hasty in rejecting the proposals for running Lloyd’s on a different basis in future. On Sunday the Observer reported that the ruling Council “finds itself isolated and under criticism from external members this weekend after rejecting proposals for its own reform.” It said that many members believed that reform of the Council, with its regulatory role separated from its commercial duties, was the key pre-condition to the success of the Rowland package.

Two days later, the FT said that a row was brewing. Coleridge and Lord had briefed a few of the press further. Lord had told them that he would have considered resigning had the proposal on corporate governance been accepted. Coleridge had said that the report was “full of incredibly sensible, well thought out things” but the thinking on governance was “codswallop.” It was “absolute hot air.”  He had been “utterly amazed” by it. Lord said the creation of a Market Board, responsible for the market’s business strategy, populated mainly by business representatives, would be “retrogressive.” He could not understand why the task force had come up with this idea.

Rowland was reported to be “sorry and disappointed” that the chapter 14 proposals had been thrown out. The next day the FT reported that there were signs that the leadership was increasingly isolated in opposing reforms to running the market. Richard Lapper reported that the Council might be forced to backtrack. He quoted Nigel Rogers, managing director of the Octavian group, as saying “I haven’t spoken to anyone who thought that the Council was right. The groundswell of opinion means that they will have to reconsider.”

Paul Archard, chairman of the Lloyd’s Underwriting Agents Association, said he was amazed by the Council’s instant rejection and Lloyd’s comments. He thought the governance chapter was fairly fundamental to achieving other things. Another agent described the Council’s decision as very disappointing and said that a market board was widely supported. John Kay, a member of the task force, said he could not think of any business structure where the regulatory and executive management roles were combined: “You wouldn’t ask the chief executive of BT to be director-general of Oftel.”