Lloyd's may foot £400m terror bill

LLOYD'S of London has admitted it could suffer a £400m hit following a critical arbitration hearing into whether it can claw back insurance losses dating back to 9/11.

In a huge embarrassment, the tribunal effectively ruled that the London market failed properly to set out the risk when seeking a reinsurance policy to provide a safety net for its Central Fund.

The Central Fund is an emergency pot that helps Lloyd's syndicates meet large, unexpected claims.

Lloyd's took out the reinsurance policy with a consortium of six insurers in 1999. The tribunal ruled last Friday that one of them, Swiss Re, was 'prima facie entitled to avoid the policy'.

A hearing with respect to the five other insurers is due to begin next month and Lloyd's today said that if it lost the final judgment its projected pre-tax profits for 2004 will be cut by £400m.

One expert said Lloyd's actions were similar to a driver buying car insurance without having passed his test.

A spokesman said: 'Today's announcement is simply an update on the arbitration proceedings. We expect the final decision by the arbitration panel later in the year.'

The hearing into the long-standing dispute began in August after Lloyd's originally threatened to sue. Calls on the Central Fund following 9/11 were huge and Lloyd's sought to recover nearly £290m.

At the time, asbestos litigation and other disasters had driven a number of underwriters out of the market.