Names will hold out for clean break

LLOYD'S of London may be forced to draw a line under the liabilities of individual investors - the Names - in its campaign to persuade them to quit by 2004.

As part of a modernisation drive, Lloyd's wants to scrap the 300-year-old tradition of wealthy investors operating in the insurance market with unlimited liability. The move is designed to strengthen the hand of corporate investors and force individuals to trade at Lloyd's through limited liability companies.

But analysts say the Names, who together provide about £3bn of Lloyd's capital, will not want to leave unless they are offered a clean break over past losses.

Under the Lloyd's system, insurance syndicates cannot close their accounts for years in which they are not able to calculate their losses because of outstanding liabilities. Charles Sturge of insurance analyst Chatset reckons that syndicates have 42 of these 'open years'. That figure will rise to about 60 by the end of this year - and the final total could be 150. Sturge believes that if Lloyd's wants to buy out its unlimited liability investors, it will have to create another Equitas, the fund set up in the early Nineties to ringfence all the old asbestos and pollution losses at Lloyd's.

Equitas was part of a reconstruction plan to haul back the market from the brink of bankruptcy. It gave investors some reassurance that their contributions to the reconstruction would be a final settlement. Sturge said: ' Unless Lloyd's creates another Equitas and puts the liabilities of all these open years into it, Names will put up very strong opposition to the reform proposals.'

Lloyd's, headed by Nick Prettejohn, already faces a bill of hundreds of millions of pounds to buy out the Names. But a spokeswoman said it would also have to work out ways to help Names leave.

Setting up a 'son of Equitas' to ringfence old losses was 'an issue which will be looked at'.

Lloyd's also dismissed suggestions from Names that they should be given a rebate for their contribution to Lloyd's Central Fund. This pool of money ensures that the market never reneges on genuine claims, even if syndicates or underwriters go bust.