Lloyd's Moving Ahead On Reforms

By Susanne Sclafane

NU Online News Service, Sept. 12, 2:15 p.m.EST?Lloyd's of London members yesterday voted on acapacity-weighted basis in favor of a plan to reform the314-year-old institution. But individually?on a one-member,one-vote basis?twice as many panned the plan as those voting toaccept it.

The capacity-weighted vote, tallied by Electoral Reform BallotServices, was 79.88 percent in favor and 20.12 percent against,Lloyd's said in an announcement this morning.

On a one-member, one-vote basis, however, 1,393 voted for thereform plan, while 3,356 voted against it. The 4,749-member totalregistering votes represented 29.7 percent of Lloyd's 16,000members.

However, on a capacity-weighted basis, turnout was 71 percent,Lloyd's said.

"Our view is that the vote is a clear mandate to move ahead"with implementing the plan, which is designed to assure betterunderwriting discipline, as well as improve the market'sprofitability and financial transparency, said Julian James,director of worldwide markets at Lloyd's.

Key components of the plan involve setting up a franchise systemat Lloyd's, adopting a system of annual accounting, and preventingunlimited liability members from joining as of Jan. 1, 2003.

Since the plan was first announced, however, some Lloyd'smembers, including "Names"?individual members who trade withunlimited liability--who are part of a group called The Associationof Lloyd's Members, have raised objections to the plan.

Among their concerns were the fact that subsidiaries ofcorporate capital members had made substantial claims on Lloyd'sCentral Fund--financed by contributions from all members, and usedto pay claims when members are unable to.

The ALM had also expressed a concern that the vote for reformswould mean that changes to the Lloyd's Act would follow withoutseparate consultation on the additional alterations. The group alsowanted a regulatory board and regulatory director to be maintainedto safeguard the interests of Names.

In a statement released by the ALM, entitled "Names Say No," thegroup highlighted the 3,356-member vote against reforms, sayingthat the member-weighted vote sent two messages. The first messageis that "there is little prospect of the proposed new Lloyd's Actin the near future. Secondly, Lloyd's will have to reconsider itscontroversial regulatory proposals," ALM said.

In a letter to members sent out on Aug. 29 that detailed Lloyd'sresponses to concerns raised during a consultation exercise thatended in mid-August, Lloyd's stated that any changes to the Lloyd'sAct would require approval of 75 percent of its members on aone-member, one-vote basis.

Referring to that response, and the 75 percent figure, ALM said,"the fact that only 29 percent of Members voted for the resolutionmeans that at present Lloyd's has no prospect of obtaining approvalfor a new Act."

ALM also said that Lloyd's would be forced to consider reviewingproposals to get rid of the director of regulation and RegulatoryBoard, warning that Names would be able to call an extraordinarygeneral meeting, "which could repeal any by-law enacting newregulatory arrangements on a one-member, one-vote basis."

Describing the steps that would be involved in calling a specialmeeting to block the plan's implementation--in particular, the needto get at least 500 members to call for such a meeting--Mr. Jamessaid he doubted that such efforts would be successful.

Noting that capacity that was eligible to vote was split 64percent corporate capital, and 36 percent third-party capital, Mr.James also said that the vote did not split precisely along theselines, and that Lloyd's had listened and responded to earlierobjections with amendments to its original plan.

In ALM's statement, which outlined the group's support for thefranchise proposal, Michael Deeny, the chairman of the ALM,softened the threat of a call for an extraordinary meeting. "Wewould hope that the Council will use the Franchise Board to improvethe profitability of Lloyd's, but will reconsider the morecontroversial proposals, such as a new Lloyd's Act," he said.

"The ALM will make no further comment on these issues for thetime being, and will have a series of meetings with Lloyd's to seeka constructive and united way forward," he added.

The ALM represents a majority of Names currently trading atLloyd's. Names--unlimited and limited--provided about ?3 billion ofcapacity to Lloyd's syndicates in 2002, according to ALM.