An Overview of Lloyd's Accounts in the So-called
"Profitable" and "Loss-Making" Years

(All Figures in Millions of Pounds - - - Source: © John Rew (Chatset))

Account Item

Profitable Period
(1983 thru 1987)

Losing Period
(1988 thru 1992)


1. Gross Premium
Income (GPI)

27,600 (£millions)

49,400 (£millions)

Gross Premiums before deduction of brokerage fees (see line 11).

2. Less Reinsurance




3. Net Premium
Income (NPI)

21,600 [78% of GPI]

33,600 [68% of GPI]

Net Premium after Reinsurance of part of Risks, prior to fees

4. Gross Claims Made

19,200 [72% of GPI]

62,300 [131% of GPI]


5. Less Reinsurance Recoveries



Recoveries from other Lloyd's syndicates or commercial reinsurers.

6. Net Claims

12,500 [45% of GPI]

25,200 [59% of GPI]

Note how much profit has been made out of reinsurers.

7. Net Premiums
minus Net Claims



Basic underwriting profit.

8. Plus Returns
On Investment

2,800 [10% of GPI]

3,500 [7% of GPI]

Investment returns on premium balances on deposit.

9. Nominal Profit/Loss Before Charges



Both periods showed the same nominal profit before expenses.

10. Brokerage and
Commission Charges

(4,700) [17% of GPI]

(8,300) [17% of GPI]

Deducted from Gross Premium: excludes additional fees and/or underwriting profits in the US.

11. Memb./Managing Agents Charges, and Lloyd's/other Expense

(2,500) [9% of GPI]

(5,400) [11% of GPI]

Deductions based on premium capacity and "profits".

12. Subtotal: Charges

(7,200) [26% of GPI]

(13,700) [28% of GPI]

See conclusions "C" & "D" below.

13. Amounts Added to Syndicate Reserves

(3,000) [11% of GPI]

(7,600) [15% of GPI]

Reserves for claims on old years, deducted from nominal profit.

14. Total Charges
(10 + 11 + 12)

(10,200) [37% GPI]

(21,300) [43% GPI]

Total deductions from nominal profit.

15. Names' Profit/Loss
On 5-Year Period

£1,700 (£millions)

(£9,400) (£millions)

Agents, brokers, & Lloyd's took out £21.3 billion*, leaving the Names with £9.4 billion in losses.

*This is over £11 billion more than in the profitable years.

Observations of Mr. John Rew, Chartered Accountant:

A. The huge increase in reserving (for long-tail possible future claims), on top of the excessive operating costs, drove the substantial nominal profit from 1988-1992 into a major loss for Names. It was not (as Lloyd's claims) simply the result of some catastrophes.

B. Operating costs and broker's fees have not been reduced significantly. There are far too many still feeding from the 'trough', with the Names at the back of the line.

C. It was estimated by one member of Lloyd's Committee/Council that from the mid-1980's onward GPI was at least 40% higher than actual "outside the market" underwriting would support (see testimony of Ian Posgate, below). GPI was pushed artificially higher during this period due to unnecessary inter-syndicate retrocessional underwriting that "churned" the Lloyd's market as a whole, creating the illusion of increased business. From 1988 through 1992 the churning allowed agents, brokers, and Lloyd's to pocket an additional £5.5 billion in fees and commissions (lines 10 + 11 x 40%) that, as a conservative estimate, should have gone to the bottom line and benefited Names.

D. From 1988 through 1992-- not counting the reserves-- agents, brokers, and Lloyd's charged the Names £13.7 billion in fees and commissions, and during that same period called upon the Names to cover losses totalling £9.4 billion. Additional monies were withheld from the Names by market insiders who put a minimum of £2 billion into excessive reserving for old year liabilities. See line 13 above: reserving rose from 11% of £27.6 billion (£3 billion from 1983 through 1987), to 15% of £49.4 billion (£7.6 billion from 1988 through 1992). £2 billion of the increase is due to the 4% change (£49.4 billion x 4% = £2 billion) in reserve requirements. This over-reserving was in addition to the £5.5 billion in excessive fees and commissions on unnecessary underwriting (item C, above).

E. The monies overtly "lost" by the Names (£9.4 billion), added to the monies covertly withheld from the Names (£2 billion + £5.5 billion) indicate that the magnitude of Lloyd's fraud on its newly recruited external Names totaled at least £16.9 billion. That is, about $27 billion, using 1.6 pounds to the dollar as the conversion factor.


From: Testimony of Ian Posgate, in the Ontario Court of Justice, General Division, Commercial Court, Toronto, Canada September 27, 1994.

Between: Hongkong Bank of Canada, et al, Plaintiffs and Anne Hendrie et al, Defendants

  1. Are you knowledgeable about the LMX spiral?

  1. Yes, sir.

  1. And can you tell us what it is and how it operates? . . .

  1. Can you tell us your understanding of how the spiral operated?

  1. The spiral is not reinsurance but retrocessional business. A retrocession is reinsurance of a reinsurance. Everyone in the market—or originally everyone in the market wrote direct business and reinsured. The spiral is developed when a reinsurer reinsures, that becomes retrocessional business because no details are given of a retrocession. So it forms part, then, of a pyramid which circles around Lloyd’s and becomes akin to arbitraging or churning.

THE COURT: Or what?

  1. Churning.

  1. And do you know the reasons why the LMX spiral came into being at Lloyd’s?

  1. Lloyd’s, to combat the asbestosis claims, needed to take more Names and write more business. But the direct business coming into Lloyd’s between 1980 and 1990 remained at approximately £4 billion each year, a slight decrease in the marine business and a slight increase in the motor business. As it took more Names, it needed to write more business. Pyramid selling or arbitrage had the effect of creating an illusion of more premium income.

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