The outgoing chairman Peter Miller told a Lloyd’s audience in his valedictory address in January: "In early December last year, I had to make a speech to an insurance audience in New York. Wishing to describe to them the meaning of ‘demob-happy’ I looked it up in the dictionary of contemporary slang to find it defined as:

"Immeasurably important as today is to me, and perhaps of some significance even in the long history of the Society, this is not time to put on rose-tinted spectacles. I know that Lloyd’s is a great and successful institution; having travelled as widely as I have over the last four years, I also know the respect in which Lloyd’s is held throughout the world of insurance. It will not stay like this unless we are conscious of our weaknesses as well as our strengths and unless we continue to distinguish between that proper pride in our professional abilities and the making of money by the giving of service on the one hand, and the Greek notion of hubris, that overweening pride bordering on arrogance which comes before the inevitable fall, on the other. As we move forward, let us never forget the lessons of the past, particularly of the past decade.

"There are three things which attract people to buy policies of insurance at Lloyd’s; a competitive price, a strong policy, and a flexible response. As to the first, we have always had a competitive pricing advantage because of low overheads. The costs of a modern building, modern regulation and modern technology all threaten that edge.

"As to the strength of our policy, the enormous increase in the numbers in our membership must give rise to concern as to whether our financial criteria, particularly the deposits are tough enough, and whether all our Names have the right attitude to a risk taking business in which they can lose money as well as make it.

"The third point, the flexibility of our insurance response, our ability, by the provision of insurance, to make commercially possible, that which would otherwise be commercially impossible, is perhaps the most important of the three. Post divestment, the active Underwriter can again be "King at Lloyd’s". It is surely our greatest strength that our active Underwriters remain such for many years; the art of Underwriting is the top of the profession and the art of management, of vital importance though it is, is its servant.

"We have however to ask some questions. How is the new found independence of the Underwriter to be maintained, in the face of the big battalions and outside ownership, even perhaps ownership by insurance company competitors? Above all, how do we avoid that binding legalism which stifles initiatives? How do we answer the fundamental question "What is the duty of care which an Agent as a risk taking business owes to his Principal?" and that question to which part of the answer is of course disclosure must be answered fully and clearly so that active Underwriter and Name alike, know where they stand."

Although the defendants have requested an interlocutory appeal of the partial summary judgment order and discovery continues with respect to scope and trigger of coverage, the foregoing ruling was predicated upon the vast amount of medical information on asbestos diseases submitted to the court regarding the developmental process.

By letter 6 January 1988, Mr C J M Hardie FCA advises the names of the individuals who have agreed to serve on the Committee of Restitution for BPR Names.

Declaratory Judgment Decisions: Pittsburgh Corning -v- Travelers Indemnity

Judge Giles found that the presence of asbestos in buildings did constitute property damage, as the asbestos became a part of the finished product and resulted in the diminution in the value of the building. However, Judge Giles ruled that discovery of damage was the proper trigger, as he concluded that there was no property damage until the presence of the asbestos material had been discovered and the market value of the property declined.

Business Insurance: Superfund unleashes flurry of coverage suits. Litigation over insurance coverage for government-ordered hazardous waste site clean ups eventually may rival asbestos-related coverage lawsuits in terms of time, expense and complexity, attorneys for policy holders and insurers predict. The attorneys warn that the number of pollution clean-up related coverage disputes can be expected to increase as more companies face the prospect of paying hazardous waste site clean-up costs. The is the Comprehensive Environmental Response, Compensation and Liability Act of 1980... Policy holders have not fared well in several recent coverage decisions involving pollution cases... However, policy holders are not without some victories.

Declaratory Judgment Decisions: W R Grace & Co -v- Continental Casualty

An asbestos-related property damage case, decided by Judge Fisher in the US District Court for the Eastern District of Texas, Beaumont Division on February 4, 1988. Grace and other manufacturers had been named as defendants in a consolidated school district action which involved 83 separate school districts. Grace filed a third-party action against its insurers up to the $75m layer who provided primary and excess coverage during the period 1978 - 1984.

Grace settled with the school districts for a total of $47m, and immediately moved for summary judgement against the insurers. This summary judgement motion was filed prior to any of the insurers filing answers, and prior to any significant discovery being permitted. Despite this premature motion by Grace, Judge Fisher ruled in favour of the plaintiff W R Grace on all issues.

Significantly, Judge Fisher ruled that, as the excess carriers had refused to participate with Grace in the settlement, they were bound by the allegations in the underlying complaints. He found that these complaints alleged continuous property damage, and thus all policies in effect from installation to removal were triggered. Judge Fisher permitted Grace to select the policy year against which to assert its claims, and Grace has selected the 1981 - 1982 year. Grace is in the process of entering judgement for the amount of the settlement plus pre-judgement interest and when the judgement is finalised, an appeal to the Fifth Circuit will be filed.

On 18 February, Her Majesty Queen Elizabeth The Queen Mother formally initiated Lloyd's Tercentenary celebrations by switching on the 1986 Building illuminations.

Murray Lawrence was in attendance.

Following the passage of the Asbestos Hazards and Emergency Response Act of October 1986 and the mandate from Congress, the EPA released the results of their studies and make it clear that the cost of asbestos abatement in connection with commercial buildings will be substantially greater than with schools. The EPA:-

(2) concluded that the AHERA school rule requirements would cost more than $51bn if they were applied to the 733,000 commercial buildings with friable asbestos.

Continental Insurance Co. -v- Northeastern Pharmaceutical & Chemical Co., 842 F.2d 977, 8th Circuit, 26 February 1988) (en banc). Court held "damages" do not include cleanup costs and other such equitable relief. Court did not address "occurrence" which District Court defined as when injury occurred.

In March of 1988, a "Sea Day" was held, by kind permission of Her Majesty The Queen, on board H M Yacht Britannia at Long Beach, Los Angeles. The Chairman, (Murray Lawrence), accompanied by members of Council and Chairmen of Lloyd's Market Associations, acted as hosts for the conference, to which guests were welcomed by His Royal Highness The Duke of York.

The group comprised American insurance brokers, senior representatives from the insurance industry associations and insurance regulators, particularly from States where Lloyd's is heavily represented.

The event was arranged and hosted in conjunction with the British Invisible Exports Council and the Department of Trade and Industry.

Eagle-Picher withdrew from the Asbestos Claims Facility. Owens-Corning Fiberglass withdrew on 3 October 1987. Seven producer members - Carey Canada, Celotex, Eagle-Picher, Fibreboard, Owens-Illinois, Pittsburgh-Corning, and H K Porter at various stages gave provisional notices of their intent to terminate their membership.

Underwriting Agency Agreements - Working Group Consultative Document

Accordingly, I am writing to record my views upon the deliberations and conclusions of the Underwriting Agency Agreements Working Group which are contained in the consultative document to be dated March 1988.

So far as I am aware, I have had direct access to all of Lloyd’s internal working papers and advice and I have also received a number of direct representations from Names and have had meetings with them. Indeed, the substance of the observations and criticisms voiced by Names have, in one form or another, been discussed by the Group and these have had a bearing on the outcome of the proposals. I have also been in contact with the Association of Lloyd's Members and have had access to certain of its papers and the legal advice given to it. I have naturally familiarised myself with the earlier recommendations contained in the Cromer and Fisher Reports.

1. I believe that the proposals for standardising the method by which charges are calculated, which does not mean the charges themselves, will significantly improve the ability of Names to understand the financial implications of their contractual position and allow them to compare the relative performances of different agencies.
2. There has been an attempt to "temper" the criticisms of the "pay now sue later" provisions of the agency agreements and I believe from the evidence which has been presented that it would not be possible to go further in this regard without undermining the fundamental need to protect the security of Lloyd's policies and the interests of policy holders.
3. From the point of view of clarity and efficiency there is a great attraction in the suggestion that Names should only have one member's agent for the reasons set out in the Consultative Document. It may well be that the complications of the need for co-ordinating agents and the insistence on the part of some agents of sole agency arrangements will commercially bring this about but I doubt whether a mandatory provision would be perceived by Names as an improvement.
4. As I have seen it, the greatest difficulty that the Group experienced concerned the implementation of the recommendation that there should be a mandatory deficit clause. This arose largely from a reluctance on the part of those directly involved with the market to interfere with what were perceived as freely negotiated commercial arrangements and partly from the fact that it was not clear from the Neill recommendation what exactly was meant by "mandatory"; equally no precise distinction was drawn between horizontal and vertical deficit clauses which, it is clear, are very different in nature and effect.

Subject to these observations, the proposals contained in the consultative document are, in my opinion, fair and reasonable and address the criticisms of the agency agreement contained in chapter 6 of the Neill Report. Subject to the detailed drafting, they should result in a significant improvement in the interests of Names and go a long way to achieving a fair balance in the contractual relationship between Names and their respective members’ and managing agents. It is probably not possible to satisfy all parties and it is, of course, up to each individual Name to decide whether he or she finds the proposed contractual arrangements satisfactory but, within the terms of my remit, I believe that these proposals give effect so far as is practicable to the Neill recommendation and should substantially eliminate the deficiencies highlighted in the Report as existing in the current standard agency agreement.

The shares of Archer Group Holdings Plc admitted to the Official List of the London Stock Exchange. Originally acquired for £12m in a management buy-out of seven managed syndicates from Alexander Howden on 31 December 1985, A J Archer & Partners went public through a placing of 5.99m shares at 130p each, representing 26% of the company’s equity, and on that date the agency became a limited company. The prospectus was launched by Phillips & Drew, the prospective price puts the company on a price /earnings ratio of 9.7 on the basis of pre-tax profits of £5.3m for the year ending 30 September 1987. The managing agency is responsible for nine syndicates; its shares traded at 26p above the placing price of 130p. The 20% of issue shares reserves for members’ agents and their Names were three times over-subscribed. (The complete issue represented 26% of the Archer shares). The company later announced pre-tax profits of £144,000 for the six months ending 31 March 1988, compared with £284,000 for the similar period last year.

A J Archer Holdings: Turnover

1. Agency Salaries

2. Profit Commission

Some £169,522,000, the property of some 3,551 Names, was transferred as a RITC to close the 1982 year of account of Posgate’s Marine Syndicate 127 into the 1983 year of account of the new Archer preferred Marine Syndicate 741, involving only 1,952 Names. This was systematically reduced to provide the profit paid out during the years of account 1983 to 1988, made up in calendar years 1986 to 1991. The RITC set to close the 1988 year of account of Marine Syndicate 741 was £51,246,000. Mr A J Archer retired from underwriting and as Chairman of the Agency and Holding Company on 31 December 1990.

Mr P P A Wright was appointed underwriter of Marine Syndicate 741 on 1 January 1991. The Underwriter’s Report, dated 23 May 1991, for the 1988 year of account states:

Memorandum K E Randall to S R Merrett and R A G Jackson. Pollution and Asbestos Claims. We are moving slowly towards the production of the 1987 accounts and it is already clear that the reserves for pollution and asbestos have increased significantly beyond the levels I had been expecting. This gives rise to two questions -

2. Is the basis of reserving appropriate?... I am not at all happy about the way information on these cases is passed through Merrett Underwriting Agency Management and furthermore, I continue to be concerned that the work of the "market facility" is overseen by underwriters and claims managers with no input from managing agents. (Here I mean agents at large - I am not just referring to MUAM). I recognise that the Lloyd’s underwriter regards his position as unique in the business world and I have therefore thought long and hard before putting my thoughts into this note.

Business Insurance: 2 more firms quit Asbestos Claims Facility. ...

claims filed by tyre, steel and sheet metal workers have become the most common type of asbestos injury claims filed. The same producers that paid the largest shares for claims filed by shipyard and insulation workers also became liable for the largest share for the new types of claims. These producers contend that tyre, steel and sheet metal workers were not exposed to their asbestos products...

Business Insurance: Save the Facility...

We can’t fault these asbestos producers for pulling out of the Facility. They have good and valid reasons. A new wave of asbestos claimants who are exposed to asbestos not produced by these six companies has hit the facility.

On 22 March 1988 The Attorneys General of seven states in the United States filed civil anti-trust actions in the United States District Court for the Northern District of California, charging thirty-two defendants, including major US primary insurers and reinsurers, several London reinsurers, two trade associations, eleven Lloyd’s Underwriting Agencies, two Lloyd’s brokers and individuals, including Merrett Underwriting Agencies Management Ltd., and Robin A.G. Jackson with violations of federal and state antitrust laws and other laws. The State of California et al -v- Hartford Fire Insurance Co. et al, Case No. 88-0981, and related cases. Similar complaints were subsequently filed by other State Attorneys General and by private litigants claiming to represent classes of consumers. These latter suits have been filed in a number of different federal courts and in one state court. The complaints allege that certain defendants violated Section I of the Sherman Act and/or the provisions of state statutes by, among other things, agreeing with others to restrict or refuse coverage for certain commercial general liability risks, for certain casualty treaty reinsurance business, for certain umbrella and excess insurance business and for certain property insurance and reinsurance business. Most of the complaints seek injunctive relief and treble damages in an unspecified amount; some of the complaints also seek statutory fines.

Also on March 22, 1988, the State of Texas sued "Merrett Non-Marine Syndicate No. 799" and Robin A.G. Jackson as "agent" and "member" of Syndicate 799, along with U.S. insurers, reinsurers and two trade associations, in state court in Texas, for alleged violations of the Texas Free Enterprise and Antitrust Act of 1983. The State of Texas -v- Insurance Services office, Inc., et al (District Court, Travis County, Texas). The case was subsequently removed to the United States District Court for the Eastern District of Texas, but plaintiff has filed a motion to remand the case to state court. The factual basis for this complaint are similar to, but narrower than, those alleged in the complaints described above. This complaint seeks injunctive relief and civil penalties of $100,000 each against Robin A.G. Jackson and "each individual member of defendant Merrett Non-Marine Syndicate No. 799".

Counsel for the "Merrett" defendants believe they can successfully defend against the claims in these complaints. However, if some or all of the plaintiffs in these actions are successful in their claims for damages, then substantial losses could be involved.

We reserve our position regarding the allocation of costs and claims in the firm belief that any action taken by staff of this Agency in relation to the matters raised in the writs was undertaken with the best interests of syndicate members in mind.

International Minerals & Chemical Corp. -v- Liberty Mutual Insurance Co., 522 N.E. 2d 758, 3rd Appellate Court, 25 March 1988. Court found no evidence that discharge, dispersal, release or escape was sudden to exempt from pollution exclusion clause.

31 Mar 88

Declaratory Judgment Decisions: Carey Canada/Celotex Corp. -v- Aetna Casualty & Surety, 1988 WL 169287, District of Columbia District 5th Circuit Court,

An asbestos-related property damage case, decided by Judge Pratt from the District of Columbia District Court on March 31 1988. The Court found coverage and stated: "The court is aware of no case applying the pollution exclusion in the context of asbestos litigation." "The majority, if not all, of the underlying claimants’ seek recovery for damages caused by [the insured’s] product (asbestos) to other property (buildings and buildings materials). In such cases the ‘owned products’ exclusion is simply inapplicable." "[C]ourts which have considered the effect of asbestos on buildings in the context of an insurance coverage dispute have uniformly concluded that property damage was sustained." Court stayed plaintiff’s summary judgement motion pending further discovery. After further discovery, plaintiff’s summary judgement motion was denied in Carey Canada, Inc. -v- California Union, 748 F. Supp. 8, (D.D.C. 1990. There the Court held there was a genuine issue of fact as to whether release of fibres occurs continuously and the insured had not satisfied the burden of proving its loss occurred within the policy period.

Consultative Document - Underwriting Agency Agreements Working Group

16. Managing agents (but not members agents) should cease to charge winding up fees.

20. A horizontal deficit clause should be included in the Name’s contract with his members agent. However, the Name would be free to accept any alternative remuneration package that the agent may offer.
1. A vertical deficit clause should not be mandatory, but a line by line deficit clause should be printed in the Name’s agreement with his managing agent and the agent should be empowered to delete it.
2. The Council should keep the operation of deficit clauses under review.

1. the introduction of a direct contractual nexus between indirect Names and their managing agents;
2. the defining of the different functions and duties of a members agent and of a managing agent
3. the introduction of a fair and efficient deficit clause and a standard basis for calculating the agents’ charges;
4. the tempering of the "pay now, sue later" clause.

It subsequently became clear that the work of the group might have an impact on that of another working group established by the Council to deal with Recommendation 18 - the One Agent One Class Rule. The membership of this group was therefore supplemented by some members of the One Agent One Class Working Group.

An article in the August 1987 newsletter advised Names of the working group's area of work and asked for Names who wished to raise additional points on the underwriting agency agreement to contact the Secretary. Thirty five Names did.

Memorandum from Randall to Merrett Underwriting Agency Management Directors.

Rumours are beginning to circulate in the market concerning the possibility that the 1985 account of 418/417 may be ‘left open’. It is therefore likely that you will be questioned by staff brokers and so on.

We have not yet reached a point when the Board can take firm decisions (or make announcements) in this matter, because final syndicate trading figures are not available. It is clear, however, that there has been some deterioration in advised reserves for asbestos and pollution claims affecting both 417’s old years and the run-off contracts, but the uncertainty as to the outcome of issues is greater than ever.

The issues still to be debated by the Board include: What is the appropriate level of reserve to be carried for Asbestos Property Damage claims and EPA claims given the conflicting legal decisions so far available? Do the various scenarios produce such wide variations that we cannot properly arrive at a reliable basis for computing the reinsurance to close?

In connection with the run-off contracts, we are continuing our investigations and there appear to be grounds for supposing less than full disclosure by a number of the cedants at the time the policies were written. The reserves already carried on these contracts are very substantial indeed and we must consider whether any failure to inform whether accidental or deliberate, makes it appropriate that contracts should be renegotiated or even rescinded; meanwhile there must remain a question as to whether we have a satisfactory basis for computing the reinsurance to close.

Substances hazardous to Health Regulations 1988 COSHH. To ensure that exposure of employees to hazardous substances is prevented or adequately controlled i.e. motor mechanics working in areas involving clutch and brake pads.

The Accountancy Age survey of the 1988 auditors who carried out the audits on the 1985 accounts showed that there has been no move in the direction sought by the Neill Committee. The survey based on the Chatset 1985 Lloyd’s League Tables, showed that four firms carried out 81.3% of the audits, compared with 76% for the 1982 year upon which the Neill Committee made their comments. Recommendation 52 of the Neill Report says: "If at the end of five years (that’s at the end of 1991) there is no shift in the distribution of work among recognised auditing firms, Lloyd’s should consider implementing the suggestion made in paragraph 23.27 of the (1979) Fisher Report that there should be a limit on the number of syndicates which may be audited by any one firm".

Lloyd’s Syndicate Auditors. 1988

Times: Lloyd’s rejects Neill guideline

A working party of Lloyd’s insurance market has turned down one of the key recommendations of the government-backed Neill committee. It is the first substantive Neill recommendation to be rejected.

The committee headed by Sir Patrick Neill QC called for managing agents to share in the losses as well as the profits of their syndicates. But an internal Lloyd’s working party has turned down the proposal.

The Neill report advocated that a fair and efficient form of deficit clause should be made mandatory. This would mean names could offset the profit commission payable to agents on syndicates in profit against their losses on other syndicates. A small number of Lloyd’s agents already operate deficit clauses, but the majority are strongly opposed to mandatory deficit clauses.

The working party, chaired by Mr Edward Walker-Arnott, a nominated member of Lloyd’s and partner at Herbert Smith, the firm of solicitors, has come down against a mandatory deficit clause for managing agents, who run syndicates, but recommended it for members’ agents, who place names on syndicates but do not run them.

The working party has left the option of introducing a deficit clause up to the managing agent, because it believes mandatory clauses could just increase charges to names and could encourage managing agents to try and fudge their results. It also believes its revised agency structure, showing the separation of function between members’ and managing agents, makes the need for a deficit clause less pressing.

The idea of a deficit clause has a long history and was advocated in the Cromer report of 1969 and the Fisher report of 1980. The Neill report admitted that the introduction of a deficit clause would add a measure of complexity to the calculation of the profit commission, but added that "the principle that the remuneration of managing agents, and perhaps also members’ agents, should reflect the total result for which they were responsible rather than the profitable segments of it seems unexceptionable."

A rejection of the idea of deficit clauses will be viewed with dismay by many names, who regarded the deficit clause as one of Neill’s most important recommendations.

The rejection could also create difficulties for Lloyd’s with the Government, which gave Lloyd’s two years from January last year to implement the 70 recommendations in the Neill report.

Meeting between Merretts and Ernst & Whinney to discuss RITC. Brief mention was made of the run-off accounts which had been discussed the previous day and SRM confirmed that a similar approach had been adopted across all three syndicates. However, it was noted that significant changes could follow in the reserves for these contracts as a result of highly probable re-negotiations thereof. It was still being considered by the agency that Syndicate 418 1985 Account would not close at 31 December 1987, as it was not realistic to determine a true and fair view on the result because of the impact of uncertainty for the 1985 account Names. Even so, the work being done at this stage would be done as if to a true and fair reporting conclusion and all other business of the syndicate was being assessed on an "as if" closing basis.... On Syndicate 418, SRM indicated that it may well be that information becomes available within the next few weeks which will enable him to determine a more final answer in respect of the run-off contracts and Merretts may wish to consider closing when that information becomes available.

Lloyd’s Newsletter: Sir Kenneth Berrill to resign

Sir Kenneth Berrill, one of the three original nominated members of the Council of Lloyd’s, will resign from the Council on 31 May, coinciding with his resignation from the chairmanship of the Securities and Investments Board (SIB).

Sir Kenneth’s successor at the SIB, Mr. David Walker, will become a nominated member of Council on 1 June 1988 and will serve on the Council of Lloyd’s for a term coexistent with his term as chairman or a deputy chairman of the SIB.

In a tribute to Sir Kenneth’s work on the Council, Mr. Murray Lawrence, Chairman of Lloyd’s, praised Sir Kenneth’s qualities of objectivity, perception and intellect. ‘His comments have always been illuminating and valuable if, at times, unnerving.’ Said Mr. Lawrence, ‘However, that is why we appointed him and why we very much regret his departure. We look forward to welcoming his successor, Mr. David Walker, to the June meeting of Council.’

The Chairman (Murray Lawrence) undertook a tour of the East Coast of the United States and Canada in May, visiting the large broking companies in New York, prior to travelling to Washington where he was entertained to luncheon by Sir Antony Acland, H M Ambassador to the United States and met the Hon James A Baker, Secretary of State for the Treasury.

During the course of his stay in Canada the Chairman met the Minister for Financial Institutions, Mr Pierre Fortier, and addressed a conference organised by the Canadian Club of Montreal. The Chairman also met the Honourable Don Mazankowski, the Deputy Prime Minister of Canada and was entertained to dinner by the Speaker of the Senate, Mr Guy Charboneau.

A reception for Canadian Names was held in Ontario.

Lloyd’s Newsletter: In brief

The St Paul Companies Inc. of Minnesota has announced the formation of Minet .Speciality Management as a US based unit of Minet Holdings PLC. Minet Speciality Management will manage the US wholesale brokerage of the Swett & Crawford Croup and Minet subsidiary Minet International Professional Indemnity.

Lloyd’s Newsletter: In brief

A management buyout agreement was signed last month between senior personnel of brokers Lowndes Lambert and former owners Hill Samuel group. The management buy out is believed to be the first of its kind in the insurance broking industry.

Lloyd’s Newsletter: Indemnity byelaw passed

The Society will not indemnify a Council member if that member has been found guilty of fraud or dishonesty.

For some time we have made clear our concern that Names who may wish to receive a lesser volume of detailed reporting of their syndicate results cannot, under Lloyd’s rules, ask their agents to provide them with an abbreviated report as an alternative to the full accounts.

We believe that it would be possible to provide key information in a sensible way for those Names who prefer this, provided it were clearly understood and accepted that such information would not on its own constitute full disclosure of all relevant information.

This document is an example of the sort of abbreviated syndicate report we have in mind, covering one of our 13 managed syndicates. It is based on information extracted from the full accounts and is aimed at conveying the most salient performance information only. It does not purport to present a complete view of the syndicate’s past and future position. We would envisage producing a similar abbreviated report for each syndicate separately, with the full consolidated document continuing to be available, as an alternative, on request.

The outgoing chairman Peter Miller told a Lloyd’s audience in his valedictory address in January: "In early December last year, I had to make a speech to an insurance audience in New York. Wishing to describe to them the meaning of ‘demob-happy’ I looked it up in the dictionary of contemporary slang to find it defined as:

"Immeasurably important as today is to me, and perhaps of some significance even in the long history of the Society, this is not time to put on rose-tinted spectacles. I know that Lloyd’s is a great and successful institution; having travelled as widely as I have over the last four years, I also know the respect in which Lloyd’s is held throughout the world of insurance. It will not stay like this unless we are conscious of our weaknesses as well as our strengths and unless we continue to distinguish between that proper pride in our professional abilities and the making of money by the giving of service on the one hand, and the Greek notion of hubris, that overweening pride bordering on arrogance which comes before the inevitable fall, on the other. As we move forward, let us never forget the lessons of the past, particularly of the past decade.

"There are three things which attract people to buy policies of insurance at Lloyd’s; a competitive price, a strong policy, and a flexible response. As to the first, we have always had a competitive pricing advantage because of low overheads. The costs of a modern building, modern regulation and modern technology all threaten that edge.

"As to the strength of our policy, the enormous increase in the numbers in our membership must give rise to concern as to whether our financial criteria, particularly the deposits are tough enough, and whether all our Names have the right attitude to a risk taking business in which they can lose money as well as make it.

"The third point, the flexibility of our insurance response, our ability, by the provision of insurance, to make commercially possible, that which would otherwise be commercially impossible, is perhaps the most important of the three. Post divestment, the active Underwriter can again be "King at Lloyd’s". It is surely our greatest strength that our active Underwriters remain such for many years; the art of Underwriting is the top of the profession and the art of management, of vital importance though it is, is its servant.

"We have however to ask some questions. How is the new found independence of the Underwriter to be maintained, in the face of the big battalions and outside ownership, even perhaps ownership by insurance company competitors? Above all, how do we avoid that binding legalism which stifles initiatives? How do we answer the fundamental question "What is the duty of care which an Agent as a risk taking business owes to his Principal?" and that question to which part of the answer is of course disclosure must be answered fully and clearly so that active Underwriter and Name alike, know where they stand."

Although the defendants have requested an interlocutory appeal of the partial summary judgment order and discovery continues with respect to scope and trigger of coverage, the foregoing ruling was predicated upon the vast amount of medical information on asbestos diseases submitted to the court regarding the developmental process.

By letter 6 January 1988, Mr C J M Hardie FCA advises the names of the individuals who have agreed to serve on the Committee of Restitution for BPR Names.

Declaratory Judgment Decisions: Pittsburgh Corning -v- Travelers Indemnity

Judge Giles found that the presence of asbestos in buildings did constitute property damage, as the asbestos became a part of the finished product and resulted in the diminution in the value of the building. However, Judge Giles ruled that discovery of damage was the proper trigger, as he concluded that there was no property damage until the presence of the asbestos material had been discovered and the market value of the property declined.

Business Insurance: Superfund unleashes flurry of coverage suits. Litigation over insurance coverage for government-ordered hazardous waste site clean ups eventually may rival asbestos-related coverage lawsuits in terms of time, expense and complexity, attorneys for policy holders and insurers predict. The attorneys warn that the number of pollution clean-up related coverage disputes can be expected to increase as more companies face the prospect of paying hazardous waste site clean-up costs. The is the Comprehensive Environmental Response, Compensation and Liability Act of 1980... Policy holders have not fared well in several recent coverage decisions involving pollution cases... However, policy holders are not without some victories.

Declaratory Judgment Decisions: W R Grace & Co -v- Continental Casualty

An asbestos-related property damage case, decided by Judge Fisher in the US District Court for the Eastern District of Texas, Beaumont Division on February 4, 1988. Grace and other manufacturers had been named as defendants in a consolidated school district action which involved 83 separate school districts. Grace filed a third-party action against its insurers up to the $75m layer who provided primary and excess coverage during the period 1978 - 1984.

Grace settled with the school districts for a total of $47m, and immediately moved for summary judgement against the insurers. This summary judgement motion was filed prior to any of the insurers filing answers, and prior to any significant discovery being permitted. Despite this premature motion by Grace, Judge Fisher ruled in favour of the plaintiff W R Grace on all issues.

Significantly, Judge Fisher ruled that, as the excess carriers had refused to participate with Grace in the settlement, they were bound by the allegations in the underlying complaints. He found that these complaints alleged continuous property damage, and thus all policies in effect from installation to removal were triggered. Judge Fisher permitted Grace to select the policy year against which to assert its claims, and Grace has selected the 1981 - 1982 year. Grace is in the process of entering judgement for the amount of the settlement plus pre-judgement interest and when the judgement is finalised, an appeal to the Fifth Circuit will be filed.

On 18 February, Her Majesty Queen Elizabeth The Queen Mother formally initiated Lloyd's Tercentenary celebrations by switching on the 1986 Building illuminations.

Murray Lawrence was in attendance.

Following the passage of the Asbestos Hazards and Emergency Response Act of October 1986 and the mandate from Congress, the EPA released the results of their studies and make it clear that the cost of asbestos abatement in connection with commercial buildings will be substantially greater than with schools. The EPA:-

(2) concluded that the AHERA school rule requirements would cost more than $51bn if they were applied to the 733,000 commercial buildings with friable asbestos.

Continental Insurance Co. -v- Northeastern Pharmaceutical & Chemical Co., 842 F.2d 977, 8th Circuit, 26 February 1988) (en banc). Court held "damages" do not include cleanup costs and other such equitable relief. Court did not address "occurrence" which District Court defined as when injury occurred.

In March of 1988, a "Sea Day" was held, by kind permission of Her Majesty The Queen, on board H M Yacht Britannia at Long Beach, Los Angeles. The Chairman, (Murray Lawrence), accompanied by members of Council and Chairmen of Lloyd's Market Associations, acted as hosts for the conference, to which guests were welcomed by His Royal Highness The Duke of York.

The group comprised American insurance brokers, senior representatives from the insurance industry associations and insurance regulators, particularly from States where Lloyd's is heavily represented.

The event was arranged and hosted in conjunction with the British Invisible Exports Council and the Department of Trade and Industry.

Eagle-Picher withdrew from the Asbestos Claims Facility. Owens-Corning Fiberglass withdrew on 3 October 1987. Seven producer members - Carey Canada, Celotex, Eagle-Picher, Fibreboard, Owens-Illinois, Pittsburgh-Corning, and H K Porter at various stages gave provisional notices of their intent to terminate their membership.

Underwriting Agency Agreements - Working Group Consultative Document

Accordingly, I am writing to record my views upon the deliberations and conclusions of the Underwriting Agency Agreements Working Group which are contained in the consultative document to be dated March 1988.

So far as I am aware, I have had direct access to all of Lloyd’s internal working papers and advice and I have also received a number of direct representations from Names and have had meetings with them. Indeed, the substance of the observations and criticisms voiced by Names have, in one form or another, been discussed by the Group and these have had a bearing on the outcome of the proposals. I have also been in contact with the Association of Lloyd's Members and have had access to certain of its papers and the legal advice given to it. I have naturally familiarised myself with the earlier recommendations contained in the Cromer and Fisher Reports.

1. I believe that the proposals for standardising the method by which charges are calculated, which does not mean the charges themselves, will significantly improve the ability of Names to understand the financial implications of their contractual position and allow them to compare the relative performances of different agencies.
2. There has been an attempt to "temper" the criticisms of the "pay now sue later" provisions of the agency agreements and I believe from the evidence which has been presented that it would not be possible to go further in this regard without undermining the fundamental need to protect the security of Lloyd's policies and the interests of policy holders.
3. From the point of view of clarity and efficiency there is a great attraction in the suggestion that Names should only have one member's agent for the reasons set out in the Consultative Document. It may well be that the complications of the need for co-ordinating agents and the insistence on the part of some agents of sole agency arrangements will commercially bring this about but I doubt whether a mandatory provision would be perceived by Names as an improvement.
4. As I have seen it, the greatest difficulty that the Group experienced concerned the implementation of the recommendation that there should be a mandatory deficit clause. This arose largely from a reluctance on the part of those directly involved with the market to interfere with what were perceived as freely negotiated commercial arrangements and partly from the fact that it was not clear from the Neill recommendation what exactly was meant by "mandatory"; equally no precise distinction was drawn between horizontal and vertical deficit clauses which, it is clear, are very different in nature and effect.

Subject to these observations, the proposals contained in the consultative document are, in my opinion, fair and reasonable and address the criticisms of the agency agreement contained in chapter 6 of the Neill Report. Subject to the detailed drafting, they should result in a significant improvement in the interests of Names and go a long way to achieving a fair balance in the contractual relationship between Names and their respective members’ and managing agents. It is probably not possible to satisfy all parties and it is, of course, up to each individual Name to decide whether he or she finds the proposed contractual arrangements satisfactory but, within the terms of my remit, I believe that these proposals give effect so far as is practicable to the Neill recommendation and should substantially eliminate the deficiencies highlighted in the Report as existing in the current standard agency agreement.

The shares of Archer Group Holdings Plc admitted to the Official List of the London Stock Exchange. Originally acquired for £12m in a management buy-out of seven managed syndicates from Alexander Howden on 31 December 1985, A J Archer & Partners went public through a placing of 5.99m shares at 130p each, representing 26% of the company’s equity, and on that date the agency became a limited company. The prospectus was launched by Phillips & Drew, the prospective price puts the company on a price /earnings ratio of 9.7 on the basis of pre-tax profits of £5.3m for the year ending 30 September 1987. The managing agency is responsible for nine syndicates; its shares traded at 26p above the placing price of 130p. The 20% of issue shares reserves for members’ agents and their Names were three times over-subscribed. (The complete issue represented 26% of the Archer shares). The company later announced pre-tax profits of £144,000 for the six months ending 31 March 1988, compared with £284,000 for the similar period last year.

A J Archer Holdings: Turnover

1. Agency Salaries

2. Profit Commission

Some £169,522,000, the property of some 3,551 Names, was transferred as a RITC to close the 1982 year of account of Posgate’s Marine Syndicate 127 into the 1983 year of account of the new Archer preferred Marine Syndicate 741, involving only 1,952 Names. This was systematically reduced to provide the profit paid out during the years of account 1983 to 1988, made up in calendar years 1986 to 1991. The RITC set to close the 1988 year of account of Marine Syndicate 741 was £51,246,000. Mr A J Archer retired from underwriting and as Chairman of the Agency and Holding Company on 31 December 1990.

Mr P P A Wright was appointed underwriter of Marine Syndicate 741 on 1 January 1991. The Underwriter’s Report, dated 23 May 1991, for the 1988 year of account states:

Memorandum K E Randall to S R Merrett and R A G Jackson. Pollution and Asbestos Claims. We are moving slowly towards the production of the 1987 accounts and it is already clear that the reserves for pollution and asbestos have increased significantly beyond the levels I had been expecting. This gives rise to two questions -

2. Is the basis of reserving appropriate?... I am not at all happy about the way information on these cases is passed through Merrett Underwriting Agency Management and furthermore, I continue to be concerned that the work of the "market facility" is overseen by underwriters and claims managers with no input from managing agents. (Here I mean agents at large - I am not just referring to MUAM). I recognise that the Lloyd’s underwriter regards his position as unique in the business world and I have therefore thought long and hard before putting my thoughts into this note.

Business Insurance: 2 more firms quit Asbestos Claims Facility. ...

claims filed by tyre, steel and sheet metal workers have become the most common type of asbestos injury claims filed. The same producers that paid the largest shares for claims filed by shipyard and insulation workers also became liable for the largest share for the new types of claims. These producers contend that tyre, steel and sheet metal workers were not exposed to their asbestos products...

Business Insurance: Save the Facility...

We can’t fault these asbestos producers for pulling out of the Facility. They have good and valid reasons. A new wave of asbestos claimants who are exposed to asbestos not produced by these six companies has hit the facility.

On 22 March 1988 The Attorneys General of seven states in the United States filed civil anti-trust actions in the United States District Court for the Northern District of California, charging thirty-two defendants, including major US primary insurers and reinsurers, several London reinsurers, two trade associations, eleven Lloyd’s Underwriting Agencies, two Lloyd’s brokers and individuals, including Merrett Underwriting Agencies Management Ltd., and Robin A.G. Jackson with violations of federal and state antitrust laws and other laws. The State of California et al -v- Hartford Fire Insurance Co. et al, Case No. 88-0981, and related cases. Similar complaints were subsequently filed by other State Attorneys General and by private litigants claiming to represent classes of consumers. These latter suits have been filed in a number of different federal courts and in one state court. The complaints allege that certain defendants violated Section I of the Sherman Act and/or the provisions of state statutes by, among other things, agreeing with others to restrict or refuse coverage for certain commercial general liability risks, for certain casualty treaty reinsurance business, for certain umbrella and excess insurance business and for certain property insurance and reinsurance business. Most of the complaints seek injunctive relief and treble damages in an unspecified amount; some of the complaints also seek statutory fines.

Also on March 22, 1988, the State of Texas sued "Merrett Non-Marine Syndicate No. 799" and Robin A.G. Jackson as "agent" and "member" of Syndicate 799, along with U.S. insurers, reinsurers and two trade associations, in state court in Texas, for alleged violations of the Texas Free Enterprise and Antitrust Act of 1983. The State of Texas -v- Insurance Services office, Inc., et al (District Court, Travis County, Texas). The case was subsequently removed to the United States District Court for the Eastern District of Texas, but plaintiff has filed a motion to remand the case to state court. The factual basis for this complaint are similar to, but narrower than, those alleged in the complaints described above. This complaint seeks injunctive relief and civil penalties of $100,000 each against Robin A.G. Jackson and "each individual member of defendant Merrett Non-Marine Syndicate No. 799".

Counsel for the "Merrett" defendants believe they can successfully defend against the claims in these complaints. However, if some or all of the plaintiffs in these actions are successful in their claims for damages, then substantial losses could be involved.

We reserve our position regarding the allocation of costs and claims in the firm belief that any action taken by staff of this Agency in relation to the matters raised in the writs was undertaken with the best interests of syndicate members in mind.

International Minerals & Chemical Corp. -v- Liberty Mutual Insurance Co., 522 N.E. 2d 758, 3rd Appellate Court, 25 March 1988. Court found no evidence that discharge, dispersal, release or escape was sudden to exempt from pollution exclusion clause.

31 Mar 88

Declaratory Judgment Decisions: Carey Canada/Celotex Corp. -v- Aetna Casualty & Surety, 1988 WL 169287, District of Columbia District 5th Circuit Court,

An asbestos-related property damage case, decided by Judge Pratt from the District of Columbia District Court on March 31 1988. The Court found coverage and stated: "The court is aware of no case applying the pollution exclusion in the context of asbestos litigation." "The majority, if not all, of the underlying claimants’ seek recovery for damages caused by [the insured’s] product (asbestos) to other property (buildings and buildings materials). In such cases the ‘owned products’ exclusion is simply inapplicable." "[C]ourts which have considered the effect of asbestos on buildings in the context of an insurance coverage dispute have uniformly concluded that property damage was sustained." Court stayed plaintiff’s summary judgement motion pending further discovery. After further discovery, plaintiff’s summary judgement motion was denied in Carey Canada, Inc. -v- California Union, 748 F. Supp. 8, (D.D.C. 1990. There the Court held there was a genuine issue of fact as to whether release of fibres occurs continuously and the insured had not satisfied the burden of proving its loss occurred within the policy period.

Consultative Document - Underwriting Agency Agreements Working Group

16. Managing agents (but not members agents) should cease to charge winding up fees.

20. A horizontal deficit clause should be included in the Name’s contract with his members agent. However, the Name would be free to accept any alternative remuneration package that the agent may offer.
1. A vertical deficit clause should not be mandatory, but a line by line deficit clause should be printed in the Name’s agreement with his managing agent and the agent should be empowered to delete it.
2. The Council should keep the operation of deficit clauses under review.

1. the introduction of a direct contractual nexus between indirect Names and their managing agents;
2. the defining of the different functions and duties of a members agent and of a managing agent
3. the introduction of a fair and efficient deficit clause and a standard basis for calculating the agents’ charges;
4. the tempering of the "pay now, sue later" clause.

It subsequently became clear that the work of the group might have an impact on that of another working group established by the Council to deal with Recommendation 18 - the One Agent One Class Rule. The membership of this group was therefore supplemented by some members of the One Agent One Class Working Group.

An article in the August 1987 newsletter advised Names of the working group's area of work and asked for Names who wished to raise additional points on the underwriting agency agreement to contact the Secretary. Thirty five Names did.

Memorandum from Randall to Merrett Underwriting Agency Management Directors.

Rumours are beginning to circulate in the market concerning the possibility that the 1985 account of 418/417 may be ‘left open’. It is therefore likely that you will be questioned by staff brokers and so on.

We have not yet reached a point when the Board can take firm decisions (or make announcements) in this matter, because final syndicate trading figures are not available. It is clear, however, that there has been some deterioration in advised reserves for asbestos and pollution claims affecting both 417’s old years and the run-off contracts, but the uncertainty as to the outcome of issues is greater than ever.

The issues still to be debated by the Board include: What is the appropriate level of reserve to be carried for Asbestos Property Damage claims and EPA claims given the conflicting legal decisions so far available? Do the various scenarios produce such wide variations that we cannot properly arrive at a reliable basis for computing the reinsurance to close?

In connection with the run-off contracts, we are continuing our investigations and there appear to be grounds for supposing less than full disclosure by a number of the cedants at the time the policies were written. The reserves already carried on these contracts are very substantial indeed and we must consider whether any failure to inform whether accidental or deliberate, makes it appropriate that contracts should be renegotiated or even rescinded; meanwhile there must remain a question as to whether we have a satisfactory basis for computing the reinsurance to close.

Substances hazardous to Health Regulations 1988 COSHH. To ensure that exposure of employees to hazardous substances is prevented or adequately controlled i.e. motor mechanics working in areas involving clutch and brake pads.

The Accountancy Age survey of the 1988 auditors who carried out the audits on the 1985 accounts showed that there has been no move in the direction sought by the Neill Committee. The survey based on the Chatset 1985 Lloyd’s League Tables, showed that four firms carried out 81.3% of the audits, compared with 76% for the 1982 year upon which the Neill Committee made their comments. Recommendation 52 of the Neill Report says: "If at the end of five years (that’s at the end of 1991) there is no shift in the distribution of work among recognised auditing firms, Lloyd’s should consider implementing the suggestion made in paragraph 23.27 of the (1979) Fisher Report that there should be a limit on the number of syndicates which may be audited by any one firm".

Lloyd’s Syndicate Auditors. 1988

Times: Lloyd’s rejects Neill guideline

A working party of Lloyd’s insurance market has turned down one of the key recommendations of the government-backed Neill committee. It is the first substantive Neill recommendation to be rejected.

The committee headed by Sir Patrick Neill QC called for managing agents to share in the losses as well as the profits of their syndicates. But an internal Lloyd’s working party has turned down the proposal.

The Neill report advocated that a fair and efficient form of deficit clause should be made mandatory. This would mean names could offset the profit commission payable to agents on syndicates in profit against their losses on other syndicates. A small number of Lloyd’s agents already operate deficit clauses, but the majority are strongly opposed to mandatory deficit clauses.

The working party, chaired by Mr Edward Walker-Arnott, a nominated member of Lloyd’s and partner at Herbert Smith, the firm of solicitors, has come down against a mandatory deficit clause for managing agents, who run syndicates, but recommended it for members’ agents, who place names on syndicates but do not run them.

The working party has left the option of introducing a deficit clause up to the managing agent, because it believes mandatory clauses could just increase charges to names and could encourage managing agents to try and fudge their results. It also believes its revised agency structure, showing the separation of function between members’ and managing agents, makes the need for a deficit clause less pressing.

The idea of a deficit clause has a long history and was advocated in the Cromer report of 1969 and the Fisher report of 1980. The Neill report admitted that the introduction of a deficit clause would add a measure of complexity to the calculation of the profit commission, but added that "the principle that the remuneration of managing agents, and perhaps also members’ agents, should reflect the total result for which they were responsible rather than the profitable segments of it seems unexceptionable."

A rejection of the idea of deficit clauses will be viewed with dismay by many names, who regarded the deficit clause as one of Neill’s most important recommendations.

The rejection could also create difficulties for Lloyd’s with the Government, which gave Lloyd’s two years from January last year to implement the 70 recommendations in the Neill report.

Meeting between Merretts and Ernst & Whinney to discuss RITC. Brief mention was made of the run-off accounts which had been discussed the previous day and SRM confirmed that a similar approach had been adopted across all three syndicates. However, it was noted that significant changes could follow in the reserves for these contracts as a result of highly probable re-negotiations thereof. It was still being considered by the agency that Syndicate 418 1985 Account would not close at 31 December 1987, as it was not realistic to determine a true and fair view on the result because of the impact of uncertainty for the 1985 account Names. Even so, the work being done at this stage would be done as if to a true and fair reporting conclusion and all other business of the syndicate was being assessed on an "as if" closing basis.... On Syndicate 418, SRM indicated that it may well be that information becomes available within the next few weeks which will enable him to determine a more final answer in respect of the run-off contracts and Merretts may wish to consider closing when that information becomes available.

Lloyd’s Newsletter: Sir Kenneth Berrill to resign

Sir Kenneth Berrill, one of the three original nominated members of the Council of Lloyd’s, will resign from the Council on 31 May, coinciding with his resignation from the chairmanship of the Securities and Investments Board (SIB).

Sir Kenneth’s successor at the SIB, Mr. David Walker, will become a nominated member of Council on 1 June 1988 and will serve on the Council of Lloyd’s for a term coexistent with his term as chairman or a deputy chairman of the SIB.

In a tribute to Sir Kenneth’s work on the Council, Mr. Murray Lawrence, Chairman of Lloyd’s, praised Sir Kenneth’s qualities of objectivity, perception and intellect. ‘His comments have always been illuminating and valuable if, at times, unnerving.’ Said Mr. Lawrence, ‘However, that is why we appointed him and why we very much regret his departure. We look forward to welcoming his successor, Mr. David Walker, to the June meeting of Council.’

The Chairman (Murray Lawrence) undertook a tour of the East Coast of the United States and Canada in May, visiting the large broking companies in New York, prior to travelling to Washington where he was entertained to luncheon by Sir Antony Acland, H M Ambassador to the United States and met the Hon James A Baker, Secretary of State for the Treasury.

During the course of his stay in Canada the Chairman met the Minister for Financial Institutions, Mr Pierre Fortier, and addressed a conference organised by the Canadian Club of Montreal. The Chairman also met the Honourable Don Mazankowski, the Deputy Prime Minister of Canada and was entertained to dinner by the Speaker of the Senate, Mr Guy Charboneau.

A reception for Canadian Names was held in Ontario.

Lloyd’s Newsletter: In brief

The St Paul Companies Inc. of Minnesota has announced the formation of Minet .Speciality Management as a US based unit of Minet Holdings PLC. Minet Speciality Management will manage the US wholesale brokerage of the Swett & Crawford Croup and Minet subsidiary Minet International Professional Indemnity.

Lloyd’s Newsletter: In brief

A management buyout agreement was signed last month between senior personnel of brokers Lowndes Lambert and former owners Hill Samuel group. The management buy out is believed to be the first of its kind in the insurance broking industry.

Lloyd’s Newsletter: Indemnity byelaw passed

The Society will not indemnify a Council member if that member has been found guilty of fraud or dishonesty.

For some time we have made clear our concern that Names who may wish to receive a lesser volume of detailed reporting of their syndicate results cannot, under Lloyd’s rules, ask their agents to provide them with an abbreviated report as an alternative to the full accounts.

We believe that it would be possible to provide key information in a sensible way for those Names who prefer this, provided it were clearly understood and accepted that such information would not on its own constitute full disclosure of all relevant information.

This document is an example of the sort of abbreviated syndicate report we have in mind, covering one of our 13 managed syndicates. It is based on information extracted from the full accounts and is aimed at conveying the most salient performance information only. It does not purport to present a complete view of the syndicate’s past and future position. We would envisage producing a similar abbreviated report for each syndicate separately, with the full consolidated document continuing to be available, as an alternative, on request.

5 May 88

Corporation of Lloyd’s: Annual Report and Accounts as at 31 December 1987

Statement by Mr. Murray Lawrence - Chairman of Lloyd’s

The occasion of an anniversary provides an opportunity for celebration and commemoration. It is also a time for reflection both of the past and, perhaps more importantly, of the future and the challenges which the future holds.

For our own unique Society, 1988 provides us with just such an occasion since we are celebrating the anniversary of the first recorded reference to Edward Lloyd’s coffee house which occurred in the London Gazette of 18-21 February 1688. Events associated with the celebration of our Tercentenary will continue throughout 1988. The Council is indebted to all those within the Lloyd’s community - underwriters, brokers, underwriting agents and individual members - who have contributed so handsomely through their donations which have firmly established the Lloyd’s of London Tercentenary Foundation as a lasting commemoration of our anniversary. Establishment of the Foundation maintains Lloyd’s long tradition of charitable giving and, in this particular case, will enable Lloyd’s to support deserving programmes of research or study through the endowment of Fellowships.

I am particularly pleased that my predecessor, Peter Miller, to whom our Society owes a huge debt of gratitude over his four years as Chairman, has agreed to serve as Chairman of the Foundation’s Board of Trustees. The enthusiasm, energy and leadership which characterised his period of office in what were particularly taxing and tempestuous years will, I am sure, be of inestimable value in ensuring the success of the Foundation.

The commemoration and celebration of our Tercentenary provides an appropriate focus for our attention this year. I believe that 1988 will be seen to represent a very important benchmark in the development of our Society. Little could the patrons of Lloyd’s coffee house - least of all Edward Lloyd himself have imagined that three centuries later, the ‘coffee house’ would have long been recognised as the hub of the pre-eminent world market for insurance. Lloyd and his patrons were entrepreneurs and innovators. It has been the Society’s good fortune, through the centuries, to have been able to draw on the vision and skills of so many individuals with entrepreneurial flair and innovative spirit, to ensure its continued healthy evolution.

Regulation too has played an important part in the evolution of our Society. During the year impressive progress has been made with the implementation of the recommendations made by the Committee of Inquiry into Regulatory Arrangements at Lloyd’s under the chairmanship of Sir Patrick Neill, QC. A detailed account of that progress, and the Council’s approach to regulatory matters in the future, is incorporated elsewhere within this report. Challenges and difficulties of varying degrees have been a feature of the Society’s long history. Our ability to innovate and to exploit opportunities, however, has also ensured Lloyd’s longevity. The announcement in June last year of the provision of electronic networking services to the London insurance market, including Lloyd’s, reflects that quintessential quality.

The introduction of the electronic network in partnership with Lloyd’s Insurance Brokers Committee, the Institute of London Underwriters and the Policy Signing and Accounting Centre, is a visible manifestation of our commitment to ensure the future prosperity of the Society.

The network will serve to increase our competitiveness, improve the flow of premiums and claims monies and help to contain our costs. here can be no doubt that the facility has the potential to alter fundamentally our trading methods.

The impact of the technological revolution was among many market-related issues debated by the Council at a two-day meeting at Brocket Hall in November. Appropriately, the meeting took place against the background of publication of the consultative document on the regulation of Lloyd’s brokers, the much valued selling and servicing arm of the market.

The Council will be concerned to assist the market to identify new business opportunities throughout the world, and the completion of the European internal market by 1992 is clearly foremost in our minds. A free Community market for insurance will act as a potent impetus for our market place. In addition, there may well be a need for change in the traditional methods used for the transaction of some classes of business: the Council will consider these carefully on their merits.

It is equally important that we have regard to the capital base of our Society. The Council believes that deposits and means requirements should be strengthened and, later this year, it will give careful consideration to recommendations arising from a review of this topic and related issues.

Another important development to flow from the Council’s deliberations in November was a recognition of the need to devolve a greater degree of autonomy to the Committee of Lloyd’s, other committees and to senior Corporation managers for the making of decisions than hitherto. This will enable the Council to devote more of its time to the formulation of policy.

The Council appreciates the importance of its role in anticipating future commercial developments and the need to ensure an appropriate level of support services combined with a regulatory fabric which is effective and which enhances - rather than detracts from - the competitiveness of the Lloyd’s market. I believe that these, and other policy developments, will ensure that Lloyd’s provides the highest level of service and security to its customers in an increasingly competitive environment.

In conclusion, as we contemplate the commencement of our fourth century of successful trading and service to society throughout the world, I believe that we can do so with renewed confidence.

It is a confidence based not upon complacency. It is a confidence in the efficacy of a soundly based regulatory framework; a confidence in the collective strength of a vigorous and vital market place; and a confidence that Lloyd’s will continue to lead in meeting the challenge that is the future.

REPORT BY THE COUNCIL ON THE PROGRESS OF REGULATION

PURPOSE OF THE REPORT

The Committee of Inquiry into Regulatory Arrangements at Lloyd’s under the chairmanship of Sir Patrick Neill, QC recommended that there should be an annual report to Names which would cover "the progress of regulation at Lloyd’s, in particular so far as it affects the interests of Names." The Council agrees. The Neill Committee stated that the report should be from the nominated members of the Council alone, but the eight nominated members of the Council took the view that it would be preferable, and more in keeping with the spirit and thrust of the Neill Inquiry’s recommendation, if the report was initiated by themselves but had the support of the whole Council. The Council accepts this view and this is, therefore, a report from the Council as a whole. It is hoped that this report by the Council will represent a new and valuable addition to the annual report and accounts of the Corporation.

THE CONTEXT OF THE REPORT OF THE NEILL COMMITTEE OF INQUIRY

Much of the Council’s regulatory activity in 1987 was in hand before the Committee’s report was written, and the prospect of it was welcomed by the Neill Committee - the completion of the process of agent registration; the setting up of the general review department, now working well; the placing on file at Lloyd’s accessible to members of a register of agents’ charges; the publication of a further edition of Membership: The Issues on the implications of membership for present and potential members; and the work under way on broker regulation leading to the publication at the end of the year of a consultative document.

Nevertheless changes in regulation during 1987 were heavily influenced by the report of the Neill Inquiry. The Financial Services Act 1986 had provided a new regulatory framework for the financial services industry and the Secretary of State for Trade and Industry had invited Sir Patrick and his two colleagues to assess how far Lloyd’s provided its members with protection comparable to that proposed for investors under the new legislation and what more should be done to this end. The Committee reported in January 1987. It recognised that Lloyd’s had made commendable progress in the reform of its regulatory machinery under the 1982 Lloyd’s Act and thereby enhanced its standards of regulation. The Committee made some seventy recommendations which would carry forward the process of reform in the light of the new legislation.