1. It is quite clear that the agency directors of Alexander Howden, Archer and Alexander Syndicate Management made commercial decisions which, in all instances, put their interests in front of those of the Names.
2. The liability problems were contained within the Incidental Non-Marine Stamp 126/129 which was separated for accounting purposes from the Marine Syndicate 127/128 as from 1 January 1980.
3. 53% of the 1979 US $ RITC was paid to the Incidental Non-Marine Syndicate 126/129 on 8 June 1982, and arrangements had been finalised by February and May 1983 to artificially boost the 1979 RITC by 25% through the inclusion of a Time & Distance policy with US $19,520,969, credit being included in the solvency return as at 31 December 1982. This is a prime example of the misuse of reinsurance and creative accounting.
4. The syndicate accounts and Lloyd's published aggregated global results are meaningless as a percentage of the reserves as disclosed in the syndicate accounts do not existent as the bottom line figure is a deficit, and such monies can only be made available through the inclusion the Syndicate Names' deposits or funds at Lloyd's. Such is apparent as far back as 31 December 1982.
5. There was no justification in crediting offshore rollover monies and Whole Account reinsurance recoveries on the basis of the make-up of the syndicate stamp i.e. 10% represents the Incidental Non-Marine stamp, separated from the marine stamp as from 1 January 1980 for accounting purposes, with the Incidental Non-marine Syndicate receiving (a) 10% of a £2-375m rollover initially paid to a Posgate & Denby managed Syndicate, the latter having paid only a nominal premium in the 1970s and, (b) 25% of a £10,168,287 Whole Account reinsurance recovery.
6. Three to five year policies were written in 1982 and by premium transfer were resigned up to 1987 back into the 1982 account of 126 whereas they could, at the underwriter's discretion, have been transferred to the successor syndicate, being Syndicate 923 which commenced at 1 January 1983 and was highly profitable. Such policies were maturing as total loss policies within a 7 – 10 year time span.
7. The crediting of 86% of the December 1985 Offer of Restitution monies to Marine Syndicate 127, thus generating a 20% profit commission for the agency, in other words reducing the restitution monies by almost 20%.
8. The basis of reserving in the 1980s, yet it was known that all policies would be a total loss by policy limit by around 1989.
9. This is a history of material non-disclosure, creative or back-to-front accounting, the misuse of reinsurance and, agents and underwriters acting in bad faith at the expense of their Names.

This clearly demonstrates that the Falkland Islands War Premium kept Lloyd's afloat for the 1982 and 1983 accounts, such results being published in 1985 and 1986. The Lloyd's published results up to the 1985 account i.e. those published up to calendar year 1988, were "post-tax inclusive of agency profit commission" and were based on the underwriting result gross of tax, less basic rate tax on investment income and 30% tax on capital appreciation; but inclusive of Agency profit commission. Thereafter, agency profit commission was deducted, but the published results included basic rate tax deducted at source i.e. the results published were "pre-tax less agency profit commission"., but Names were paid a post-tax result.

The RITC includes the exchange rate retranslation at year two. The above accounts were closed with A J Archer as underwriter. The profit commission is included in personal expenses. Archer made an underwriting loss every year, the profit being sustained through investment income and the reduction in the RITC. A mere £4,268,000 was transferred from the 1982 account of Incidental Non-Marine Syndicate 126 to the 1983 account of Archer Syndicate 741. Furthermore, the 1982 RITC £169,522,000, involving some 3,551 Syndicate Names was transferred to the 1983 account of Marine Syndicate 741, involving 1,952 Names. Such transfer is in breach of Agency Law.

1. Reduced the 1994 uncalled losses on the 1980 account from £13-9m to £10-9m, a release of £3m.
2. Reduced the 1994 profit surplus on the 1981 account of almost £6m to £4m, a surcharge of £2m.
3. Reduced the 1994 uncalled losses on the 1982 account from £26-9m to £9-55m, a release of £16-05m.

Alexander Howden/Alexander & Alexander Inc. Offer of Restitution, £13,406,513 plus interest from 18 July 1985, in settlement of litigation made to Posgate syndicate Names. Offer documents based upon report by Deloitte Haskins & Sells, auditors to Alexander & Alexander Inc

Whereas the 1979 US $ RITC was split Marine 48% and Incidental Non-Marine 52%, the offer of restitution was split Marine 86% and Non-Marine 14%. This enabled Alexander Howden and Alexander & Alexander to recover, via a 20% profit commission, £2,313,521 of the £13-4m offer, and a further 20% of the interest on 86.26% for the period 18 July 1985 to February 1986. In reality these monies represented the return of offshore rollovers, being off-account secret reserves for asbestos-related claims, together with notional interest added in some instances. The DTI report into Alexander Howden confirms that the offshore rollovers were available to pay any losses involving both Marine and Non-Marine business.

Indeed, in November 1978, Sir Peter Green secured the enlargement of the Janson Green offshore Oil Rig rollover policy with the Imperial, which was rewritten so that it was available to pay losses first on the syndicate's Rig Account and then on the whole account, and also to provide against IBNR losses on the whole account.

Incidental Non-Marine Syndicate 129/126 wrote a 10% maximum of the overall syndicate capacity but received in excess of 50% of the US $ RITC. This confirms the recognition of the asbestos-related liability. The combined 1979 account of the Posgate Marine and Incidental Non-Marine Syndicate was closed for a RITC of £38,779,096, calculated on the basis laid down by the Committee of Lloyd's in March 1982. After revaluation at the 1982 rates of exchange, £28,120,516 was credited to the Marine 1980 account and £21,445,825 to the Incidental Non-Marine 1980 account, the latter representing only 10% of the stamp capacity.

The Alexander Howden underwriters and syndicates who were signatories to the June 1985 Wellington Agreement Concerning Asbestos-Related Claims. Such confirms they acted as direct insurers to the 45 or so asbestos producers then involved:-

M J Harris Non-Marine Syndicate 947, Non-Marine Syndicate 391

The Misuse of Reinsurance:

1. In December 1982, Mr Adrian Hamilton QC submitted his secret Report to Lloyd's and recommended the cancellation of the associated stop loss policy reinsuring the Howden Harris Syndicate 947 into the Howden Posgate Syndicate 126. This had been written by Mr Harris during the ban on Syndicate 126 accepting any new business.
2. A sum of £2,375,000 has been received from Posgate & Denby (Agencies) Ltd. in respect of stop loss contingency policy No. 9914/80 with American International Underwriters (Overseas) Ltd. and has been credited to the 1980 underwriting account on whose behalf the amount was claimed and settled. This settlement has not passed through the Lloyd's Central Accounting System.

On the separation of Non-Marine Syndicate 126 from Marine Syndicate 127 on 1 January 1980, the proportionate premium allocation for the purposes of conversion was initially 10% non-marine and 90% marine. The sum received has been divided between Non-Marine Syndicate 126 and Marine Syndicate 127 on the same 10% and 90% basis. As a result £2,137,000 has been included in these accounts as a reinsurance recovery to Marine Syndicate 127. As a result £238,000 has been included in these accounts as a reinsurance recovery to Incidental Non-Marine Syndicate 126. (This boosted the agency profit commission and Lloyd's Global results and ignored the fact that the asbestos-related liabilities had been transferred to Non-Marine 126.)

3. Credit has been taken in the 1980 Account for £7,796,668 in respect of reinsurance recoveries (credited to Marine Syndicate 127) which have been either received by the Syndicate in cash during 1983 or were in the process of collection through Lloyd's Central Accounting System at 31 May 1983, or backed by credit notes issued by Lloyd's Brokers which guarantee payment on or before 30 June 1983. In addition, the Syndicate has the benefit of an indemnity from Alexander and Alexander Services Inc. in respect of other outstanding recoveries up to a maximum amount of £3,279,334. To the extent that the Syndicate does not receive recoveries up to this amount by 26 May 1984, it is entitled to rely on the indemnity for the shortfall. Accordingly, credit has been taken in the accounts for the full sum indemnified.

In November 1981, certain business for the 1981 account, which can be underwritten by either a marine syndicate or a non-marine syndicate (Dual Market Risks) was reinsured with Non-Marine Syndicate 126. Accounting entries arising from this reinsurance have not passed through Lloyd's Central Accounting System. Reinsurance premiums totalling £11,332,530 and reinsurance recoveries totalling £3,090,520 have been included in the Accounts at 31 December 1982.

The present active Underwriter was not appointed until 21 September 1982 and the Managing Agent until 6 December 1982. Accordingly, it is not possible to provide the requisite declaration that all reinsurances conform with the requirements and intentions set out in Section F4 of the "Manual for Underwriting Agents". Neither is it possible to form an opinion as to whether, in each case, the reinsurances contain a genuine risk of loss or whether the reinsurance premiums paid reflected the exposure to loss. (I R Posgate suspended on 20 September 1982, A J Archer appointed on 21 September as underwriter of both Syndicates; M J Harris appointed as underwriter of Non-Marine Syndicate on 28 September 1982. ASM appointed as Managing Agent on 6 December 1982.)

Arising from reinsurance policies arranged during 1983, in establishing the provision for the estimated future outstanding liability on the 1980 account, credit has been taken for £12,049,981; such amount is backed by Letters of Credit. The premiums of £6,172,840 have been included in reinsurance premiums ceded. (The 1979 RITC of £21,445,825 was credited to the Syndicate on 8 June 1982. This was set at £24,135,888 through exchange rate retranslation. The T & D premiums, paid in February and May 1983, represent approximately 25% of the 1979 retranslated RITC; the immediate available credit of £12,049,981 represents 67% of the remaining 1979 RITC. This has the immediate effect of boosting the 1979 RITC by 25%, credit is taken for US $19,520,969, at the exchange rate of 1.62, thereby, increasing the 1979 RITC of US $48,626,327 by some 20% .)

The value of this policy is $25-54 million and the estimated future liabilities for these years now exceed this figure by $1,447,000, ( £899,000 ). (In 1989, T & D policy exhausted after six years. )

The following cash calls were made on Non-Marine Syndicate 126:

Under the terms of the delegation agreement the expenses of running the Agency are borne by Alexander & Alexander Services Inc op to a limit of £100,000 in total. Under the terms of the Offer in settlement of litigation, made on 19th December 1985 by Alexander Howden Underwriting Limited and other companies, to the extent that those expenses exceeded £100,000 they were to be borne by the Names on the Syndicate who accepted the Offer; such expenses have been apportioned between the run-off years of account in proportion to the relevant syndicate allocation capacity on those years. During 1987 the expenses exceeded the limit of £100,000 by £126,860. At 31st December 1994 accumulated expenses of £1,596,000 (1993: £1,563,000) have therefore been allocated between the three run-off years in proportion to the syndicate allocated capacity on those years and each accepting Name's share thereof has been charged to their personal account.

Agency expenses disclosed:

As part of the Offer, accepting Names agreed to bear the annual cost of maintaining Alexander Syndicate Management Ltd. (ASM) to the extent that the cumulative costs of that company, exceed £100,000. At 31 December 1987, costs of £126,860 have therefore been apportioned between the three run-off years in proportion to the syndicate allocated capacity of those years and each accepting Name's share thereof has been charged to their personal Account. (Not shown in Syndicate account result – Not included in Lloyd's Global Published Results. This demonstrates that the A HUL generous offer covered the professional indemnity insurance premium for one year.)

The Directors of Alexander Syndicate Management Ltd: Appointed 6 December 1982

The net loss to Names on the three Non-Marine Accounts, 1980 to 1982, is £17-427m, £2-431m and £56-662m or £76-520m in total. Names on the 1981 year were paid £3-176m on account in 1984, but under the Lloyd's settlement offer appear to have forfeited all right to the remaining £4-023m. The total cost is, therefore, £77-367m, plus the combined Equitas premium of £102-862m , plus other personal expenses, such as auditors fees for Lloyd's annual solvency during the 1990s.

The Run-off Account: 1980 Account - £'000'

Due to the reinsurance purchased to protect 1979 and previous, there are grounds for confidence that sufficient provisions have been made to protect the 1980 year of account against further deterioration. However, as a result of the difference in size between 1980 and subsequent years(1985) it is not possible to close that account into a later year. (Syndicate 126/129 signatory to the June 1985 Wellington Agreement Concerning Asbestos-Related Claims.)

Last year (1986) I advised Names that there were grounds to be reasonably confident that sufficient provisions had been made to protect the 1980 year of account and prior, against any further deterioration. Due to the reinsurance purchased in 1983 on behalf of Names, I am able to reaffirm my view on this particular area of the account. However, as stated last year, as a result of the difference in size between 1980 and subsequent years, it is not possible to close that account into a later year.

Following my appointment as underwriter responsible for the run-off a substantial Time and Distance Reinsurance was purchased to protect the 1979 and previous element of the 1980 Account. On present indications (1987) I feel that this should prove to be adequate but if claims of a casualty nature should accelerate, then it must be borne in mind that this account could deteriorate.

Premiums have virtually ceased to be received, as one would expect after eight years (1988).

1980 Year of Account has worsened considerably on a gross basis ( 1988) but the purchase in 1983, after the departure of the original underwriter and his team, of a substantial Time and Distance reinsurance to protect 1979 and all prior years has to date alleviated much of the strain. At the end of 1987 there remained $14,314,520 of cover on this reinsurance policy. At the same time one year later there remains only $5.243,000 of cover. Any further material deterioration on any element of this account will have the effect of reducing the surplus shown in the accounts at 31 December 1988.

You will see from the attached reports that the 1980 and 1981 underwriting accounts are still in surplus at 31 December 1989. However, the 1982 underwriting account has deteriorated by approximately 37% of premium allocation (deficiency at 31 December 1988 - 123%, 31 December 1989 - 160%) and it is necessary to call cash on this increased deficiency in order to provide for the purchase of US$ in accordance with Lloyd's audit solvency requirements. This funding to be made via a Name's members' agent, is required by the 30 June 1990 in order to be able to meet the Lloyd's regulations.

The above figures show that the most significant deterioration has taken place in respect of potential liabilities for asbestos related claims, where the outstandings at 31 December 1989 are significantly worse than a year previously. The single largest reason for this deterioration comes from the reinsurance of companies who had insured Owens-Corning, a major producer of asbestos products in the United States. The amount involved is $9,080,000 ( £5,640,000 ).

Although the reserves for pollution have increased only slightly, this is an area which gives cause for great concern. The potential liability is enormous, but it is simply not possible at this stage to ascertain ultimate figures. Litigation surrounding the question of policy liability is being fought by insurers in many jurisdictions of the U.S.A. and this will continue for many years.

In 1983 the underwriter dealing with the run-off of this syndicate, took out an aggregate excess of loss reinsurance contract protecting the 1979 and previous element of the 1980 underwriting account. The value of this policy is $25-54 million and the estimated future liabilities for these years now exceed this figure by $1,447,000, ( £899,000 ). This means that this figure, plus any future deterioration on these earlier years, will directly affect the bottom line of each Name's personal account which currently has a surplus of approximately 20% of premium allocation.

The above figures show that the most significant deterioration in the past 12 months (1990) has taken place in respect of pollution, both in new advices of outstandings and in the consequential requirement for an increased reserve for IBNR. Warning was given in the report last year of the enormous potential liability for this class and great uncertainty still surrounds the quantum of the likely ultimate figures.

Last year the report advised that the estimated future liabilities of the 1979 and earlier year content of this account then exceeded the value of the aggregate excess of loss reinsurance contract taken out in 1983. Consequently the deterioration of the past twelve months passes straight to the bottom line result. Hence the substantial deterioration from a credit of 20% of premium allocation to a deficit of 15%.

Net settled claims during the year amounted to £2,476,000 (1989 £850,000.)

The above figures show that the most significant deterioration in the past twelve months (1991)has taken place in respect of increased advices for pollution. These reflect the ever increasing number of potential circumstances being reported by American lawyers, as well as some increases in reserves on existing accounts. There has also been some deterioration on asbestos. As advised in earlier reports, there remains an enormous potential liability for this class and considerable uncertainty still surrounds the quantum of the ultimate figures.

Net settled claims during the year amounted to £2,351,000 (1990: £2,476,000 ).

Net settled claims during the year were the highest for some years (1992) and reflect substantial payments in respect of asbestos related claims. As advised in previous years, there is considerable further potential deterioration in this area and reserves have been increased accordingly to cover both personal injury and property damage claims. Great uncertainty also surrounds potential pollution claims which, by comparison to asbestos, are in an early stage of assessment to liability.

Net settled claims in the year amounted to £6,287,000 (1991: £2,351,000 ).

All figures are at 31 December 1993 rates of exchange.

Net settled claims in the year amounted to £3,501,000 (1992: £6,287000).

Net settled claims during the year were lower than in 1992, but again were mainly in respect of asbestos related claims. As advised in previous years, there is considerable further potential deterioration in this area. Great uncertainty continues to surround potential pollution claims which, by comparison to asbestos, remain in an early stage of assessment of liability. Additionally the US$ NMAO account has shown further general deterioration and reserves have been raised in the light of this trend. (Not disclosed, but believed to be asbestos claims involving secondary assureds.)

The 1980 account continues to see deterioration from Asbestosis (1994), in particular, new advices from secondary assureds. Of particular concern is the participation in Excess of Loss reinsurance of U.S. companies in this area.

The accounts as at 31 December 1994 indicated that uncalled losses of approximately £13-9 million remained outstanding. The Equitas quotation will reduce this figure to £10-9 million.

Included in the figure of reinsurance ceded is an exceptional item of £1-38m. This amount was the contribution payable by Sphere Drake plc, as Quota Share reinsurers in respect of the reinsurance premium payable under a contract protecting the long tail liabilities of the Syndicate, written by New England Reinsurance Corporation as at 31 December 1982.

Subsequently Sphere Drake plc advised the Managing Agent that it did not wish to participate in this policy and the reinsurance premium has therefore been applied to enhance further the protection for the Names. (Time & Distance Policy?)

Reinsurance policies have been effected whereby the amount retained to meet all known and unknown liabilities carried forward at 31 December 1986 of £19,682,000 (1985: £23,226,000) takes credit for anticipated recoveries arising under the policies of £1,191,000 (1985: £558,000). T he protection relates to settlements arising on and after 1 January 1983 and the further details are:-

In February 1983, Syndicate 126 purchased a ‘Time & Distance' policy for the 1980 account as follows:

In May 1983, Syndicate 126 purchased an additional ‘Time & Distance' policy for the 1980 account as follows:

1. Settlements relating to certain latent diseases are required to be separately calculated as specific levels of indemnity apply.
2. In the event of the full indemnity limit not being reached under each policy by 31 December 1993 and 1995 respectively the indemnity is returned less any claims already met. At 31 December 1986 no cash claim has been made (1985 NIL).
3. The syndicate has ceded to Sphere Drake Insurance plc a 20% whole account quota share reinsurance, details of which are shown on page 12. Sphere Drake Insurance plc does not benefit from the above policies.

Brought Forward at 1 January - £'000'

Carried Forward at 31 December

Brought Forward at 1 January - £'000'

Carried Forward at 31 December

Arising from reinsurance policies arranged during 1983, in establishing the provision for the estimated future outstanding liability on the 1980 account, credit has been taken for £12,049,981; such amount is backed by Letters of Credit. The premiums of £6,172,840 have been included in reinsurance premiums ceded. (The 1979 RITC of £21,445,825 was credited to the Syndicate on 8 June 1982. This was set at £24,135,888 through exchange rate retranslation. The T & D premiums, paid in February and May 1983, represent approximately 25% of the 1979 retranslated RITC; the immediate available credit of £12,049,981 represents 67% of the remaining 1979 RITC. This has the immediate effect of boosting the 1979 RITC by 25%, credit is taken for US $19,520,969, at the exchange rate of 1.62, thereby, increasing the 1979 RITC of US $48,626,327 by some 20% .)

At 31 December 1995, the account had received gross premiums of £6-57m and the RITC of £32-909m, less quota share reinsurance £8-773m, resulting in a net retained reserve of £24-136m to close 1979 and all prior Incidental Non-Marine business. The account had paid £72-648m gross claims on gross premiums of either £52-723m or £48-950m, depending on the accounting method utilised for quota share reinsurance. Likewise, the account had paid £39-129m net claims on net premiums of £30-71m. Under the December 1985 Offer of Restitution, £979,848 was credited to the account, being 7-31% of the aggregate offer of £13,406,513.

The Annual Solvency:

The Run-off Account: 1982 Account - £'000'

With regard to the 1982 account, it will be remembered that this year is receiving premiums for all business written in 1982, including premiums processed through the Lloyd's Policy Signing Office in 1983 and subsequent years. Some of this late premium reflects the writing of three-year contracts, thus making it difficult at the present time (1984) to give a view on the likely ultimate result of this account. In any event it will be some considerable time before it will be possible to close by reinsurance in the normal way.

The underwriting of the 1982 and previous years' accounts was under the control of Alexander Howden Underwriting Ltd. The Syndicate ceased to underwrite in September 1982 but in October 1982 was permitted to recommence underwriting risks with an attachment date after 31 December 1982, such risks being ascribed to Syndicate Number 923. Mr M. J. Harris was appointed as active underwriter on 28 September 1982. (They remained with 126.)

The 1981 account during the past twelve months (1985) has increased its credit balance due to investment account benefits. However, the 1982 account has deteriorated further during 1985. It goes without saying that every possible action is taken to protect the Names' interests.

It must be remembered that when a syndicate stops underwriting there is a residue of business that will continue to flow for some time. Despite all efforts to maintain an orderly withdrawal, there is still business in force that will require a 1986 account signing, although these risks are now believed to be an insignificant number. On a continuing syndicate the premium from that business would be credited to 1986, notwithstanding that the risk may have been written several years earlier

Names will remember that last year there was a bottom line loss on the 1982 account which was not collected by cash call from Names. During the 1985 calendar year there has been a deterioration on the 1984 signings, together with a loss on the 1985 signings.

The above underwriting results include the provisions carried forward for estimated future liabilities. (Confirms the existence of 5 year policies, with the liabilities being rolled forward onto subsequent account years by premium transfer. If asbestos-related claims involved, policies already guaranteed a total loss of policy limits, accelerated by the ratification of the 19 June 1985 Wellington Agreement Concerning Asbestos-Related Claims.)

The 1981 account, during the last twelve months (1986), has increased its credit balance due primarily to unavoidably delayed collections of reinsurance recoveries. However, the 1982 account has deteriorated further during 1986. Despite no business having been written since September 1982, premiums continue to be signed, albeit at a lower rate than previously. For clarification there is shown below a summary of the premium income credited to 1982 and subsequent years, together with the underwriting results produced to date. The underwriting results include the provisions carried forward for estimated future liabilities.

This account has deteriorated in its fifth year (1987) and the underwriting balance is now in substantial deficit. Depending on experience during 1988 careful consideration will need to be given to making a cash call for this account next year in order to preserve equity between the Names participating on the three ‘open' Years of Account. (Should read sixth year. Savings & Loans problem not disclosed.)

During last December (1987) and January (1988) a surge of LUNCO advices were received at the underwriting box. This affected not only the older years, which in common with many Non-Marine syndicates are being adversely affected by U.S. Casualty writings, but also the 1982 Year of Account into which all business signed subsequent to the departure of the previous underwriting team is signed. The main problem on the 1982 Year of Account has been the run off of a facility written to the Lloyd's brokers J H Minet in respect of their portfolio of major international Accountants and Lawyers Errors and Omissions insurance. This facility was written by the market in such a way that even today there are live policies although some of these are being contested by me in a Court action.

In order that you may have some understanding of the amounts involved I detail below the LUNCO advices received on two separate days earlier this year in respect of 1982 and its subsequent years. The number in the first column indicates how many movements have been advised on that particular claim, the amounts are deterioration in outstanding claims and the amounts in brackets represent reductions in outstandings. These two days showed a substantial deterioration of advised outstanding liabilities.

The total amount that we have provided to meet all known and unknown outstanding liabilities includes a considerable element of provision for losses incurred but not yet reported, but the expected liability is in U.S.$ and it is a current requirement of Lloyd's that the funds held for such liabilities are provided in U.S. dollars. In order to be able to purchase the dollars, and also because there is a current shortfall of Sterling funds to meet Sterling liabilities, it is necessary to call cash on this year of account. ( The 1982 account became liable for the Minet line slip covering US accountants and attorneys held responsible for the Savings and Loans fiasco. This policy appears to be at least a six year policy, so the 1982 account became liable for the policies signed for the 1983 to 1987 years of account.) During 1988, substantial claims were made on these policies. Over a period of two days the syndicate received 4 claims involving 11 claim movements in the sum of US $730,670 and £73,931 on the first day in December 1988 and 22 claims involving claim movements in the sum of US $3,409,005 and £86,706 on the second day in January 1989. Ian Posgate wrote a 10-5% line of the layer of US $20m excess of US $20m per accountant, therefore the claims are after the application of a $20m excess per accountant or attorney.)

General Observation.

In common with many writers of insurance and reinsurance, not just here in the U.K. but in many areas of the world, a noticeable surge of loss advices was received earlier this year as attorneys reassessed loss reserves and brokers cleared their claims files for the 1988 year end.

At the end of every year it is necessary to attempt to assess the ultimate liability falling to each individual year of account. This exercise is based on various methodologies and actuarial projections, the accuracy of which improve as more data becomes available. The new and worsening advices received via LUNCO, the Lloyd's central system for advising non-marine claims, indicated that the usual annual review of outstandings would require careful judgement as to the likely ultimate settlement, particularly the 1982 underwriting account.

Earlier this year the Board of A.S.M. decided that the time was right for inviting another party to look at the figures in order to help both me and my claims manager to get a better understanding of the likely outcome. To these ends it was decided to approach Tillinghast, the actuarial firm who have a broad experience of working with Lloyd's syndicates and auditors. We are most grateful for their assistance and were pleased that the overall figures agreed with our auditors are similar to the estimates suggested by Tillinghast. This has given us a feeling of comfort that our reserving methods have a conformity with accepted market norms, but it must be realised that these projections of future liability are subject to annual review. It must also be realised that estimates on the type of business that was underwritten in this account are subject to considerable uncertainty. (Backlog of asbestos bodily injury claims being cleared; surge in reinsurance claims.)

The 1980 and 1981 underwriting accounts are still in surplus at 31 December 1989. However, the 1982 underwriting account has deteriorated by approximately 37% of premium allocation (deficiency at 31 December 1988 - 123%, 31 December 1989 - 160%) and it is necessary to call cash on this increased deficiency in order to provide for the purchase of US$ in accordance with Lloyd's audit solvency requirements.

The non-marine all other (NMAO) is long tail liability business with a large exposure included in the figures for the Minet accountants' and lawyers' professional indemnity line slip. This risk was written in 1982 covering a two-year period during which time it was possible for three year policies to be written, with a right (on payment by the insured of an additional premium) to purchase a three year discovery period. The principal exposure has now been identified as being in respect of accountants who audited numerous Savings & Loans Associations in the United States. Many associations ran into financial difficulties in the mid 1980s and the syndicate's main exposure is a 10-5% line on the layer of US$20 million excess of US$20 million per accountant. In the IBNR, provision has been made for new claims of this nature as well as other losses under the contract. It is likely to be several years before these matters are finally resolved in the United States Courts.

The deterioration in asbestos outstandings is in respect of Owens-Corning. This policy was written in 1981 but not signed through Lloyd's Policy Signing Office until 1982, and thus falls to the 1982 underwriting account. The full potential liability of advised involvements is included in outstandings and the increase in IBNR is relatively small.

Insofar as syndicate 947 is concerned and in common with many syndicates who underwrote U.S. liability business in the 1940s, 1950s, 1960s and 1970s, there has been a noticeable deterioration in claims in recent years. These affect the 30% line on the unlimited (excess of US$20 million) policy written by syndicate 126 in respect of the 1976 and all previous years of syndicate 947. The US$20 million retention is not yet fully exhausted by paid amounts, but the incurred figures (including load) shown above represent syndicate 126's current estimate of its share of the ultimate liability. (The first disclosed reference to the existence of this 30% unlimited reinsurance of Alexander Howden/Archer managed Syndicate 947, written in April 1982, disclosed after 26 April 1990 as has to be taken into account for IBNR reserving.)

This account (1990) has also suffered a deterioration on asbestos. Furthermore, a contract written in respect of Owens Illinois in 1981 was not signed through the Lloyd's Policy Signing Office until 1982, and this falls to the 1982 underwriting account, thus worsening the figures.

The general outstandings on NMAO have reduced, which is an encouraging sign, but the element relevant to the Minet accountants' and lawyers' professional indemnity lineslip remains at its previous level. There could well be future deterioration in respect of this contract particularly because of problems stemming from exposures in respect of accountants who audited numerous Savings and Loans Associations in the United States. The syndicate is appealing to the House of Lords in connection with its exposure on the discovery period attached to this contract.

Further problems also stem from the Savings and Loans Associations by way of Directors' and Officers' insurance. However, at this stage the syndicate's involvement does not appear to be material.

The deterioration on the 947 run off reflects the general deterioration in pollution and asbestos occurring on U.S. liability business from the mid 1970's and earlier years. Mr. M.J. Harris is the active underwriter of non-marine syndicate 947 and also the underwriter for the run-off of non-marine syndicate 126. Therefore Alexander Syndicate Management Ltd., with the agreement of Mr. Harris, have arranged that when payments under this contract become payable ASM will appoint an independent market person to review the claims on behalf of syndicate 126.

Net settled claims during the year amounted to £4,220,000 (1989 £2,676,000.)

This account (1991) has also suffered a deterioration on asbestos, and on the general long tail element of the account. That for asbestos is caused by further advices during the past year. The long tail element reflects primarily increased advices in respect of the Minet accountants' and lawyers' professional indemnity lineslip. Warning of this possibility was given in our report last year.

The deterioration of the 947 run-off reflects the general deterioration in pollution and asbestos occurring on U.S. liability business from the mid 1970's and earlier years. Mr. M.J. Harris is the active underwriter of non-marine syndicate 947 and also the underwriter for the run-off of non-marine syndicate 126. Therefore Alexander Syndicate Management Ltd., with the agreement of Mr. Harris, has arranged that when payments under this contract become payable ASM will appoint an independent market person to review the claims on behalf of syndicate 126.

Net settled claims during the year amounted to £649,000 (1990: £4,220,000).

Net settled claims were particularly high during the year (1992) . £6.5m of this was in respect of various accounting firms' claims under the Minet accountants and lawyers professional indemnity line slip, with one accounting firm's Savings & Loans settlement costing two thirds of the total amount. It can be expected that further claims will be paid under this cover, particularly in relation to accountants who audited Savings and Loans Associations in the United States. It has been necessary to provide for further deterioration on asbestos related claims, again both for personal injury and property damage claims.

Net settled claims during the year amounted to £10,11,000 (1991: £649,000 ).

All figures are at 31 December 1993 rates of exchange.

Net settled claims during the year amounted to £9,152,000 (1992: £10,111,000).

Net settled claims were again high during the year. £5.7m of this was in respect of "deals" concluded with various accounting firms under the Minet accountants and lawyers professional indemnity line slip (MIPI), to commute their Savings & Loans involvements. It can be expected that further claims will be paid under this cover including further "deals". Consequently it has been necessary to provide for further deterioration on MIPI and, to a lesser extent, on the syndicate 947 run-off which is primarily affected by asbestos and pollution losses.

The 1982 account has shown a substantial improvement during the year (1994). This account is particularly affected by two contracts, the run-off reinsurance protecting the 1976 account and prior of Syndicate 947 and the Minet Professional Indemnity Lineslip (MIPI). Further research into the MIPI lineslip has enabled ourselves and our actuaries to reduce the reserves required.

The accounts as at 31 December 1994 indicated that uncalled losses of approximately £26-9 million remained outstanding. The Equitas quotation will reduce this figure to £9-55 million.

Credit, has been taken in the 1982 account for £1-6m (1981: £1-2m) in respect of recoveries arising from whole account stop loss policies which have been received by the Syndicate.

Transactions recorded by Lloyd's Policy Signing office for the 1983, 1984, 1985, 1986 and 1987 accounts have been included in the 1982 account, on the basis that 1982 was the last account for which the syndicate's previous underwriter underwrote business on behalf of the syndicate. The syndicate ceased to underwrite in September 1982 but in October 1982 was permitted to recommence underwriting risks with an attachment date after 31 December 1982 such risks being ascribed to Syndicate No. 923. Mr M J Harris was appointed as active underwriter on 28 September 1982. (This confirms the underwriters were writing 5 year policies, such practice being banned by Peter Miller in the mid 1980s.)

Under the December 1985 Offer of Restitution, £351,448 was credited to the account, being 2-62% of the aggregate offer of £13,406,513.

In 1989, the deterioration in asbestos outstandings £7,160,000 (£543,000 1988) is in respect of Owens Corning. This policy was written in 1981 but not signed through Lloyd's Policy Signing Office until 1982, and thus falls ton the 1982 account. The full potential liability of advised involvements is included in outstandings and the increase in IBNR is relatively small.

Brought Forward at 1 January