Lloyd’s has changed significantly in recent years. Traditionally, the market was one in which individual members (‘Names’) underwrote insurance business on the basis of unlimited personal liability for their share of the liabilities taken on by syndicates of which they were members. In the late 1980s there was an unprecedented run of losses and a flood of litigation in which members made allegations of negligence and fraud on the part of managing agents and others in the market. This resulted in close examination of the operation and regulation of the market.
Lloyd’s set up a Task Force in 1992, and in April 1993 this published the Lloyd’s Business Plan. The plan identified the large number of syndicate accounts in run-off as a result of uncertainties created by liabilities in respect of asbestosis and pollution, and the increasing amount of litigation within the market, as the major threats to its continued existence. It made proposals which have led to a number of major changes in the market, such as the introduction of corporate capital ( LLM1060), the ‘conversion’ of individual Names from unlimited liability to limited liability underwriting ( LLM1070), and restructuring of many of the administrative aspects of the market.
In parallel with the 1992 Task Force, new legislation was introduced in Finance Act 1993 covering taxation of individual members (see LLM5000), and in Finance Act 1994 covering taxation of corporate members (see LLM4000). The tax rules have been amended, adapted and added to since then to reflect changes in the Lloyd's market, for example to accommodate Scottish Limited Partnerships, and most recently Limited Liability Partnerships.
The ‘Reconstruction and Renewal’ plan put to members by Lloyd’s in 1996 aimed to make the market attractive to new members, especially new corporate members, by ensuring that such members would not be deterred by the prospect of sharing in the burden of old losses.
Virtually all liabilities from 1992 and earlier were reinsured
into a specially set up insurance company, called Equitas. The
exception was certain life syndicates, where the type of business
was outside the classes of insurance which Equitas was permitted to
Equitas is owned by a trust, but is not a member of Lloyd's. Lloyd's and Names are however represented on its governing body and have an interest in its performance.
Two other companies, Centrewrite and Lioncover, were set up by Lloyd's earlier in the 1990s to take over the liabilities of certain troubled syndicates. Both companies’ liabilities have been reinsured into Equitas. Centrewrite continues to be active in offering quota share reinsurance policies and Estate Protection Plans to Lloyd's Names. Neither company is a member of Lloyd's.
In October 2006, Equitas and the US Berkshire Hathaway Corporation reached an agreement in principle for National Indemnity Company, a member of the Berkshire Hathaway group, to reinsure all the liabilities of Equitas, provide up to $7bn further reinsurance cover, and assume the staff and operations of Equitas. The deal was complex, in two phases, and phase 1 resulted in a small return premium payable to reinsured Names.
To try to bring an end to the litigation and to provide finality
for old years’ liabilities, Lloyd’s made a Settlement
Offer to all Names. In return for giving up their rights to
litigation, Names were allocated Settlement Credits which could be
used to offset the cost of reinsuring their old year’s
liabilities into Equitas and to meet other outstanding losses or
cash calls connected with earlier years. The majority of members
accepted this offer in late 1996. Names who had resigned from
Lloyd's could, subject to the fortunes of Equitas, end their
involvement with the market and ongoing Names could continue
without the fear of mounting debts from the earlier years. See
Lloyd’s continued to attempt to negotiate with non-accepting Names, and in some cases allocated further credits to these members to offset outstanding liabilities.