Lloyd's asks members for more cash

The insurance market's cash reserves are rumoured to be low

Lloyd's of London has asked its members to pay more into its central fund, amid market rumours that the insurance market's reserves are running low, the trade magazine Insurance Times has reported.

The fund is made up of involuntary levies paid annually by the members. It aims to protect policyholders if one of the underwriters fails to pay a claim.

And if market rumours are to believed, the fund has shrunk dramatically from the £323m it contained at the end of last year.

A spokeswoman for Lloyds of London, however, told BBC News Online that the fund was still the same size as one year ago.

She also pointed out that the £323m fund is only a part of the money available to pay out claims. The market as a whole has £18.5bn of assets, and £1bn are part of a central bail-out fund that all syndicates can call on.

Lloyds spokesman Adrian Beeby told Insurance Times that the insurance market had £323m in cash and investments, as well as reinsurance arrangements in place, so there was no need to worry.

But market participants say there could be trouble ahead.

"Rumours circulating in the market suggest that some corporate members are not willing to pay additional funds into Lloyd's once their own capital has dried up, particularly if their syndicates are no longer trading," David Wharrier director of insurance at Fitch Ratings was quoted in Insurance Times as saying.

Failed predictions

Last year's prediction by the Lloyd's Market Board, that the payment would fall to 0.5% of a member's syndicate premium from 0.75% this year, appears too optimistic.

"In light of actual and projected market results since 1997, the council has concluded it would be prudent for the standard contribution rate payable by all members for the 2002 year of account to be 1%," said Lloyd's director of finance and operations, Andrew Moss in a bulletin to the market.

There are fears that some syndicates will default on claims worth about £150m.

These claims will have to be paid by Lloyd's Central Fund should members not replenish their funds, Mr Wharrier said.

"We believe a significant earmarking of the Central Fund may lead existing members to reconsider their Lloyd's membership for 2002."