Lloyd's names count the cost of terror

Piper Alpha: one of a series of disasters to hit Lloyd's in the late 1980s

Nobody knows more about the financial fallout of major disasters than the Lloyd's names.

Nobody should be a name at Lloyd's today, unless they are prepared to accept that sometimes they will have substantial losses

Michael Beeny, chairman, Association of Lloyd's Members

This elite group of super-wealthy individuals used to be the financial backbone of the world's biggest insurance market.

But a series of natural and man-made disasters in the late 1980s and early 1990s left many of them badly out of pocket.

Many bailed-out into less volatile insurance markets, leaving corporate members to fill the void.

The names that remain are hardened to the risks involved.

And some may even benefit, in the long run, from an increase in insurance premiums following recent events in the United States.

Increasing investment

Michael Beeny, chairman of the Association of Lloyd's Members, is among those names who expect to make a loss in 2001, as a result of the US attacks.

But rather than pulling out of the market, he plans to increase his investment in Lloyd's next year, and he expects others to follow suit.

With the cost of insurance policies about to escalate, Lloyd's could be in for one of the most profitable periods in its history, he said.

"It is the biggest insurance loss of all time, but that's what insurers are there for," Mr Beeny told BBC News Online.

"Big losses happen from time to time, there is no point in getting upset about it."

Fast buck

Names have learned the hard way that insurance is not a game for the faint-hearted.

And it is most definitely not a way to make a fast buck.

"Nobody should be a name at Lloyd's today, unless they are prepared to accept that sometimes they will have substantial losses," Mr Beeny said.

"The issue is quite simply, will profits in the good years be more than losses in the bad years?"

The majority of names will probably be unaffected by the US attacks.

Only those underwriting aviation and re-insurance losses will be substantially out of pocket.

Such a person might be expected to lose in the region of £60,000, working on the assumption that they had £200,000 invested in the market.

Private wealth

The level of private wealth which an individual applicant must be able to prove in order to become a member of an underwriting syndicate is currently £350,000.

But the overwhelming bulk of the market's capacity is taken up by corporate members, with big US insurance companies bearing the brunt of major losses.

Lloyds has 894 corporate members, up from 435 in 1998, who contribute $9,099bn.

It has 2,852 individual members, down from 6,825 in 1998, providing $1,965bn.

Long-term impact

The long-term impact of events in the US on the world's oldest - and biggest - insurance market is still being calculated.

One analyst said: "It is fair to say this is not something that will cause Lloyd's to fall apart.

"But if you pay out that much capital, what do you have going forward?

"The irony of this is that they were just on the way to better results and they have now had one of their worst losses ever."

Last month Lloyd's said it expected improved results for 2000, despite forecasting a loss of £649m for 2000 and a £1.39bn loss for 1999.

The market, which uniquely reports its figures three years in arrears, said 1999 figures had been hit by tough competition in the motor insurance market, and by claims relating to French storms and earthquakes in Taiwan and Turkey.

Final loss

Last year, it was hit by an oil rig sinking in Brazil and claims under "directors and officers" cover - including potential dot.com claims made by investors unhappy with the dramatic fall in the value of their investments.

Lloyd's estimate follows a report that total insured losses arising from the US attacks could reach $58bn (£39bn).

Consultancy Tillinghast-Towers Perrin, which made the estimate, however warned a clear picture of the final loss total will take a long time to emerge.