Lloyd's faces US solvency probe

The distinctive Lloyd's building designed by Richard Rogers

Lloyd's of London is having to open its accounts to investigators from the US to see whether it can withstand the burden of insurance claims from the 11 September attacks on New York and Washington DC, newspapers say.

A report in the Sunday Times warns that the venerable insurance market is likely to end up with a gross bill which could top $9bn (£6.2bn) - although net liability is currently figured by Lloyd's to be about $1.9bn.

The gross sum is so vast that investigators from the US's state-sponsored National Association of Insurance Commissioners have demanded to see the books.

In the unlikely event that Lloyd's is deemed incapable of meeting its liabilities, it could be barred from the US reinsurance market.

Retrocession fears

"We believe Lloyd's is solvent," the paper quotes Georgia insurance commissioner John Oxendine as saying.

"But we have to be cautious and verify that."

The key worry, according to Oxendine, is so-called "retrocession contracts".

Reinsurance firms - groups which cover other, primary insurance companies for the risks they assume - have been worst hit by the disaster of 11 September, and retrocession is, in effect, re-reinsurance.

Oxendine told the Sunday Times that his team will follow all such contracts back to their source.

"Are they good legitimate companies, do we feel comfortable with them, and do any of them come through the back door to another Lloyd's syndicate?"

Lloyd's, the paper says, has promised full co-operation and will pay for the probe, while the UK's own main financial regulator, the Financial Services Authority, is also taking a hand in the investigation.