Regulatory Crisis at Lloyd's of London: Reform from Within
Fordham International Law Journal
Lloyd's of London' ("Lloyd's" or "the Society") is the most
well-known insurance market in the world. 2 For three hundred
years, Lloyd's maintained a reputation as perhaps the safest
place in the world to insure risk.' From a modest start in a
London coffee house, where men gathered to protect against
the risks of ocean trade by buying and selling marine insurance
policies,4 Lloyd's has grown into a worldwide market for highly
sophisticated insurance and reinsurance transactions.5
Recently, Lloyd's has been in a state of crisis.6 Due to a
string of catastrophes in the late 1980's, Lloyd's suffered
enor* J.D. Candidate, 1996, Fordham
University. The Author acknowledges the
generous contribution provided by the MCI-Fordham International Law Fellowship,
which funded the research for this Note. The Author would like to thank those who
graciously consented to interviews in London and those who provided much-needed
assistance in New York. The Author also wishes to thank the Goldberg family in New
York and the Barclay family in London for all their guidance and efforts on his behalf.
1. See ADAM RAPHAEL, ULTIMATE RISK 18-26 (1994) (discussing Lloyd's origins).
Lloyd's of London is an insurance market. Id. at 18. It began in a seventeenth-century
London coffee house owned by Mr. Edward Lloyd. Id. at 19-20. Merchants met for
coffee and to swap rumors regarding the maritime trade. Id. at 21. This "intelligence"
became the basis for the marine insurance policies that were the first policies bought
and sold at Lloyd's. Id. at 21-22. From these modest origins, Lloyd's grew into one of
the largest insurance markets in the world. Id. at 22. Today, as a full-service,
worldwide market for insurance, Lloyd's retains many traditions. Id. at 17-18. There are still
"waiters" in eighteenth-century uniforms who work in the "Room," where the
underwriting business is done. Id. at 17. There is the Lutine Bell, taken from a French frigate
surrendered to the British by royalists during the French Revolution and later sunk. Id.
at 18. It hangs in the center of the Room and is traditionally rung to alert the market of
news of an overdue ship, once for bad news, twice for good. Id. Lloyd's has been
publishing shipping intelligence since Edward Lloyd first published his newssheet,
Lloyd's News, in 1696. Id. at 21. Lloyd's has a proud history of never failing to pay a
valid claim, and a tradition based on three centuries of honor and fair dealing. Id. at
18. The Lloyd's market is proud of its reputation and history. Id. Faced with
difficulties in recent years it is struggling to restore its good name. Id. at 41.
2. Id. at 1.
4. LLOYD'S OF LONDON, LLoYD's: A PORTRAIT 16 (on file with Author).
5. Id. at 2-3.
6. Richard W. Stephenson, Lloyd's Tries to Insure Its Future, N.Y. TIMES, Apr. 30,
1993, at DI. In April 1993, Lloyd's announced the worst losses in its over 300-year
history, over US$4 billion in 1993 and an expected US$1.5 billion for 1994. Id.; see
mous losses. 7 The unlimited liability of Names? ("Names"), the
individuals who provide the market's capital, has been a
contributing factor in the market's difficulties.9 Names faced large cash
calls as the number of catastrophe claims rose.' Some Names
have been driven to bankruptcy and even suicide as a result."
Many Names blame a lack of regulatory oversight in the market
for their difficulties. 12
In April 1993, Lloyd's leadership responded to the crisis
with a Business Plan" s ("the Business Plan") that, among other
things, created a new, stricter role for the Regulatory Board, one
that would emulate outside regulation.' 4 The Business Plan
explained that the Regulatory Board, along with a Market Board,
was part of a new governing structure set up at Lloyd's in
January, 1992.1' Because Lloyd's is a self-regulated market, the
Regulatory Board is internal, though this may soon change. 16
This Note examines the question of whether Lloyd's should
be allowed to continue to regulate itself, or whether the Lloyd's
Act of 1982,1 which guarantees Lloyd's right to self-regulation,'"
should be overturned. Part I discusses how Lloyd's market
structure and self-regulatory structure contributed to the present
crisis. Part I also details Lloyd's history and explains its trading
system. Part II describes changes to the Lloyd's regulatory system
that were initiated by the Business Plan. Part II also addresses
criticisms of Lloyd's system of self-regulation and possible
alternatives to the present system. Part III argues that a continued
system of self-regulation will be effective, if modified in the
correct ways, and suggests appropriate changes.
This Note con
cludes that the regulatory system presently in place at Lloyd's is
sufficient to properly regulate the market, and that reformers'
time and effort should be spent making substantive regulatory
changes within that system, rather than debating legislative
I. LLOYD'S STRUCTURE AND THE CRISIS
The crisis at Lloyd's was precipitated not only by
catastrophe claims,1 9 but also by structural weaknesses that existed in the
The Lloyd's market structure grew out of its unique
historical beginnings"' and is subject to certain stresses that do
not affect other insurance markets.2 2 Lloyd's, like many
financial institutions in the City of London (the "City"), has
traditionally been a self-regulated
This right to self-regulate
was codified in the Lloyd's Act of 1982.24 The present crisis has
revealed the extent of systemic problems in the Lloyd's market,
many of which stem from the fact that self-regulation, in
practice, has meant little or no regulation at all. 5
A. Basic Structure of the Lloyd's Market
Lloyd's of London is an insurance market, not an insurance
Lloyd's is a unique market and a historical
anom19. Barnes, supra note 7, at 78 (detailing catastrophes).
For example, the capital that guarantees the risk
underwritten by each Lloyd's underwriting syndicate has traditionally
been provided by Names. 8 Names pledge their personal wealth
in order to be permitted to underwrite risks.' Their business is
conducted by the underwriting professionals in the market of
Lloyd's.3 ° Names are actually individual traders, not passive
investors, and are subject to unlimited liability."1 They have
relinquished control over the decision-making with respect to their
1. The Business of Lloyd's
Lloyd's has been operating since its inception according to
at Lloyd's: marine, non-marine, aviation and motor." UnderstandingLloyd's, supranote
20, at 2.
27. MANTLE, supranote 20, at xi-xii. "Lloyd's is an insurance institution unlike any
other." Id.; RAPHAEL, supra note 1, at 17. "Step inside, and you will see frock-coated
waiters resplendent in blue uniforms straight out of the eighteenth-century coffee
house, contrasting with soberly suited brokers swarming up and down the escalators."
the basic principle of insurance: the diffusion of risk.3 3 If one
wished to protect oneself from the risk of the loss of, for
example, a ship returning from China laden with silk and spices, one
found a group of underwriters each of whom was willing, for the
price of a premium, to insure a percentage of the risk.34 The
idea was that by spreading the risk, one might provide that no
single underwriter's liability for claims would be so great that he
would be unable to meet his obligations.3 5 As Lloyd's grew in
size and sophistication, market professionals began to
specialize.3 6 Despite the development of the current system of
independent Lloyd's brokers, who act as the sales force,3 7 and
underwriting syndicates, 8 which are professionally managed, the
basic principle remains the same. 9
Today, if one wishes to insure a ship, one speaks with an
insurance broker, who speaks directly with a licensed Lloyd's
broker' who specializes in such matters.4 1 The broker, in turn,
speaks with professional underwriters, also specialists, to
negotiate a price for which each of the underwriters will accept a
portion of the risk.4 2 The conversation between Lloyd's broker and
active underwriter 3 takes place in the underwriting area at
33. See RAPHAEL, supra note 1, at 176 (stating that concentration of risk violates
basic principle of insurance: diffusing risk).
34. See LLOYD'S: A PORTRAIT, supra note 4, at 16 (describing means of insuring
ships and cargoes in 17th century).
35. See LLOYD's OF LONDON: INFORMATION PACK, LLOYD'S TODAY 9 (1994) (on file
with Author) [hereinafter INFORMATION PACK] (stating market is based on
36. See LLoYD's: A PORTRAr, supranote 4, at 24 (explaining coffee house merchant
of past gave way to professionals).
37. Id. at 2. The system of syndicates and brokers is as follows: syndicates are
comprised of individual underwriters and managed by professionals. Id. Independent
brokers, registered at Lloyd's, act as a commissioned sales force. Id.
39. See IrFORAIoN PACK, supra note 35, at 9 (stating market is based on
40. See ILLoYD's: A PORTRAIT, supranote 4, at 2 (noting Lloyd's accredited brokers'
intimate knowledge of market).
42. See id. at 2 (explaining business brought to specialist underwriters by Lloyd's
brokers). "The syndicates in each [of the four markets] is headed by prominent active
underwriters from that market and each has within it recognized expert underwriters in
subcategories of risks in that market such as satellites, professional liability, livestock
mortality, fine arts and so on." UnderstandingLloyd's, supra note 20, at 2.
43. See MANTLE, supra note 20, at xi (stating broker takes risk onto floor of Room
seeking underwriters to provide cover).
Lloyd's known as "the Room."" Many layers of brokers and
reinsurance underwriters usually exist between the insured and
those who pay the final cost of a claim."
The underwriters at Lloyd's are grouped into syndicates.'
Each syndicate is divided into active underwriters and Names.4 7
The active underwriters do business in the Room where they
accept risks.4 8 The Names are capital providers, individuals who
accept unlimited liability in exchange for the chance to earn
large underwriting profits.4 9 It is their money that underwrites
the risk." Some Names are also working members, but the
majority are external Names who do not work in the market.5 1
Syndicates are managed by managing agents5 2 that employ
the professional underwriters who accept risk on behalf of the
Names.5 3 Another kind of agent, known as a members' agent, 54
45. RAPHAEL, supranote 1, at 175. "By layering risks vertically according to value as
well as spreading them horizontally among dozens of reinsurers, no single underwriter
need expose himself or the Names he represents to intolerable losses in the event of a
series of catastrophes." Id.
46. Eileen M. Dacey, Litigation Issues Unique to Lloyd's 2 (Feb.-Mar. 1995) (paper
delivered at Practicing Law Institute 12th Annual Insurance, Excess and Reinsurance
Coverage Dispute Program).
47. See RAPHAEL, supra note 1, at 46 (describing management of syndicates).
48. See MANTLE, supra note 20, at xi (stating that active underwriters write policies
on floor of Room).
49. See RAPHAEL, supra note 1, at 48 (explaining role of Names).
52. See id. at 45 (explaining role of managing agent).
54. See id. at 49 (explaining role of members' agent).
Concerns have been voiced about possible conflicts of interests in
situations where managing agencies own members' agencies. An advantage to
such an arrangement is that the members' agent will be closer to the business
being written in the Room and have more direct contact with the active
underwriters on that agency's syndicates, thus giving the agent broad
information with which to protect his client. However, the managing agent may have
a perceived obligation to keep the syndicates running. Ian Hay Davidson,
Lloyd's first Chief Executive, has drily noted:
The Name who goes direct to a managing agent will be sure of getting on
to the syndicates managed by that agent, but is likely to be the last to hear
when it is time to come off those syndicates. He will have the advantage that
the desire of other agents for places [for their Names] on his own agent's
syndicates will give him reciprocal access to a wider range of syndicates. There
is no simple answer: some Names prefer to talk to the organ grinder; others
prefer to deal through the monkey.
UnderstandingLloyd's, supra note 20, at 4.
manages the placing of Names on various syndicates. 55 The
business affairs of the Names have traditionally been managed
completely by market professionals, whose accountability to the
Names themselves was slight.5 6 The entire system operated in a
secretive way, 7 relying to an enormous extent on trust,58 and
remained unchallenged until the recent crisis.5 9
2. The Role of the Names
Whereas, traditionally, the ranks of the Names were filled
mainly by the British upper-class,60 financial requirements for
membership were relaxed in the 1970's and 1980's.61 The
capacity of the market increased immensely at that time, when the
number of Names increased from about 12,000 to over 30,000.62
Being invited to join Lloyd's, with its history, patrician
atmosphere, and aura of exclusivity, was considered an honor similar
to being asked to join one of England's most exclusive clubs. 6
Another attractive feature of Lloyd's was its reputation as an
impeccable blue-chip investment.64
The Lloyd's system of trading involves the potential for high
profits.65 Although traditionally, only the wealthy were members
of Lloyd's, 66 the upper middle-classes also became attracted to
Lloyd's, 6 7 particularly under the Labour government of the
1970's, when the tax benefits were substantial.68 Many North
American Names also joined during this period,6 9 along with
many others from outside England.7 ° The membership
expansion included some who were not well-prepared for the financial
burdens when the losses accumulated and the cash calls began.7
To join Lloyd's, a prospective Name must demonstrate a
certain amount of personal wealth, an amount at its lowest level
of UK£37,500 for a class of "mini-Names."7 2 While Lloyd's would
not include the value of one's home as part of net worth, it
began, during the period of expansion in the 1970's and 1980's, to
accept a bank guarantee on one's home.7" Many people were
thus able to join Lloyd's in a manner that contravened the spirit
of rules that Lloyd's had in place to protect Names against the
possible loss of their homes.7 4
Once membership is offered, a "Rota meeting"75 is held to
explain the risks of unlimited liability.76 Each Name is
personally liable to the extent of his or her personal wealth for all
69. See MANrLr., supra note 20, at 33 (marking January 1, 1969, as date first U.S.
70. RAPHAEL, supra note 1, at 48. "Most [Names] are British, but no fewer than
eighty-five countries are represented at Lloyd's. There are sizeable numbers of Names
in the United States, Australia, Ireland, Canada, South Africa, and New Zealand. There
are even Names in such unlikely capitalist havens as North Yemen, China, and Tonga."
The cynical might suggest that we have seen the result of past Lloyd's
membership drives in the current crops of American, Canadian and
Antipodean members. It seems unfair to raise such a sensitive subject when Lloyd's is
earnestly trying to present an up-beat message, but the problem with
admitting any member (individual or corporate) whose assets and wealth are largely
based outside the jurisdiction of the English courts, does raise the spectre of
whether it will be possible to recover those assets and wealth in the event of it
ever becoming necessary to bankrupt that Name.
Deborah A. Tompkinson, Challenge at Lloyd's, 706 PLI/CoMM 1
71. See MANTLE, supra note 20, at 6
(describing effects of late 1980's catastrophes
on new Names)
72. See id. at 33 (describing entrance requirements for "mini-Names" admitted
73. See id. at 5 (stating a bank guarantee sufficient to cover deposit)
74. Barnes, supra note 7, at 80. "The financial conditions forjoining were now less
stringent and the rules more laxly monitored. (In theory, you were not allowed to put
up your principal residence as part of the wealth you showed, but Lloyd's happily
accepted a bank guarantee instead, and since the bank guarantee was based upon a
charge on your house the effect was the same.) New money rushed tojoin Lloyd's." Id.
75. See id. at 83 (describing Rota Committee meeting where effects of unlimited
liability are explained to Names by Lloyd's members).
claims."' Even death is no escape, as the liability passes to the
estate. 78 Furthermore, even if Lloyd's collapsed and became
insolvent due to its current difficulties, each Name would remain
individually liable in full.7 9
After the Rota Meeting, a Name settles on several "lines" °
that he or she wishes to underwrite, such as thirty lines of
UK£10,000 each.8 1 A Name must-then put up only one-third of
the total UK£300,000, to be deposited in the Premium Trust
Funds, 2 which are similar to an insurance company's reserves.83
From this point on, a Name can earn profits not just on the
amount he places on deposit, but on the total he pledges,
because each Name is personally underwriting risks up to the full
UK£300,000. 8 4 Furthermore, the UK£200,000 not on deposit
can be invested elsewhere, while simultaneously earning profits
at Lloyd's. 85 The tax benefit comes from offsetting underwriting
losses against taxable income.8 6 Under the Labour government
of the 1970's, when the top tax rate reached a high of
ninetyeight percent, Lloyd's became an attractive investment8. 7
3. The Tradition of Self-Regulation in the City
Lloyd's operates under a system of self-regulation.8 8
system has historical roots,89 and was codified in the 1982 Lloyd's
Act, after much debate in Parliament.9"
Lloyd's is the foremost
example of the system of self-regulation that has traditionally
governed the financial institutions of the City.9 1 Lloyd's is one
such institution that has successfully resisted regulatory changes
in recent years. 92 Self-regulation in the past meant that
practitioners in London financial institutions policed themselves.9 3 In
other words, a gentleman's word was his bond, and those who
broke the rules were shunned and could no longer participate in
the City's business.9 4 With the advent of technology and the
globalization of the marketplace, and the resultant fraying of
personal ties, fraud increased.9 5
The beginning of the end of the old regime arrived in the
1980's with the massive deregulation known as the "Big Bang."996
The "Big Bang" was a move away from restrictive practices that
were making the London securities market uncompetitive in the
world marketplace.9 7 This deregulation of the City's financial
services industry was followed by its re-regulation under the
expansive Financial Services Act ("FSA") passed in 1986.98 The
FSA was passed because some practitioners were able to abuse
the previous system of self-regulation that existed in the
securities industry.9 9
The FSA was a move away from self-regulation,
although there was an effort to avoid an agency regime like that
of the Securities and Exchange Commission'0 0 ("SEC") in the
United States. 10 1 Instead, the FSA retained elements of the
tem of self-regulation.
The FSA was intended by its framers to provide a statutory
framework for the continued self-regulation of the investment
industry that would allow more oversight, but also allow the
market to remain competitive.10 3 The FSA replaced all prior
regulation of the investment industry, combining much of what had
existed previously with new civil liability provisions. 10 4 The FSA
also provided that five Self Regulatory Organisations' 0 ("SROs")
be set up to govern the affairs of the financial markets. 10 6 The
Securities Association and the Association of Futures Brokers
and Dealers merged in 1991 to form the Securities
Association,0 7 which now is the primary regulator of the London Stock
Exchange and futures trade. 0 8 The three remaining Self
Regulatory Organisations are independent and between them
regulate the rest of the financial services market in the City.' 0 9
99. See Creaven, supra note 92, at S286 (describing reasons for adopting FSA).
"Although the FSA provided for continued self-regulation of the industry, it included
provisions for stronger government guidance than in the pre-Big Bang era." Id. at
The Commission... shall ... have power to make such rules and regulations
as may be necessary or appropriate to implement the provisions of this title for
which [it] is responsible or for the execution of the functions vested in [it] by
this title, and may for such purposes classify persons, securities, transactions,
statements, applications, reports, and other matters within their respective
jurisdictions, and prescribe greater, lesser or different requirements for
different classes thereof.
Lloyd's of London was exempted from the Financial
Services Act.11 ° Lloyd's successfully argued that its business was
insurance underwriting, and that Names were individual
underwriters."' Lloyd's argued that Names were not investors' 1 2 and
that Lloyd's did not conduct "investment business," which was
the main concern of the Financial Services Act.11 3 Lloyd's was
allowed to retain its right to self-regulation that was codified in
the 1982 Lloyd's Act."14
B. The 1982 Lloyd's Act
The Lloyd's Act of 1982 was the latest in a series of five
Lloyd's Acts dating from 1871.115 The 1871 Act incorporated
the Society under the name "Lloyd's of London," and formed a
ruling Committee ("Committee") to attend to management and
to exercise all the powers of the Society, subject to certain
restrictions. 116 Other powers were conferred by subsequent
Lloyd's Acts in 1911, 1925, and 1951.117 The Lloyd's Act of 1982
was, among other things, an act to establish a Council of Lloyd's
("Council") and to define its functions." 8 The Lloyd's Act of
1982 did change some of the functioning of the market but,
more important for the purposes of the present discussion, it
codified the practice of self-regulation." 9 The debate at the
time of its passage focused on what form Lloyd's regulation
110. Jonathan Prynn & Sarah Bagnall, Lords Fuel Lloyd's Debate, TIMS, June 30,
1994, availablein LEXIS, News Library, NON-US File.
111. See id. (stating Lloyd's argument that Names are underwriters, not investors).
113. Creaven, supranote 92, at S285 (describing FSA role in new regulatory regime
for U.K. investment industry).
114. Lloyd's Act, 1982, pmbl. (Eng.).
116. Lloyd's Act, 1871, pmbl. (Eng.).
117. Lloyd's Act, 1982, pmbl. (Eng.).
118. See id. at 1-25 (reciting purposes of Lloyd's Act).
120. See RAPHAEL, supra note 1, at 68-69 (describing reforms adopted by
Key clauses of the Bill are facing an unprecedented degree of opposition
in the House of Lords from sectional interests of the Lloyd's market.
A large part of the Lloyd's market has ranged itself against the Lloyd's
establishment in an effort to prevent the legislation incorporating clauses vital
to the effectiveness of the self-regulatory powers....
A House of Commons committee insisted that Lloyd's included the
1. Events Prior to the Passage of the Act
A series of scandals occurred at Lloyd's in the 1970's. 12 1
These scandals precipitated passage of the Lloyd's Act of
1982.122 The last of these scandals involved a broker-controlled
managing agency that exposed one of its syndicates to excessive
financial risk by arranging reinsurance disproportionate to the
syndicate's income. 123 Evidence of fraud and skimming profits
was also found by the Lloyd's arbitration panel that investigated
the incident. 124 The offending broker was expelled from the
market through a cumbersome process promulgated by the 1871
Lloyd's Act. 125
Changes in the current self-regulatory system were necessary
to prevent further scandals. 26 An inquiry was commissioned
and headed by Sir Henry Fisher, a former High Court judge. 2 7
The resulting Fisher Report did not address the question of
whether self-regulation was appropriate for the market.12 8
Instead, changes were proposed that did not infringe upon the
right of self-regulation.
ment clauses because it had identified conflicts of interest which could
undermine Lloyd's self-regulatory powers which the market is seeking in its new
The divestment clauses attempt to regularise the relationships between a
broker, the broker's client, and the underwriting capital base of the market, to
restore Lloyd's market character and identity, and to eliminate the possibility
of abuse through conflicting interests within Lloyd's.
Those opposing the divestment clauses argue that the delicate fabric of
the relationships within Lloyd's will be damaged .... Of more direct concern,
brokers and underwriters, in defending the status quo within Lloyd's, have
pointed out other conflicting interests within the market. These conflicting
interests are serious and have far-reaching implications. Lloyd's and outside
regulatory agencies will need to examine them closely.
John Moore, Support Grows for Howden as Lloyd's Bill Enters CrucialStage, FIN. TIMES, May
, at 21 [hereinafter Support Grows].
121. See generally, RAPHAEL, supra note 1, at 60-67 (discussing Savonita Affair, Sasse
Affair, and Moran scandal).
122. See id. at 66-67 (discussing Christopher Moran). "[Tihe Moran case proved
that it was no longer practicable to run a modern international market with regulations
fashioned in the nineteenth century." Id. at 67.
123. See id. at 66-67 (discussing Moran scandal).
127. See id. at 67-69 (describing Fisher's commission).
The principal change recommended by Fisher was that the
Committee, formed under the 1871 Act, be replaced by a
smaller council to oversee the regulatory process.1 3' The new
council would be composed of sixteen working members, eight
external Names, and three members from outside the market.13 1
The council would have broad powers of inquiry and discipline
over brokers, underwriters, and agents. 132 The oversight of the
daily affairs of the market would be administered by a smaller
committee of the sixteen working members on the council.13 3
A more controversial change, however, was one that had
also been recommended in a similar, earlier inquiry by Lord
Cromer.134 Fisher proposed that brokers no longer be allowed
to own managing agents because of inherent conflicts of interest
in this arrangement.13 5 Fisher did not address the ownership of
members' agencies by managing agencies where the conflict of
interest was perhaps greater because of the attraction for
members' agents to place Names only on syndicates they themselves
owned.1 36 Nor did Fisher address the duty of Lloyd's agents to
Names, or the need for more disclosure, or the practice of
agents gaining substantial profit commissions even in years of
overall underwriting losses.13 7
In 1982, during the passage of the latest Lloyd's Act,
Fisher's proposals were debated at length in Parliament. 3 1 One
issue affecting passage of the Lloyd's Act of 1982 was the
relationship of certain Members of Parliament ("MPs") to the
Lloyd's market.1 39 Many of the Conservative Tories in the
British Parliament are culturally, socially, and politically linked to
the members of Lloyd's. 4 ° In fact, some MPs are also members
The Lloyd's leadership supported the passage of the Lloyd's
Act of 1982 by Parliament. 142 A large segment of the Lloyd's
market, however, opposed the bill and mustered opposition in
the House of Lords. 4 ' While many brokers supported the bill in
public in order to further its overall passage, many opposed the
requirement that brokers divest themselves of ownership of
managing agencies.'44 This divestment clause was thought by other
members of the Lloyd's community to be essential to the success
of the self-regulatory powers of Lloyd's.' 45 Parliamentary
petitions were sought condemning the divestment clause, notably by
broker Alexander Howden's chairman Kenneth Grob.'46 A
House of Commons committee favored the retention of the
The Lloyd's Committee denied that the divestment clause
would upset the delicate balance of relationships within the
market, arguing instead that the broker should be the agent of the
insured and not the agent of the underwriter. 148 Lloyd's argued
that the divestment clause would regularize the relationship
between a broker, the broker's clients, and the underwriting
capital base of the market.'49 The brokers who opposed the
divestment clause argued that the conflicts of interest being singled
out by reformers were arbitrary in a market full of such
conflicts. 5 ' Further, the brokers argued that such a market created
a unique revenue-earning environment by maintaining existing
relationships in the market.1"
The Lloyd's Act of 1982 passed with the divestment clause
intact. 15 2
The substance of the law incorporates Fisher's
reforms. 5 3 The Council of Lloyd's'5 4 was created with sixteen
working members, eight external Names, and three nominated
members.'5 5 The Council was given powers over the
management of the Society's affairs and regulation of its members and
their conduct.'5 6
The Council was also given broad power to
adopt bylaws for any purpose, including making provision for
and regulating the admission, suspension, and disciplining of
members of the Society, Lloyd's brokers, underwriting agents,
The Lloyd's Act of 1982 was unable to prevent scandal,
however.' 58 Kenneth
Grob of Alexander Howden, an opponent of
change during the Parliamentary hearings, was implicated only a
152. See Self-Regulation at Lloyd's, FIN. TIMEs, Sept. 23, 1982, at 20 (explaining
decision that brokers' and managing agents' functions must be separated). "At one time,
the majority of both managing agents and members' agents Were owned by brokers.
Under the Lloyd's Act of 1982, brokers were required to divest their managing agencies
but could retain their members' agencies." UnderstandingLloyd's, supra note 20 at 4.
153. Lloyd's Act, 1982, ch. 14, §§ 10-11 (Eng.).
158. See Self-Regulation at Lloyd's, supranote 152, at 20.
[R]arely [has a scandal] penetrated so deeply as [the Alexander Howden
affair]. Not only are the amounts of money extremely large - Alexander and
Alexander has alleged that as much as $55m may have been misappropriated
over a period of years - but one of the leading firms of Lloyd's brokers is
involved, and in suspending Mr. Ian Posgate, Lloyd's has taken severe
disciplinary action against one of the members of its own ruling committee.
Another strange aspect is that several of the key figures involved took a
leading part in the presentation of evidence last year to a Parliamentary
Committee, during the process of enactment of new legislation to reinforce the
self-regulatory powers of Lloyd's....
In the event it was decided that .[the] functions [of broker and managing
agent] must be separated. That decision is clearly justified by recent events.
Even so, it is bound to rankle in political circles that such prominent figures in
the parliamentary proceedings should now be the subject of serious
allegations involving precisely the misuse of underwriters' funds over which they had
In th[e] circumstances the market must either take shelter beneath an
umbrella of statutory controls or, as we would prefer, face up to the problems
and costs of a much more sophisticated structure of self-regulation.
few short months after the passage of the Lloyd's Act in one of
the worst scandals in Lloyd's history. 5 9 Grob was accused of
misappropriation of underwriters' funds, precisely the ill that the
divestment clause sought to prevent.'6 0 The misappropriated
funds totalled nearly US$55 million. 6 '
C. The Late 1980's: Downturn in the Lloyd's Market
Insurance is a cyclical business,' 6 2 and Lloyd's proved not to
be immune to the cycle.' 6 3 The string of disasters that occurred
in the late 1980's were damaging to Lloyd's.16 4 Because of the
extent of the catastrophe coverage provided at Lloyd's by the
London Excess of Loss 1 65 ("LMX" or "spiral") market, losses
were great.' 66 Other damage stemmed from the long-tail 167
market where open-year' 6 8 claims increased under pollution and
asbestosis policies. 69 The resulting cash calls to Names to pay for
these losses led to an unprecedented amount of litigation. 7 °
1. The Insurance Cycle
The insurance industry operates in cycles.' 7' Premium rates
170. See RAPHAEL, supra note 1, at 7-8 (discussing Names' suits).
171. Kevin Pratt, Lloyd's Ensures a BrighterFuture,SUNDAY TIMES, Feb. 12, 1995,
available in LEXIS, News Library, NON-US File (discussing insurance cycle).
increase, or harden, during periods when demand is increasing
but capacity, the amount of capital available to underwrite risk,
is low.'7 ' As profits increase, capacity also increases due to
greater participation in the market.' 7 As a result, the market
turns soft and premium rates go down as underwriters slash
prices in an effort to compete for business. 1 74 When prices
becporimcees taogoainlowbe,gcianptaocithyaridsenag.a7i5n driven from the market and
A soft market is not good for business.' 76 As capacity
increases, and business becomes more competitive, incentives rise
to repackage already insured risks for reinsurance in order to
generate profits in the form of commissions. The incentives
also rise to accept unreasonable risks in order to generate
underwriting profits. 178 When the series of disasters occurred in the
late 1980's, the capacity of the market was nearly at its peak
The series of accidents and natural disasters that occurred
in the late 1980's led to record losses.' 80 First, the Piper Alpha
oil rig explosion in the North Sea killed 165 people and caused
millions of dollars in damages.'' Soon after, Hurricane Hugo
hit the Eastern seaboard of the United States, causing over US$5
billion in damages.'8 2 Between 1987 and 1990, the
unprecedented number of disasters included the Exxon Valdez oil spill
in Alaska,'1 3 the earthquakes in San Francisco and Australia, 8 4 a
typhoon in Japan, 8" and windstorms in Northern Europe. 186
The disasters precipitated losses in the worldwide insurance
market of over US$40 billion.1 87
Lloyd's was not alone among insurers in suffering the
business effects of these catastrophes.1 88 As a worldwide market for
high-risk excess casualty reinsurance,189 however, Lloyd's may
have felt more pressure than the United States and continental
European insurance companies. 190 The spiral market was that in
which underwriters wrote excess casualty policies' 91 that insure
catastrophic loss over and above a certain amount.19 Market
professionals reinsured the risks repeatedly, each time adding a
new layer of protection and each time taking a commission. 193
The practice ran counter to the principles of insurance, which
demand that risk be diffused and carefully assessed.19 4 In the
insulated world of the spiral market, risks were reinsured at a
level far removed from the underlying policies.'95
the risks were often not fully understood by the underTwhreirteerfso.r1e9,6
Furthermore, the risks became concentrated in fewer hands as
they travelled up the spiral to the small group of underwriting
syndicates willing to continue to reinsure catastrophe risk.'97 A
great deal of money was made in this area of the market until
the series of catastrophes in the late 1980's toppled it. 198 Layers
of protection disappeared and the cash calls began. 1 99
future capital providers to underwrite risks.24 8 Along with the
April 1993 announcement of the worst losses in its three
hundred year history,2 4 9 Lloyd's announced a Business Plan to
dress these problems.
II. REGULATION AT LLOYD'S
The current leadership is still reticent regarding certain
matters Lloyd's faces during this crisis.25 1 They do admit,
however, the need for change at Lloyd's. 25 2 The old regulatory
system contributed to the crisis.255 The current leaders
acknowledge the benefits of reform,2 5 4 even if Lloyd's leaders have not
been traditionally inclined towards it.25 5 The leadership
initiated changes within the structure of self-regulation at Lloyd's.25
Yet, critics question the efficacy of the self-regulatory system.25 7
248. See The End of the Name, ECONOMIST, Sept. 18, 1993, at 107 [hereinafter End of
the Name] (discussing advent of corporate capital).
249. See Stephenson, supra note 6, at D1 (discussing announcement of losses and
Mr. Radice. The market is basically changing, is that right? Mr. Rowland:
Enormously. I think one of the enormously healthy things which we have done
and I mean "we" the market helped by our regulatory colleagues laying down
the rules - is to blow the doors of the market open to a different form of
capital. If we are analysing the past as to what went wrong, it is sad to have to
say so but the old capital was weak and members' agents representing that
capital did not exercise the discipline on the market they should have done,
because it is after all capital which has the strongest influence in terms of
conduct of anything which it owns or it should have.
FinancialServices Regulation, Minutes ofEvidence Before the Treasury and Civil Service
Committee, House of Commons, Session 1994-95 (Feb. 13, 1995) (Testimony of David Rowland,
Chairman of Lloyd's of London) [hereinafter Rowland].
255. RAPHAEL, supranote 1, at 68. One former chairman at the time of the Fisher
[If] the people at Lloyd's had to be dragooned, policed and watched at
every turn; if it really came to the point where one expected good faith,
honesty and decency to be the exception rather than the rule, then one might well
wonder whether it was worth carrying on at all.
256. See BusiNass PLAN, supranote 6, at 30 (describing new regulatory, regime).
257. SeeJonathan Prynn & Sarah Bagnall, Lords Fuel Lloyd's Debate, TIMEs, June 30,
The Names Association has pressed the need for an
independent regulatory organization that would provide protection for
the Names similar to that provided by the Securities and
Investment Board ("SIB").258 Parliamentary hearings were held in
February 1995 to re-examine the question of whether Lloyd's
should be allowed to continue to regulate itself.259
A. The Business Plan and the Self-Regulatory System at Lloyd's
The Business Plan institutes changes that affect the process
of adopting a new regulatory regime.26 0 The first-time
introduction of limited liability corporate capital and the development of
the run-off reinsurance company, Equitas, are among the biggest
changes.2 61 The question of solvency and the continued
litigation by Names are further issues being addressed by Lloyd's
1. The Business Plan
The regulatory climate at Lloyd's today is changing, though
currently still within the confines of the self-regulatory system
guaranteed by the Lloyd's Act of 1982.263 At the start of 1993, a
new system of governance was adopted by the Council. 2 64 Four
months later, in April 1993, the changes were detailed in the
Business Plan.26 5 The governing Council is now composed of
fewer committees. 266 There are two new boards.2 6 7 The first is a
Market Board that administers the daily business of the market,
and the other is a Regulatory Board that oversees regulatory
The stated goal of the Regulatory Board is to emulate as
closely as possible the role of an outside regulatory agency in
order to restore the confidence of future capital providers. 219
The new regulatory regime must reconcile the varied interests at
work in the marketplace as well as the feeling among aggrieved
Names that failure of regulation is at the root of so many of the
current problems. 2 70 The success of the regulatory changes is
contingent on the success of the Business Plan's other
ven2 7 1
2. Factors Affecting the Scope of Regulatory Change
Many factors affect the scope of the regulatory changes at
Lloyd's. 2 7 2 The new role of limited liability corporate capital273
in the marketplace is a major development,27 4 as is the effort to
create a run-off reinsurance company for old-year risks. 7 5 Other
problems include ensuring Lloyd's solvency2 7 6 and confronting
268. Id. at 30.
269. See id. (discussing new regulatory regime).
270. See Hart, supra note 12, at 31 (discussing Names anger at lack of regulation).
271. See BUSINESS PLAN, supra note 6, at 3-4 (summarizing Business Plan).
273. See id. at 56-57 (discussing first-time admission of limited liability
incorporated capital vehicles as providers of underwriting capacity at Lloyd's).
There was an immediate scramble among the large financial institutions,
Lloyd's brokers and agents, to launch corporate vehicles. Although a few fell
by the wayside, most Were launched successfully. Those which were withdrawn
were, by and large, those which were overambitious and sought to set up funds
of hundreds of millions of pounds. A few, such as LIMIT and Angerstein,
went through despite raising funds which fell short of their target. The most
popular were the smaller vehicles and those which were strongly tied to a
successful and respected managing agency with guaranteed access to choice
syndicates, such [as] Hiscox.
To date, all the Corporate Names have been set up as investment trusts.
An investment trust is not a trust properly so-called but a limited liability
company, the shares of which must be listed on the London Stock Exchange.
Shareholders own shares in the company, not in its underlying investments.
Challenge at Lloyd's, supra note 70, 'at 5.
275. Ralph Atkins, Paymentfor PastExcesses: Ralph Atkins on Equitas, A New Company
to Take Over Billions of Pounds of Old Liabilities at Lloyd's, FIN. TIMES, Feb. 8, 1995, at 20.
276. Clare Sambrook, Lloyd's Future is Now the All-Risks Question: Is the Insurance
Market Solvent? Clare Sambrook Hearsits Embattled ChairmanDiscuss the Unthinkable,DMLY
TELEG APH, Feb. 11, 1995, at 2 (discussing solvency at Lloyd's).
the continuing litigation. 77
a. Corporate Capital
A change that affects both the Market and the Regulatory
Board is the admission of limited liability corporate capital to
the Lloyd's market.2 78
The admission of corporate capital runs
contrary to the traditions of the past and is evidence of the
maturation of the marketplace.2 79 The April 1993 Business Plan
explained the need for new capital in order to keep the market
active,. ° Limited liability corporate membership vehicles were
developed by many of the City's merchant and investment banks,
some in conjunction with brokers or managing agents, 28' and
other corporate capital vehicles were U.S. institutions. 8
The basic form of the new corporate capital vehicles is an
investment trusty28. One-half of a trust's capitalization is
invested in underwriting syndicates and the other half in
investments outside Lloyd's in order to act as a guarantee for the
funds placed on deposit at Lloyd's.2 4 The new corporate capital
provided for the 1995 underwriting year is UKE331 million,
giving Lloyd's a total new capacity of UK593 million. 8
277. See Robert Tyerman, Lloyd's Nears Names Offer, SUNDAY TELEGRAPH, Feb. 19,
1995, at 1 (discussing Names' suits against Lloyd's).
278. See BUSINESS PLAN, supra note 6, at 56-57 (discussing first-time admission of
limited liability incorporated capital vehicles as providers of underwriting capacity at
As an extension of the corporate capital idea, flexibility has been added
with the approval of a scheme allowing corporate vehicles owned by a single
investor ("corporate syndicates"). and set up to invest in a single syndicate
only. New corporate syndicates will be permitted on a "stand-alone" basis.
Agencies are not allowed to move to a single member basis but are permitted
to set up parallel syndicates.
Challengeat Lloyd's, supra note 70, at 9.
285. William Gleeson, Lloyd's Nets Pounds593m, INDEPENDENT, Dec. 17, 1994, at 14.
Traditional Names have also been given the opportunity to
incorporate in order to take advantage of the new limited
liability regime. 2186 Shares in syndicates are to be traded like stock in
an effort to release their inherent value. 8 7 Some speculate that
the entire market will eventually consist of limited liability
vehicles of one form or another.2 8 8
The impact on the regulatory process of these incorporated
vehicles, particularly the large investment trusts run by
professional managers, has already been large. 2 89 The corporate
capital providers are accustomed to a different regulatory regime,
one involving far more transparency in the marketplace.2 9 ° The
new rulemakers have emphasized the needs of the corporate
capital in their public statements about the increased disclosure
under the new regulatory regime.291
b. The Equitas Project
Another important initiative developed by the Business Plan
is the Equitas project, formerly known as NewCo. 9 2 Equitas is a
response to the problem of Names' continuing liability due to
open years of account.2 93
Equitas will be a reinsurance run-off
company that will allow Names eager to resign from Lloyd's to
purchase reinsurance ending their liability for pre-1985 long-tail
liability claims. 29 4 The goal is to achieve economies of scale and
286. See Stowe, supra note 215, at 28 (discussing capital to be provided by newly
287. See Lloyd's May Allow "Names" to Trade Syndicate Shares: FT,AGENCE FRANCE
PRESSE, Feb. 19, 1994, available in LEXIS, News Library, NON-US File (discussing
trading Lloyd's syndicate shares).
288. See End of the Name, supra note 248, at 107 (discussing role of corporate
to provide negotiating leverage by consolidating the
claims-handling process. 95 Consolidation is also aimed at improving
cashflow and aiding in long-term investment strategy.2 96
Equitas will provide important leverage in negotiations with
litigating Names, who can be offered a way to cap their losses
through Equitas. 97 Further, corporate capital must be
protected from liability for these old claims.2 9 8 Because the value of
anticipated claims for latent disease and pollution are still
unknown, however, the venture contains risks.' If Equitas'
reserves prove insufficient to meet the claims, individual Names,
or even corporate vehicles participating in certain syndicates,
could be forced to assume the liabilities.300 The future of
Lloyd's as an active business is considered by many market
professionals to depend on the success of the Equitas venture. 01
Despite a current return to buoyant trading and even some
underwriting profits in recent months, such as in the marine
market, where premiums are hardening,30 2 the project is far from
finished. 0 3
c. The Solvency Issue
The Lloyd's market is subject to outside oversight, which
includes the solvency tests administered each Fall by the
Department of Trade and Industry304 ("DTI") under the Insurance
Companies Act of 1982.-05 The first solvency test is an assets
against projected liabilities test."0 6 The test was passed by Lloyd's
in recent years through certain creative accounting measures,
such as revaluing the Lloyd's Building in London and other
assets, including artwork. 0 7 A recent initiative by Lloyd's
leadership would treat uncollected debt owed by Names for claims as
assets of Lloyd's.3 08 This practice mirrors the practice of banks
that treat recoverable debts as assets, and may make it easier for
Lloyd's to pass its solvency tests. 0 9
The second test is performed at the Name level.31 0 Each
Name must show that his or her underwriting assets at Lloyd's
are sufficient to meet his or her underwriting liabilities.1 Due
to the huge losses of recent years and the reluctance of some
Names to pay more cash calls, this test could be a more difficult
one to pass. 1 2
A recent proposed rule change would require any money
305. Insurance Companies Act, 1982, ch. 50 (Eng.); see Sambrook, supranote 276,
at 2 (discussing solvency tests).
The first [solvency test] weighs up all Lloyd's assets against expected
claims, a test Mr. Rowland told the select committee "we passed with a
substantial margin." In the second, each of the 30,000-odd Names, from boxer Henry
Cooper to entrepreneur Sir Freddie Laker and Mr. Rowland himself, must
show sufficient assets to pay claims on policies issued on their behalf. If
individual Names cannot, as 9,000 could not in December 1993, Lloyd's central
fund - made up of levies on all the Names - makes up the difference.
307. Stacy Shapiro, S&P Sixes Up Lloyd's Survival of the Fittest Syndicates Leads to a
Stronger.Marke4 Bus. INS., Sept. 26, 1994, at 65.
Lloyd's has mortgaged its assets and manipulated accounting figures to
pass this test. Specifically, it revalued its assets, including its building, works of
art and publishing subsidiary Lloyd's of London Press Ltd. to boost its assets by
300 million pounds ($472.1 million). In addition.... the DTI allowed Lloyd's
to reduce its 1991 global loss by eliminating 'double counting' from its results.
This occurs when a syndicate is reinsured by another syndicate and both have
reserved for the same loss....
Lloyd's members had to pay for the double count ... [but] Lloyd's has
been able to use 180 million pounds ($266.4 million) of this amount as an
308. Ralph Atkins, Lloyd's May Consider Names' Debts as Assets, FIN. TIMEs, Feb. 20,
1995, at 7.
310. See Sambrook, supra note 276, at 2 (discussing solvency tests).
awarded by the English courts to Names in the course of their
litigation with managing and members' agents to be paid into
the Premium Trust Funds1 3 on deposit at Lloyd's until all valid
claims are met.314 The reason for the proposed change is that
Lloyd's leadership fears Names will not pay their claims after
they receive the awards.31 5 An additional effect of the proposed
rule change, however, is that funds awarded in negligence
cases 16 will be kept in escrow until any legal challenges to the
proposed rule change can be resolved in the courts, a process
that may take several months.3""
Lloyd's argues that, in the interim, these funds may be
included as assets in order to pass the second DTI solvency test." 8
The DTI's approval of the proposed rule change, however,
which was expected to be easily granted, was recently delayed in
order to allow closer analysis by the DTI. 19 Lloyd's has
postponed its pursuit of the rule change in favor of a new settlement
agreement.320 As a market analyst noted, the question is not
Lloyd's solvency, but what the DTI will accept.3 2 '
Solvency was a major topic at recent Parliamentary hearings
on the issue of financial services regulation. 2 2 The House of
Commons committee heard testimony from David Rowland, the
Chairman of Lloyd's, during the first week of February 1995.23
When asked whether Lloyd's would pass its solvency tests this
year, Mr. Rowland replied that, while it had once been
unthinkable to imagine otherwise, there was at least a theoretical danger
of insolvency.32 4 He also cautioned the aggressive questioners
about Lloyd's large role in the British economy, noting that, as
more suspicions are raised about the prospect of insolvency,
more Lloyd's customers will be lost to competitors. 2 5 On
January 8, 1995, Exxon switched most of its insurance renewals away
from Lloyd's, one of the largest rejections of Lloyd's in recent
The hearings in Parliament underscored concerns that the
current system may not be effective to protect participants in the
market from negligent and fraudulent acts. 327 Along with
solvency, the Treasury select committee conducting the review of
Lloyd's examined the question of misrepresentation to Names
based on inadequate disclosure, allegations of insider trading,
and recruitment of Names in order to allow the market to
absorb the costs of long-tail liabilities.328 It also examined the role
of the DTI and the responsibility of the government, as well as
the broader question of Lloyd's being allowed to continue to
Litigation by Names also influences the regulatory changes
being enacted. 33 ' The Gooda Walker Action Group, a group of
litigating Names who lost a great deal of money in the LMX
spiral market, won' its case on appeal against its former managing
agents. 3 3 ' The Gooda Walker plaintiffs charged that the
managing agents on the Gooda Walker syndicates breached their duty
of care by accepting risks they should have avoided. 3
In their pleadings at the trial level, the plaintiffs alleged,
inter alia, that a competent underwriter in the spiral market would
have written only a limited volume or proportion of excess of
loss business, paid close attention to vital facts, taken steps to
plan its business accordingly, and obtained information
regarding the nature of the risks."' The Appeal Court found that the
managing agents had been negligent in accepting high-risk
business."3 4 The duty of care owed to the Names by their agents was
found to have been breached, with the resultant damage
totalling millions of pounds. 3 5 The Action Group's members were
recently awarded interim damages of over UK£200 million, the
largest ever awarded by the British courts3.3 6
jurisdiction in the United States. 3 43
Those Names on the Outhwaite syndicates33 7 who did not
take part in an earlier Outhwaite suit in 1991 are also litigants.338
The House of Lords is currently reviewing their claim that,
because of deliberate concealment by their managing and
members' agents, they are entitled to sue on claims arising from
underwriting activity in 1982. sa9 Such claims would otherwise be
time-barred.3 40 At present, there are approximately forty-five
Action Groups" and over 300 Lloyd's-related cases pending in the
British courts." 2 This figure does not include the claims by U.S.
Names, most of which have thus far been dismissed for lack of
333. Id. at 23.
[T]he [defendant's] pleading listed a number of matters which were
alleged to be material when considering the standard of care to be applied in
underwriting. These were as follows:
(i) Names at Lloyd's knowingly accept unlimited liability;
(ii) Underwriting is a risk business;
(iii) Underwriters assume risk in consideration of premium, and it is no
part of their business to reinsure all the risks that they have assumed.
(iv) Lloyd's Regulations had no requirementsfor recordingaggregateexposure or
calculatingprobable maximum loss.
Id. (emphasis added).
334. Id. at 12.
336. Clare Sambrook, Gooda Walker Names Win a Record L21Om, DAILY TELEGRAPH,
Feb. 15, 1995, at 26.
337. See RAPHAEL, supra note 1, at 126 (discussing Outhwaite syndicate).
338. See Hart, supra note 12, at 31 (discussing recent Outhwaite litigation).
341. Lloyd's Litigation-TheEnd of the Beginning,WILDE SAPTE LAw, Jan. 1995, at 6
[hereinafter End of the Beginning].
343. Susana Antunes, Lloyd's FacesNew ThreatFrom US, EVENING STANDARD, June 21,
1994, at 31; see Bonny v. Society of Lloyd's, 3 F.3d 156 (1994). "In the present case, we
are satisfied that several remedies in England vindicate plaintiff's substantive rights
while not subverting the United States' policies of insuring full and fair disclosure by
One result of large damage awards is that Lloyd's loses
leverage in its bargaining with the Names." Lloyd's leadership has
repeatedly said that it seeks a negotiated settlement of Name's
claims.S A settlement offer by Lloyd's leadership to all
aggrieved Names totalling over UK£900 million was rejected last
year as too low.3 Another settlement offer is to be announced
soon.347 Lloyd's argues in favor of settlement on the theory that
because the claims against agents will be paid under Errors and
Omissions ("E&O") policies, the Names are, in effect, suing each
The E&O coverage may also be insufficient to meet all the
claims.349 The result is a rush by Names to seek redress in the
courts.350 Counsel for the Gooda Walker Action Group stated
that their strategy involved getting through the trial quickly in
order to receive payment before the money ran out.35 1 E&O
insurers claim that the Gooda Walker Action Group has overstated
the value of the award and that they will only pay UKIl15
million of the interim award. 5 2 Thirty members' agencies have
retained counsel and threatened to sue the E&O underwriters if
they refuse to pay. 53 As the Names prevail in the courts, the
pressure on the Lloyd's leadership to negotiate a settlement
grows.3 54 The Names Association has said that any settlement
must involve caps on their maximum liability and sufficient
compensation for their losses.3 55
Recently, Lloyd's offered a settlement involving a cap on
liabilities to some U.S. Names whose case against Lloyd's alleging
fraud is still pending in a California court.3 56 Lloyd's official
position is that it has always sought a negotiated settlement, but
some Names suggest that recent developments in the U.K. courts
have prompted the offer by Lloyd's. 3 57 A ruling in November
1994 by the Appeal Court 58 that a full hearing must be held on
whether Lloyd's contravened European competition law means
that Lloyd's cannot pursue non-paying Names through the
courts until the cases are tried.359 If the cases are -resolved
against Lloyd's, Names may never have to pay the claims at all.3 6
Names argue Lloyd's is trying to get paid before it is too late, and
some are resisting settlement, even with the cap. 61
B. Criticisms of and Alternatives to the Present Changes
Lloyd's has many critics, among the most vocal of which are
aggrieved Names and members of Parliament. 62 There are
several alternatives to the changes being sought under the existing
statutory framework. 63 These include regulation by an outside
agency and repealing Lloyd's exemption from the Financial
The Chairman of the Regulatory Board was the subject of
criticism during the recent Parliamentary hearings. 365 One
Labour MP, Diane Abbott, accused Sir Hardcastle of being
disinterested and willing to overlook anything that happened at Lloyd's
before his tenure began. 66 She specifically cited Sir
Hardcastle's failure to investigate allegations that a market committee
responsible for disseminating information related to asbestos
claims had failed to do so and had instead used the information
to its own advantage. 367 Sir Hardcastle countered that the
allegations were fully investigated and found meritless 3 6 1
Other critics of the self-regulatory system include
Christopher Stockwell, Chairman of the Supergroup of Lloyd's Names,
who claims Lloyd's leaders benefitted from insider dealing. 69
Mr. Stockwell declined to mention anyone by name before the
Treasury select committee. 7 ° The Lloyd's Names' Associations'
Working Part 3 71 ("LNAWP"), the group headed by Mr.
Stockwell, has called for a regulatory regime with sanction power, a
rapid and productive approach to enforcement, and the ability
to compensate victims.3 72 Additional demands of the LNAWP
incEl&udOe cporvoepreargec,apeivteanliziaftiaonn afgoernaclyl Lceloayseds's targadenincgie.3s73and sufficient
One alternative to the present regulatory scheme might be a
statutory scheme.374 A system similar to the U.S. Securities and
Exchange Commission, 375 an agency with broad monitoring
powers exercised through disclosure requirements and
prosecutorial powers to investigate fraud, is one possibility3. 76
Under the Securities Exchange Act of 1934, in order to register
securities on an exchange, issuers are required to disclose the
following: any information about the issuer or a party in control
or acting as a guarantor of the issuer that the Commission may
require, including, inter alia, the organization and financial
structure and nature of the business, information regarding
securities management and holdings by security holders,
remuneration to officers and others, material contracts, balance sheets,
profit and loss statements, and any further financial statements
deemed necessary by the Commission. 77 There are further
requirements for supplementary and periodic disclosure of
relevant information under Section 15(d).3 7 8 Section 21 provides
civil and criminal liabilities for violations such as trading on
material non-disclosed information, or insider trading. 79
The agency alternative was specifically rejected by British
lawmakers during passage of the Financial Services Act. 8 ' This
alternative might find favor, however, with the corporate capital
providers who are accustomed to doing business in a more
transparent market atmosphere than has traditionally existed at
Lloyd's, 81 and with disgruntled Names who are wary of
self-regulation.382 In the United Kingdom, oversight could be brought
under the purview of the DT1383 or the Serious Fraud Office. 84
Another alternative is to repeal Lloyd's exemption from the
Financial Services Act385 and bring Lloyd's regulation in line
with that of investment markets in the United Kingdom.386 The
FSA requires that firms be authorized to do investment business
in the United Kingdom.3 87 Authorization is obtained from one
of the Self-Regulating Organizations 88 ("SROs") or by a
Recog377. Securities Exchange Act of 1934, 15 U.S.C. 78 § 12(b).
378. Id. § 15(d).
379. Id. § 21.
380. Creaven, supranote 92, at S285.
381. See End of the Name, supra note 248, at 107 (discussing corporate capital).
382. Hart, supra note 12, at 31.
383. Creaven, supranote 92, at S291-92.
384. See Criminal Justice Act, 1987, ch. 38 (Eng.) (enumerating powers to
385. Financial Services Act (1986) § 42 (Eng.).
386. Creaven, supranote 92, at S285.
387. See id. at S291 (discussing requirements for authorization to conduct
388. Creaven, supranote 92, at S285.
nized Professional Body 89 ("RPB"), which must itself be
recognized by the Securities and Investment Board ("SIB").39° The
SIB has powers to enforce compliance and to approve the rules
of the self-regulating bodies. 91 Once an SRO is recognized by
the SIB, however, the SRO becomes the primary regulating
An SRO seeking to be recognized by the SIB, must have
rules that provide adequate investor protection39 3 and oversee
the enforcement of those rules.3 94 An SRO must provide for
public representation in its governance; 95 the ability to
investigate complaints; fairness and integrity.396 The SRO must also be
willing to provide information to the SIB and the DTI.3 97 The
SIB's general functions are to decide whether members are "fit
and proper" to engage in investment business, to devise means
of enforcement of rules, and to create fair procedures regarding
admission and punishment of members.398
The DTI would have a large role in monitoring Lloyd's
under the FSA as the ultimate statutory authority.3 99 The DTI,
however, has publicly voiced its support for the present
self-regulatory system at Lloyd's. 40 0 During the parliamentary
hearings,4°1 Jonathan Spencer of the DTI stated that the role of the
DTI is policyholder protection, not investor protection."°
Furttihveer minorper,evseonmtiengcriftriacsudofsitnhceeFiStsAeanragcutemtehnatt. 4i0t3 has been
399. See No Need to End Self-Regulation, supra note 374 (discussing DTI's
spokesman's testimony on Lloyd's continued self-regulation).
401. See Hart, supra note 12, at 31 (discussing Parliamentary hearings on Lloyd's
402. SeeJohn Murray, Lloyd's PassesSolvency Test, INDEPENDENT, Feb. 16, 1995, at 33
(discussing D7I spokesman's testimony at Parliamentary hearings).
403. Creaven, supra note 92, at S296.
III. SELF-REGULATION IS ENOUGH REGULATION
The way Lloyd's does business is changing as the role of
limited liability corporate capital grows. 4 Lloyd's, however, will
remain a particularly complex and unique trading system.40 5 The
level of professional expertise remaining in the market is high,
despite the negligent and fraudulent acts of some
participants. 40 6 Furthermore, the laissez faire marketplace that the
hands-off leadership of the past decade defended was probably a
myth." The reality of systemic failure of regulation has come to
the fore. The fact that failure occurred in the past, however, is
not an effective argument against self-regulation in the future. It
would be inappropriate to impose statutory changes on the
current regulatory system at Lloyd's, as the head of the DTI's
insurance division, Jonathan Spencer, recently affirmed in his
testimony before Parliament. 4°8 Spencer agrees that statutory
changes are presently not worth the diversion of time and
efforf.40 9 Instead, Lloyd's should concentrate on issues of
regulatory and commercial substance.410
A. The Adoption of Effective Regulation is Process-Driven
The regulatory failures in the Lloyd's market are being
addressed by leaders dedicated to implementing effective
changes. 41' The economics of the situation demand that
changes to the regulatory system be made.412 Confidence must
404. See End of the Name, supra note 248, at 107 (discussing role of corporate
406. RAPHAEL, supranote 1, at 296. "The show ain't over until the fat lady sings."
407. Id. at 262. "In private, members of the new regime were even more scathing
about their predecessors' laissez-fairepractices." Id.
408. See No Need to End Self-Regulation, supra note 374 (discussing DTI spokesman's
testimony at Parliamentary hearings).
411. See Time to Complete, supranote 224, at 3 (discussing Lloyd's leaders testimony
412. BUSINESS PLAN, supra note 6, at 2. "Our current results are the worst in
Lloyd's history. Many members have been brought to the brink of financial ruin, many
more are fearful of the future. Confidence in the Society has been shaken. It is now
time to take radical action." Id.
be restored in order to continue to attract a capital base. 413
Without a capital base, Lloyd's will cease to do business. In
order to restore the needed confidence, Lloyd's must adopt
effective regulation.41 4
Market forces alone may not be sufficient to ensure
prosperity.4 1 5 Some economists believe a form of managed economics is
essential to the success of any market.416 Although this
argument acknowledges the need for oversight, it does not imply a
need for restrictive governmental regulation.
There are scholars who argue that regulation inhibits the
very forces that are favored in a free market and that regulation
hinders allocative efficiency. 4 17 Although there may be policy
concerns in a marketplace other than allocative efficiency, such
as fairness and the absence of fraud, there is a need for carefully
crafted regulation. A conservative regulatory program would
impact positively on the smooth functioning of the business of the
1. Effective Demand
The process of adopting regulation favors the
least-restrictive approach, according to one view that can be applied to the
set of facts surrounding the Lloyd's market. 41 8 There are
polit413. Id. at 2. "Should membership and market not unite behind this plan then
Lloyd's may have no future." Id.
414. Id. at 30. "The Regulatory Board has also developed a new set of regulatory
principles that will raise standards further and provide greater protection for the
interests of capital providers and policyholders alike." Id.
415. See ROBERT L. HEILBRONER, THE WORLDLY PHILOSOPHERS 279 (1986) (1953)
(discussing views of John Maynard Keynes).
416. Id. at 279. "[W]hile Keynes espoused a policy of managing capitalism, he was
no opponent of private enterprise." Id.
417. STEPHEN BREYER, REGULATION AND ITS REFORM 185-86 (1982) (describing
virtues of competitive marketplace).
[A] 'least restrictive alternative' approach to regulation ... would view
regulation through a procompetitive lens. It would urge reliance upon an
unregulated market in the absence of a significant market defect. In summary
form, they include the market's tendency to minimize economic waste by
allowing for continuous individual balancing of economic costs and benefits...
, the carrot-and-stick incentives the market provides for greater efficiency ....
and the incentives it provides for innovation and the channeling of innovation
into socially desirable directions.
418. Id. at 104. "[The regulating body] must choose between the greater control
and involvement that detailed regulations imply and the administrative simplicity and
greater flexibility of the more general rule." Id.
ical economists who argue that the adoption of regulation is to
be viewed as taking place in a competitive marketplace of its
own.419 According to this view, the group with the highest
effective demand in the marketplace will obtain the most benefits
under the system of regulation as adopted.42 This view also
posits a small group as likely to be that with the highest effective
demand because of the low costs associated with organizing and
obtaining information.42 '
In the past, the regulation that existed at Lloyd's
consistently favored the small group at the leadership level with the
lowest information and organization costs. 422 Regulation
favored this group at the expense of the others in the market, the
Names.42 3 The "small group" can be expanded to include the
Names and the corporate capital providers. A group comprised
of both market professionals and external Names can achieve
the highest effective demand. The regulation that is thereafter
adopted will naturally favor the entire group.
2. Divergent Interests at Lloyd's
Groups competing to achieve the highest effective demand
will be some MPs and loss-making Names who remain
unconvinced. 424 The difficulty is to align the interests of the Names
and the Lloyd's leadership. 425 A settlement of Names' litigation
claims would promote this alignment.4 26 For the new settlement
proposal to prove effective, it is important that the Names
recognize themselves as a group with aligned interests. The fact that
419. Sam Peltzman, Toard a More GeneralTheory ofRegulation, in CHICAGO STUDIES
IN PoLrrIcAL ECONOMY 234-36 (GeorgeJ. Stigler ed., 1988). "The common role of
regulation ... is as a fulcrum upon which contending interests seek to exercise leverage in
their pursuit of wealth." Id.
420. Id. at 235. "The essential commodity being transacted in the political market
is the transfer of wealth... [and] the market here, as elsewhere, will distribute more of
the good to those whose effective demand is highest." Id.
421. See id. at 236 (explaining small group dominance).
422. See InsiderDealing Victims, supra note 25, at 25 (discussing lack of regulation
and increased profits for insiders).
424. See Time to Complete, supra note 252, at 3 (discussing Names' complaints
regarding regulation and discussing attacks by MPs).
425. See Doll-Steinberg, supra note 320 (discussing Names' litigation). "The next
offer really ought to be the last: the consequences of failure to agree could prove too
costly for both sides." Id.
the suits against Lloyd's actually impact on other Names should
be taken into account by them.42 7 If generosity of spirit is not
enough to convince them of their dependence on one another,
the limited funds of the Errors and Omissions underwriters
should. Without a settlement, some Names may get nothing if
they are not the first to win awards in court.4 28
A further effort towards achieving unity between the
working and external members of Lloyd's would be to publish a
regulatory framework that includes some of the stated goals of the
Lloyd's Names Association Working Party, like sanction power
and victim compensation. 4" The situation at Lloyd's changes
frequently. A working document rather than a set of policy
goals, however, would impress upon those Names and
incorporated members, with whom the Lloyd's leadership needs to align
itself, that the leadership is serious about reform. Any such
document would be subject to revision and amendment, but it
would be an implementation, rather than a statement of policy.
B. The Changes Necessary to Restore Confidence in Lloyd's
The primary policy goal of the Lloyd's Regulatory Board is
to create more transparency in the way the marketplace does
business.130 Already, greater disclosure requirements have been
implemented.431 There has been a re-emphasis of agents' duties
to Names.43 2 There are many other changes which need to be
1. Names' Rights and the Duty of Care
Names must have the right to examine information that
they find pertinent to the decision to join or resign from a
particular syndicate. The strict duty to disclose must extend beyond
quarterly reports and similar periodic forms of disclosure.
Names must have rights to information similar to those provided
427. See BUSINEss PLAN, supranote 6, at 29 (explaining assets being sought through
litigation belong to other Names).
428. See Helen R. MacLeod, UK Court Places Burden of Old Claims on Lloyd's
Investors,J. or COM., Feb. 13, 1995, available in LEXIS, News Library, US File (explaining
E&O coverage not enough for all Names).
429. See Bagnall, supra note 258 (describing goals of LNAWP).
430. See BUSINESS PLAN, supranote 6, at 31 (listing goals of new regulatory regime).
431. See id. (detailing stricter disclosure requirements).
to shareholders of a public corporation in the United States.433
Similarly, those rights should be qualified. Market professionals
must be not be subjected to harassment.
Because of the duty of care that the courts held is owed to
the Names by managing and members' agents, 43 4 broad
disclosure rules make business sense as well. Each agent should
provide an investor relations office to the keep the capital providers
informed. The central market already provides reports on
global syndicate financial results,4 "5 but there could also be a
central office to handle inquiries.
2. Changing Standards
The admission of Names to the Society must be closely
monitored. Financial requirements are again becoming more
stringent.436 While the problem of Names leaving the market is
currently more pressing than that of new Names entering,4 37 if
more capital is to be sought under the current system, this issue
must be addressed further. It is sensible to determine what form
the market will take in the future before devoting a great deal of
energy to substantive change in this area.
The unlimited liability of Names must be eliminated
entirely. While investors in a corporation give up their control
rights in exchange for limited liability,438 Names give up control
and still accept unlimited liability. 439 This arrangement no
longer makes commercial sense. It would be a gesture of good
faith to lessen the burden placed on Names by adherence to the
doctrine of caveat emptor. To do so would emphasize Lloyd's
recognition of its regulatory duty to protect Names. Any new Name
seeking to join Lloyd's should be required to join as part of a
limited liability arrangement.
433. SOLOMON ET AL., CORPORATIONS LAw ANn PoLIcY 830 (1994) [hereinafter
434. Deeny v. Gooda Walker Ltd., 1994 P.12 (Eng. Q.B.) (Oct. 4).
435. See LLOYD'S OF LONDON GLOBAL RESULTS 10 (1993) (stating global syndicate
436. See RAPHAEL, supra note 1, at 49 (stating minimum financial requirement is
437. See Dacey, supra note 46, at 1 (stating current membership).
438. See CORPORATIONS, supranote 433, at 1 (sketching features of corporation).
439. See RAPHAEL, supra note 1, at 48 (discussing Names' acceptance of unlimited
Professional standards for working underwriters440 must be
made stricter. Licensing procedures could be implemented that
mirror those of the State Insurance Commissions" 1 in the
United States. Qualification programs are being
implemented," 2 but incentive programs need to be in place as well.
Compensation of the working underwriters must be tied in part
While many agree that the incorporated capital vehicles will
make transparency and disclosure commonplace," 3 there must
be disclosure with respect to these vehicles as well. The
leadership has expressed its commitment to the underwriting Names
who remain at Lloyd's, assuring them that their interests will not
be sacrificed in favor of the incorporated vehicles. 4 The
incorporated vehicles should be required to disclose financial
information and analysts' reports to the Names with whom they share
syndicates. Names will then have an advantage in deciding
whether to remain as members of a particular syndicate.
There must be stronger reserve requirements. Jonathan
Spencer of the DTI called for stronger reserve requirements for
European Union-based insurers as part of tougher solvency
requirements for those European Union insurers that face
uncertainty about their liabilities." 5 Any reforms should be extended
There must be an end to open-years. If the Equitas project
is successful in reinsuring the market's run-off risks, the
reinsurance-to-close system should be replaced as soon as possible.
Names should be allowed to resign at the end of each year, if
they so choose.
The key to effective self-regulation, as the Lloyd's leadership
440. See BUSINESS PLAN PROGRESS REPORT 21 (May 1994) [hereinafter PROGRESS
REPORT] (describing commitment to improved standards of professionalism in market).
441. See, e.g., N.Y. INS. LAw § 20.1-20.2 (McKinney 1994) (discussing theory and
functions of New York State Insurance Department).
442. See PROGRESS REPORT, supra note 440, at 21 (describing standards of
443. See End of the Name, supra note 248 (discussing effect of corporate capital).
444. See PROGRESS REPORT, supranote 440, at 7 (describing benefits to all of
admission of corporate capital).
445. See Ralph Atkins, DTI CallsFor Action on InsurerInsolvency, FIN. TIME, Feb. 16,
1995, at 8 (discussing DTI proposals regarding solvency of European Union insurers).
has argued," 6 is to create a regulatory system with real
independence.447 Such a system can be created under the current
statutory regime," 8 if the leaders and the membership of Lloyd's
recognize their common interest. Recognizing this common
interest will allow them to reach the common goal of continuing
success for Lloyd's, which will benefit all parties.
Lloyd's fought against outside regulation for reasons
beyond the self-interest that has characterized much of its dealings
in the last decade. Lloyd's has been a practicing marketplace for
over three hundred years. Those in the marketplace are
uniquely suited to oversee their own affairs. If Lloyd's survives,
all the capital providers in the market may eventually be limited
liability incorporated vehicles, leading to greater transparency in
the market. Without unlimited liability, Lloyd's will rely on
efficiency and expertise to give it a competitive edge. Effective
selfregulation will foster the competitive virtues of the Lloyd's
market. This solution will restore confidence in the market, which is
critical to the survival of Lloyd's.
20. JONATHAN MANTLE , FOR WHOM THE BELL TOLLS 4 ( 1992 ). "Massive losses caused by a series of natural catastrophes compounded by lack of regulation and doubtful market practices had brought Lloyd's to its knees." Id. "The 1989 and 1990 losses are the result of catastrophes such as Hurricane Hugo, the San Francisco earthquake, the Exxon Valdez spill and the Piper Alpha Oil Rig disaster and the spiral effect of excess of loss reinsurance which have had a dramatic effect on the bottom line." Daniel M. Bianca , UnderstandingLloyd's, 679 PLI/CoMM 31 ( 1993 ).
21. See RAPHAEL , supra note 1 (reciting Lloyd's history) .
22. MANTLE, supra note 20, at xi-xii.
23. See In the Beginning Was the Word , OBSERVER, Jan. 16 , 1994 , at 5 [hereinafter In the Beginning] (reciting history of self-regulation in City) .
24. Lloyd's Act , 1982 , pmbl. (Eng.).
25. See Clare Sambrook, Names Are ' InsiderDealing Vwtims' , DMALY TELEGRAPH , Jan . 31 , 1995 , at 25 [hereinafter InsiderDealing Victims] (quoting Lloyd's critic on lack of regulation).
26. See RAPHAEL , supra note 1, at 2-3 (describing Lloyd's as market, and comparing its present situation to that of insurance companies). "There are four principal markets
90. SeeJohn Moore, Attempts to Change Lloyd's Bill 'A Wrecking Operation , FIN. TIMES, Feb. 1 , 1982 , at 3 (hereinafter Wrecking Operation] (describing Parliamentary maneuvers ).
91. See In the Beginning, supra note 23 , at 5 (discussing history of self-regulation in City) .
92. See Patrick M. Creaven , Inside Outside Leave Me Alone: Domestic and EC-Motivated Reform in the UK . SecuritiesIndustry , 60 FoRDHAm L. REv. S285 ( 1992 ) (describing regulatory changes in City pursuant to Financial Services Act); see also InsiderDealing Victims, supra note 25, at 25 (stating Lloyd's exemption from Financial Services Act) .
93. See In the Beginning, supra note 23 , at 5 (describing self-regulatory practice).
94. See id. (stating that those who failed to honor their contracts were shunned and ostracized ).
95. Id .
96. See Creaven, supranote 92 , at S285 (describing deregulation and re-regulation of City financial institutions in 1980's).
97. See id. at S287-88 (describing market fears regarding uncompetitiveness).
98. Financial Services Act ( 1986 ) (Eng .).
The Financial Services Act is the most comprehensive overhaul of investor protection legislation for 40 years .... The objectives were stated to be Efficiency, Competitiveness, Confidence and Flexibility.... The Act modifies and extends its pre-existing investor protection laws and includes reforms relating to listing of securities, offers of unlisted securities, takeovers, insider dealing, collective investment schemes and reciprocity with other countries in respect of financial services . J. lain Murray , Globalizationof Government Securities Market: The 'Big Bang' and the United Kingdom Domestic Market, the FinancialServices Act, and the New Regimefor U .S. Government Securities, 555 PLI/CORP 619 ( 1987 ).
100. Securities Act of 1934 , 15 U.S.C. §§ 78a - 78ff ( 1988 & Supp . V 1993)
101. See Creaven, supra note 92 , at S285 (describing efforts by drafters to avoid agency alternative) . FSA regulation ... represents a middle ground between full agency regulation and earlier complete self-regulation." Id . at S289.
102. See id.(stating FSA provided for continued self-regulation) .
103. See id. (stating FSA provided for self-regulation and kept U.I. competitive ).
104. Id . at S285.
105. See id.at 5292 (discussing SROs assumption of majority of self-regulation in U.K investment industry ).
106. See In the Beginning, supra note 23 , at 5 (describing self-regulatory practice).
107. See id.at 5 (discussing SROs, including Securities Association, primary regulator of London Stock Exchange) .
108. Id .
109. Id . 2. The Debate over Passage of the Lloyd's Act of 1982
130. SELF-REGULATION AT LLOYD'S , REPORT OF THE FISHER WORKING PART' 1 - 3 (May 1980 ).
131. Id .
132. Id .
133. Id .
134. See RAPHAEL , supra note 1 , at 68 ( comparing Fisher's terms of reference with earlier Cromer report ).
135. Id .
136. Id .
137. Id .
138. Wrecking Operation, supra note 90 , at 3.
139. See Support Grows, supra note 120 , at 21 ( stating key clauses in bill faced unprecedented opposition in House of Lords from sectional interests favoring Lloyd's).
140. See RAPHAEL , supra note 1 , at 245 ( describing Lloyd's relationship with Tories as "traditionally cosy" ).
141. SeeJonathan Prynn, Lloyd's Regulation Move Fails ,TiMS, June 28, 1994 , available in LEXIS, News Library , NON-US File (stating 200 peers in House of Lords thought to be Names) .
142. See Wrecking Operation,supranote 90 , at 3 (describing Lloyd's leadership steering bill through Parliament) .
143. See Support Grows, supra note 120 , at 21 ( stating key clauses in bill faced unprecedented opposition in House of Lords from sectional interests favoring Lloyd's).
144. Id .
145. Id .
146. Id .
147. Id .
148. Id .
149. Id .
150. Id .
172. Id .
173. Id .
174. Id .
175. Id .
176. Adrian Ladbury & Stacy Shapiro , London Market Competition is Returning,Bus. INs., Jan . 16 , 1995 , available in LEXIS, News Library , US File.
177. See Barnes, supranote 7, at 78 (arguing business written in LMX market when no 'real' business available due to high capacity).
178. Id .
179. Id .
180. See id. (describing effects of catastrophes). "[A series] of catastrophes ... racked up more than $40 billion in insurance losses between 1987 and 1990." Id. at 174; see also BusINEss PLAN, supra note 6, at 2 (stating current results worst in Lloyd's history) .
181. RAPHAEL, supranote 1, at 173.
182. Id . at 74.
183. Id .
184. Id .
251. See Sarah Bagnall, Poker Game Will Determine Future of Divided Lloyd's, TIMES , Feb. 15 , 1995 , availablein LEXIS , News Library , NON-US File [hereinafter Poker Game] (discussing negotiating stances of interested parties to any possible settlement).
252. See Shapiro, supranote 224 , at 3 (discussing Lloyd's leaders testimony in Parliament) .
253. Id .
254. Id . 1994 , availablein LEXIS , News Library , NON-US File (describing calls in Parliament for end to self-regulation at Lloyd's). "[Self-regulation] at Lloyd's has been almost nonexistent in recent years and market abuses have flourished." Names Defence Association Letter , supra note 225, at 56.
258. Sarah Bagnall , Lloyd's Names Callfor New RegulatoryRegime, TIMEs , Dec. 5 , 1994 , available in LEXIS, News Library , NON-US File; see Creaven, supra note 92, at S291 (describing SIB) .
259. William Gleeson , Lloyd's Top Brass Face Grillingby M's, INDEPENDENT , Feb. 6 , 1995 , at 25. The report of the Treasury Committee conducting the inquiry is not yet available . Hart, supra note 12 , at 31.
260. BuSINEsS PLAN , supranote 6, at 30 ( discussing new regulatory regime).
261. Id . at 3 -5 (summarizing features of Business Plan) .
262. Id .
263. See Time to Complete, supranote 252 , at 3 (discussing Lloyd's leaders' testimony on current regulation).
264. BusiNEss PLAN , supra note 6 , at 2.
265. See id.at 15 (detailing new system of governance).
266. Id .
267. Id .
279. End of the Name, supra note 248 , at 107.
280. See BusINEsS PLAN , supra note 6 , at 56-57 ( discussing first-time admission of limited liability incorporated capital vehicles as providers of underwriting capacity at Lloyd's).
281. See Richard Lapper, Trusts Begin to IssueLloyd's Prospectuses,FIN . TIMES, Oct. 22 , 1993 , at 10 ( discussing investment trusts at Lloyd's).
282. See U.S. InvestorsProvideLloyd 's with New Capital,FIN . POST, Dec. 22 , 1994 , at 6 (discussing U.S. corporate investment at Lloyd's).
283. See Kevin Pratt, Lloyd's EnsuresA BrighterFuture ,SUNDAY TIMES, Feb . 12 , 1995 , availablein LEXIS , News Library , NON-US File (discussing form of corporate capital vehicles investing at Lloyd's).
289, See Sarah Bagnall , Lloyd's Sets New Voting Rights , TIMES , Dec. 10 , 1993 , available in LEXIS, News Library , NON-US File (discussing adoption of proportional voting rights, reflecting introduction of corporate capital).
290. See End of the Name, supranote 248, at 107 (discussing corporate capital providers' expectations regarding regulation of marketplace).
291. New Name for the Game , BANKER, Jan. 1994 , availablein LEXIS , News Library , NON-US File . "[Tihose at Lloyd's charged with introducing corporate capital have concentrated on the needs and requirements of the traditional corporate finance market .... " Id.
292. See Atkins, supra note 275 , at 20 (discussing Equitas project). "The aim is that by the end of this year, liabilities on insurance policies sold in 1985 and before, together with sufficient reserves to meet claims, will be 'reinsured' - or moved - into Equitas .... " Id .
293. Id .
294. Id .
295. Id .
296. Id .
297. Atkins , supra note 275, at 20.
298. SeeEnd of the Name, supra note 248, at 107 (discussing corporate capital exposure to long-tail claims).
299. Id . at 107. "[Lloyd's] is doing its best to assure [corporate investors] that they will not be stung by past long-term liabilities, It hopes to set up [Equitas], a central vehicle to take on all pre-1985 liabilities . . . ." Id.
300. Id . at 107. "[Lloyd's promise not to levy against new corporate capital members without a vote] ... gives corporate investors some reassurance that they will not be stuck with the bill for past losses . Yet, [ if losses are too great] corporate members may have to provide something extra." Id.
301. Ralph Atkins , People: Hutter up to Speed on Lloyd's-Speak: Ralph Atkins Meets Heidi Hutter, the Cool-BrainedDiplomat Behind the Development of Equitas, FIN . TIMES, Feb. 20 , 1995 , at 10 [hereinafter Up to Speed].
302. Janet Porter , Marine InsuranceRecovery Points to Profitfor Lloyd's, J . OF COM., Feb. 2 , 1995 , at A7.
303. See Up to Speed, supra note 301, at 10 (discussing Equitas project).
304. Creaven , supra note 92, at S291- 92 ( discussing role of DTI as regulatory body).
313. See Fact Sheet 1 , in INFoRmATION PACK, supra note 35 , (describing Premium Trust Funds) .
314. Clare Sambrook , Rowland Says Lloyd's Faces Solveny Worry , DAILY TELEGRAPH, Feb. 7 , 1995 , at 23.
315. Helen R. MacLeod , Names Slam Lloyd's Plans to Reroute LitigationMoney, J . OF COM., Feb. 7 , 1995 , at A9.
316. See id. (discussing recent Gooda Walker decision).
317. Id .
318. See Sambrook, supra note 276 , at 2 (discussing solvency tests).
319. Heseltine Delays Lloyd's Rule Mov TIMES , Feb . 23 , 1995 , available in LEXIS, News Library , NON-US File .
320. Alfred Doll-Steinberg, Lloyd's Names Need Offer They CannotReuse , TIMES, Feb. 17 , 1995 , available in LEXIS, News Library , NON-US File .
321. See Sambrook, supra note 276 , at 2 (discussing solvency tests).
322. Id .
323. Id .
324. Id .
325. Id .
326. See Doll-Steinberg, supra note 320 (discussing Exxon's renewals) .
327. See Time to Complete, supranote 224 , at 3. "The Lloyd's executives were grilled by members of the Treasury and Civil Service Committee last week, which is investigating the adequacy and enforcement of the United Kingdom's financial services regulation." Id.
328. See William Gleeson, Lloyd's Top Brass Face Grillingby Ms , DAILY TELEGRAPH, Feb. 6 , 1995 , at 25 ( discussing content of Parliamentary review ).
329. See Insider Dealing Victims, supra note 25 , at 25 (discussing hearings).
330. Doll-Steinberg , supranote 320 . "Lloyd's reaction to the Gooda Walker decision result was to announce that it would change its rules so that Lloyd's could have first call on the money due to the litigating names." Id.
331. Deeny v. Gooda Walker Ltd., 1994 P. 14 ( Eng. Q.B.) (Oct. 4).
332. Id . at 14.
355. See Poker Game, supranote 251 ( discussing Names' demand for caps on liability); see Stacy Shapiro, Gooda RulingSets Precedent, Bus . INS., Oct. 10 , 1994 , at 1 (discussing sufficient payout).
356. William Gleeson , Lloyd's Offers Cap on Liabilityto Names , INDEPENDENT , Feb. 10 , 1995 , at 32.
357. Id .
358. Society of Lloyd's v. Clementson , 1994 P. 1 ( Eng. C. A .) (Nov . 10).
359. Id .
360. Id .
361. Id .
362. Clare Sambrook , MPFiresBroadsideat Lloyd's Watchdog,DmILY TELEGRAPH , Feb . 14 , 1995 , at 24.
363. See Insider Dealing Victims, supra note 25, ' at 25 (discussing regulation at Lloyd's); see also Lloyd's FacingDoubleScrutiny, supranote 12 at 31 (questioning whether Lloyd's should be allowed to continue to regulate itself).
364. See Insider Dealing Victims, supra note 25 , at 25 ( discussing regulation at Lloyd's).
365. See MP Fires Broadside at Lloyd's Watchdog, supra note 362, at 24 (describing MP's critiques of Lloyd's).
366. Id .
367. Id .
368. Id .
369. See InsiderDealing Victims, supranote 25 , at 25 (discussing Stockwell testimony at Parliamentary hearings).
370. Id .
371. See Bagnall, supra note 258 ( explaining LNAWP ).
372. Id .
373. Id .
374. No Need to End Lloyd's Self-Regulation-UK Official ,Reuters, Feb. 15 , 1995 , available in LEXIS, News Library , NON-US File [hereinafter No Need to End Self-Regulation] .
375. See Securities Exchange Act of 1934 , 15 U.S.C. § 78w ( 1988 & Supp . V 1993 ) (describing SEC's power under Act) .
376. Id .