Names urged to vote against Lloyd's plan

A leading group of Names, the traditionally well-heeled investors in Lloyd's of London, yesterday declared they were employing their "last line of defence" against Lloyd's management, in their fight for survival in the historic insurance market.

Names are no strangers to conflict with Lloyd's. Since the early 1990s, when many lost everything and some even took their own lives because of their mountainous debts from underwriting, Names have been battling to get what they perceive to be a fair deal over their past losses and their future status in Lloyd's.

Now the Association of Lloyd's Members (ALM), the largest Names organisation, has instructed its members to vote against key proposals to overhaul Lloyd's internal workings and external thrust.

The reformers among Lloyd's management say that the proposals, to be voted on at an extraordinary general meeting a week from today, would help transform Lloyd's from an antiquated, struggling organisation into a modern, slick insurance outfit that could compete effectively with the likes of American insurance giant AIG or the growing Bermuda reinsurance market.

The ALM disagrees. Michael Deeny, chairman of the ALM and a trained lawyer, pointed out that his organisation has never before urged its 5,000 members to block Lloyd's resolutions, but he added that this time, the dramatic measure was necessary.

"We are not going to engage in another feud with Lloyd's. We are doing this very much more in sorrow than in anger. But Lloyd's proposals give it too much of a blank cheque," Mr Deeny said.

The ALM knows it will not win the vote because it will be weighted so that companies, which are also members of Lloyd's, will have far more votes than Names.

But the Names organisation wants to fire a salvo warning Lloyd's management not to ignore their interests because if the resolutions are passed at this stage, Names could requisition an extraordinary meeting, which would have to be on the basis of one-member, one-vote. If the battle lines were drawn that way, the Names would easily win.

Not all Names oppose Lloyd's reforms. Mr Deeny says his group supports reforms to make Lloyd's more efficient and profitable, such as a move to monitor more closely syndicates operating at Lloyd's to weed out the regular underperformers.

But, reflecting the deep suspicion of many Names towards Lloyd's, the ALM is prepared to block all proposals for fear that some might end up diminishing the rights of Names.

The ALM's main fear is that while the reforms would lead down a path that would end with an entire re-writing of the Lloyd's Act and even alter the practice of voting on key changes to Lloyd's future on a one-member, one-vote basis.

This rule, enshrined in the 1982 Lloyd's Act, is particularly precious to Names because it is the one power they still wield inside Lloyd's as they no longer present the main source of capital for the market.

Since companies started investing in Lloyd's in the early 1990s, corporate capital now makes up 80 per cent of the market. That dominance is reflected in the number of company representatives who sit on Lloyd's governing council and how their priorities pervade Lloyd's strategies.

An example of this is the planned move from three-yearly to annual accounting, which suits companies inside Lloyd's because it makes the process of accounting for other businesses outside Lloyd's easier.

Yet, due to the way the 300-year-old organisation works, Names still make up by far the largest number of members of Lloyd's. Of its 16,000 members, only 800 are companies and the rest are Names, many of whom do not actually write new business any more.

Names feel that it is only because they can defeat any proposal for change through a one-member, one-vote system that they have survived at Lloyd's. As Mr Deeny said, his organisation is "unwilling to give up this last line of defence."

Lloyd's responded to the ALM's decision to publicly criticise its resolutions by suggesting Mr Deeny and his associates were being paranoid.

It said it was concentrating on its immediate goals such as beefing up its monitoring of members' performance, where the difference between the best and worst syndicates is, for example for 2001, a profit of £7m compared to a loss of £113m. It says this is a more pressing concern than thinking about how the Lloyd's Act might be altered.

Lloyd's said in a statement: "The ALM is seeing problems where none exist. Their opposition to the reforms is based on a series of imaginary hypothetical threats rather than anything substantive in the reform package."

Yet observers say that the changes, which were formulated by Lloyd's chairman Sax Riley, are only the thin end of the wedge because the organisation wants to recalibrate itself so that companies, which all but run Lloyd's now, will no longer be hindered by Names in making decisions.

Lloyd's intention to ease out Names, at least of the unlimited liability variety, was demonstrated earlier this year. It suggested they could be bought out, so that the only individual investors left in the market operated on a limited liability basis, which would mean they could not lose everything if faced with massive losses.

The move might seem like a good one for Names, but it was corporate capital that was driving the change, in an attempt to inject stability into the market. Names created enough disquiet to scupper the plan, partly because they thought Lloyd's was not offering enough compensation for ending their right and partly because of the individuals' antipathy to being forced into changes by Lloyd's.

Some Names say the furore about unlimited liability Names is symbolic, but misses the areas where Names really might lose out. "Unlimited liability is merely a tax issue – if the tax rules were as favourable for limited liability, there would be no problem in changing," one said.

The Name, who is also a highly successful insurance broker, pointed out that the real fear was that if Names lose their voting dominance, they will have no break on companies – mainly the global players in insurance and reinsurance – which would like to take over take over the running of Lloyd's properly.

He said: "The real threat to us is that these companies are circling and their interests do not align with our own – they just want global scale, whereas we want to make sure we are only writing business when it is profitable."