Equitas weakens with slump in surplus to pounds 588m

Equitas, the reinsurance company set up to handle Lloyd's of London's pre-1993 liabilities, released figures yesterday showing a significant weakening in its financial position.

The first set of accounts revealed that a projected surplus of pounds 880m on 31 December 1995 had shrunk to pounds 588m by 4 September 1996.

The accounts also showed that the highest paid executive director was Michael Crall, who picked up a total package of pounds 429,312, including a bonus of pounds 123,893 and a "moving allowance" of pounds 75,565 for the eight months up to September.

And his basic salary of pounds 183,884 for that period is set to increase to pounds 275,000 per annum while David Newbigging, chairman, earned pounds 205,636 in the eight months and is now on a basic of pounds 200,000 per annum.

An Equitas spokesman defended the levels of remuneration saying: "We think that they are not overcompensated. The pay is in line with the insurance industry. We need high quality management if Equitas is to succeed."

But nobody is hiding the difficulties facing Equitas. Figures in the maiden set of accounts showed that the group had collected premiums worth pounds 11.2bn while net claims reserves remained at pounds 10.5bn. With various extras subtracted this left Equitas with its surplus of pounds 588m, yet the actual level of future claims and payouts remains unclear given the long-tail nature of liabilities for asbestos, pollution and health hazards.

Equitas officials claimed that the group's position has not deteriorated since September and insisted there was no question of its solvency being called into doubt. .

But Mr Newbigging also made clear that names, the traditional investors in the Lloyd's market, could still be in the firing line for stumping up extra cash.

He said: "We have two clearly defined objectives which govern our philosophy and business strategy: to endeavour to secure true finality for reinsured names and, in time to endeavour to create sufficient surplus...neither will be easy."

Auditors Coopers and Lybrand qualified the Equitas accounts with warnings about the uncertainty of the reinsurance business.

But there was good news too from the group.

It has finally settled the long-running and expensive liabilities resulting from the Exxon Valdez tanker pollution spill in Alaska. Equitas also outlined plans to move to new premises in St Mary's Axe, City of London.