Lloyd's to confound forecast with new pounds 2bn loss: Results for 1991 account hit prospects for out-of-court deal. John Moore reports

THE Lloyd's of London insurance market is set to report a further pounds 2bn worth of losses next year, far worse than forecasts from the market's authorities eight months ago.

The deterioration will undermine the prospect of an out-of-court settlement designed to help 17,000 underwriting members meet pounds 2bn worth of losses that have brought them to the brink of financial ruin.

Lloyd's is finalising a pounds 1bn offer it intends to make to the underwriting members in the next few days. The offer is meant to end litigation brought by thousands of Lloyd's members against companies that acted on their behalf.

However, the results for the 1991 underwriting account, the latest for which figures are available and due to be published next year, will show that losses have hit pounds 2bn. Lloyd's reported total losses of pounds 5.5bn in the three previous trading accounts, which Peter Middleton, Lloyd's chief executive, confided would have driven any similar business into liquidation.

In a business plan published in April, the market's authorities predicted that the 1991 results could show a loss of more than pounds 1bn. 'These losses will put a very substantial strain on our membership,' Lloyd's said in the plan. 'We will do everything in our power to mitigate the impact of these losses without compromising the security of the Society (of Lloyd's).'

But the market deteriorated in the 1991 trading account, which is to be closed later this month.

Up to 1,000 members are due to leave the market this year, reducing the total of underwriting members actively insuring business to about 18,500. Lloyd's membership was around 33,000 at its peak in the 1988 underwriting account.

New companies allowed to invest and trade in the market with effect from next year will be dismayed at the continuing trend of losses and the unreliability of Lloyd's forecasts.

Between pounds 600m and pounds 900m of new capital has been committed from the companies. While they will not be affected by the losses since they do not start trading until next year, the scale of the historic losses could damage sentiment.

Already, Lloyd's professionals have reported that a price war appears to be breaking out among insurance syndicates anxious to secure business for the new companies that have invested in them.

There are fears that, far from recovering from the losses of the past, the market's losses could grow as competition becomes more cut- throat.

The continuing poor trading will hamper Lloyd's chances of gaining accceptance for its pounds 1bn offer to destitute members fighting for restitution. Unless they receive a financial guarantee from Lloyd's that their losses will not increase after any offer is taken up, they are unlikely to accept the proposed deal.

With further losses looming and far worse than expected, the resistance among members to Lloyd's terms will grow. Lloyd's is due to post its offer to the members in the next few days.

Yesterday, an action group looking after the interests of members on the troubled insurance syndicate managed by the Merrett agency at Lloyd's warned the members to treat any offer 'with caution'.