The conjuror faces the big risk

The undiscerning have likened Richard Rogers' masterful Lloyd's building on occasion to an oil refinery. Given the dramatic activities of the insurance society's senior executives, a better analogy from the inside could be the Big Top.

On one side of the ring you can spot Peter Middleton, Lloyd's chief executive, frantically juggling about five balls in the air at once, knowing that if any one should fall, the ambitious plan to pull the world's most eminent insurance market back from the brink could be dashed. High above, David Rowland, Lloyd's chairman, performs some fancy footwork on the high wire, balancing the competing interests that threaten to tip him into the void. Below, the newest member of the troupe, David Newbigging, is honing his act as chief conjuror.

"People have this impression I am the chairman of Equitas. In fact I am not really anything," says the silver-haired Mr Newbigging with a challenging smile. "You see I am the chairman-designate of an idea, hoping to become a company."

Hardly a job description, one might think, to pull in one of the more experienced players in the British insurance business. But not if you consider that this idea, Equitas, is one of the most audacious plans ever seen in insurance circles. On its success, in a seemingly impossibly short space of time, hangs the survival of Lloyd's.

And all this time, as the senior executives conjure, juggle and dance, groups of disgruntled and aggrieved names, the investors who have lost their shirts in Lloyd's recent calamities, threaten to bring on the lions and ruin the whole show.

Nothing like Equitas has ever been done before. The idea is to sever the link between Lloyd's and all its pre-1993 insurance policies, many of which are draining the society's lifeblood. Cut loose from this ruinous past, the "new Lloyd's", buoyed by a successor generation of corporate investors, could trade profitably into the future.

The biggest problem are the so-called long-tail policies, written many years ago and largely forgotten, but which suddenly came back to life thanks to retroactive legislation in the US, which spawned huge claims in areas such as pollution, asbestos poisoning and silicone breast implants. Countless syndicates at Lloyd's have been unable to close their accounting on numerous years going back decades because of the uncertainty of outstanding liabilities.

The huge losses racked up on this front were compounded by the effects of irresponsible insurance underwriting in the boom years of the late Eighties, which then came a massive cropper in an unprecedented run of natural catastrophes.

Countless names, who invest in Lloyd's with unlimited liability, have been bankrupted; the legal battles, recrimination and refusal to pay have brought the market close to collapse. To have a future, Lloyd's must end this nightmare and put a lid on this disastrous claims heritage.

Enter Mr Newbigging and Equitas, which is planned as a vast reinsurance company, into which all these troublesome old policies can be placed and the lid firmly screwed down. "This is an absolutely key project, for if it succeeds it will enable names to draw a line under their old and open years and enable a new Lloyd's to trade without the heavy baggage from the past. This is vital for Lloyd's, for the City of London and indeed for the international insurance business," Mr Newbigging says.

He has been in his job for just over a month. A name himself, and a member of Lloyd's market board since early 1993, the 61-year-old Mr Newbigging knows that time is not on his side. Equitas must be up and running by next spring if the ambitious Lloyd's rescue and restructuring plan is to work.

This means satisfying the regulator, the Department of Trade and Industry, that Equitas is sufficiently capitalised to meet all potential liabilities. And it means convincing names that it is less painful to write one final cheque, making their payment into Equitas and thereby ending all responsibility to those old policies, than to fight on against Lloyd's, pushing it probably into bankruptcy.

The dilemma for names is that even if they are no longer active at Lloyd's, they can never resign from their open-ended liabilities to those old policies. The whole point of Equitas is that it is offering, at a price, the only chance for names to cap those liabilities and walk away.

Equitas is a fiendishly complicated exercise, trying to identify all these old policies and compute the potential liabilities. The project is being crunched by Heidi Hutter, whose brain has been known to turn mainframes green. Mr Newbigging is the suave persuader, entrusted with the role of winning backing from Lloyd's professionals and investors for the view that Equitas is not a question of choice but of inspired necessity.

The project is going to cost an awful lot of money, especially for an organisation that does not have enough of it. Equitas will need assets of around pounds 16bn. Much of this will come from Lloyd's syndicates' reserves, but names will have to buy final peace of mind with an undisclosed sum. In October, indicative sums will be sent to each of the 30,000 names. The final bills will be despatched in the spring.

"Names have to be convinced it is in their interests to put money into Equitas. Many have taken a thrashing in past years, and before they write another cheque they will need to be fully persuaded it is the last call," Mr Newbigging says. Not only that, it will have to be cheaper than any alternative. "The deal under Equitas must be quite significantly more beneficial to names than carrying on with ordinary payments."

The savings that will reduce names' payments into Equitas will come in part from the long-term, centralised nature of the special company. All policies will be centrally managed, and there will be investment returns on most of the pounds 16bn of assets. Crucially, however, there will be a further reduction in an individual's final bill for Equitas thanks to the proposed pounds 2.8bn debt forgiveness and credit plan for names being devised as part of the overall Lloyd's restructuring programme. This sum is to be raised from numerous sources, including market professionals and an early release of profits from the good years since 1992.

"Many names might find that, although they feel they can't pay Lloyd's at the moment, they can pay what is being asked for Equitas because it will be much less. Instead of pounds 500,000 it could be pounds 200,000, for example," Mr Newbigging says.

In return for this proposed pounds 2.8bn, which is still being hotly debated, names are expected to end all litigation against Lloyd's. The cessation of courtroom hostilities and the capping of all old liabilities is the key to attracting new corporate investors. These are the main balls Peter Middleton is trying to keep in the air. Success is far from assured. A key problem for Lloyd's attempts to pull away from the disastrous losses has been the thousands of "can't pay - won't pay" names.

"This is psychologically very important," Mr Newbigging says. "You cannot make it easy for someone not to pay. There has to be a penalty; not a fine, but maybe that they do not close off their liabilities."

There is a great need for optimism at the moment, for the odds against Lloyd's pulling off its plans remain formidable. The motley host of names is unpredictable - there are powerful groups pushing for a settlement, and not insignificant groups that could not care less if the market collapsed.

"We have to put together an attractive offer, there is not much more to it than that," Mr Newbigging says. And while he is conjuring that particular mega-trick, perhaps he ought to turn to his name as well. Mr Newbeginning sounds more appropriately optimistic.