At Lloyd's: losses -- and a rules shift

"There's no question of limiting our liability -- liability is unlimited and continues to be unlimited." With these words Peter Green, the new no-nonsense chairman of Lloyd's, reasserts the most cherished principle of this 300-year-old insurance market: Individual members must lay their entire incomes and assets on the line, and are answerable for policyholders' losses, right down to the last gold cuff link.

But the market, which showed a $315 million profit in 1977, is going through what its yacht-loving chairman calls "heavy weather." With creeping inflation and an insurance buyers' market, too many risks are being written at too low a rate, and forecasts show 1980 a year of underwriting losses.

Are the basic principles of the 18,500-member insurance market going to change?

In an interview with the Monitor in his stately, high-ceilinged office, Mr. Green discussed two major developments that have occurred during his 10 -month-old chairmanship: a decision by the governing Committee of Lloyd's to bail out the Sasse syndicate -- a group of insurance underwriters belonging to Lloyd's -- from some of its $:21.6 million ($51.8 million) losses, and the approval by Lloyd's members of a parliamentary bill that would significantly alter the governance of the market.

Each of these, in different ways, has profound implications for the men and women who nowadays place insurance on satellites and oil rigs just as their predecessors did on frigates and bullion -- by queueing up at the underwriters' boxes on the "floor" and receiving a hand-scrawled note.

* The Sasse case. When syndicate 762, managed by Sasse Turnbull & Co., totted up staggering losses by writing fire insurance on suspect property in Canada and the Bronx, it outran its resources and could not do what Lloyd's members always do: pay up without flinching.

Rather than allow the syndicate to cave in, however, Mr. Green announced in July that the entire membership of the Society of Lloyd's should cover Sasse's costs.

On the face of it, the decision that all members share in losses incurred by only one of the 430 syndicates in the market -- on risks that most of them never agreed to cover -- looks like a limit on liability.

Hard-liners, worried that precedents may be set for rescuing underwriters who mistakenly or fraudently overload their members' capacity to pay, certainly see it that way.

But Mr. Green sees it instead as Lloyd's protecting its own financial interests -- and, incidentally, its reputation.

"If we had fought the case to the end, and damages had been awarded against the Society of Lloyd's," he says, "we would have had to meet those damages."

The legal counsel advised the Committee of Lloyd's that a number of points in the case might go against it. The decision was to absorb the syndicate's losses rather than incur what could have been the even greater costs of a legal battle.

How does Mr. Green argue against the hard-liners? "I have certain information which in a legal sense is privileged," he says, noting that the case is still sub judice. "So I simply have to say, 'Look, you've got to accept my word,'" he adds.

Talking firm and persuasive stands is nothing new to Mr. Green. A columnist for The Times of London describes him as "tough, uncompromising, even a shade bullying." A young broker who used to do business with him when Mr. Green was underwriting recalls with awe that you had to get your facts exactly right the first time you presented your business. "With Peter Green you never got a second chance," she says.

Yet there is widespread agreement that in these tough times he is the right man for the job.

* The parliamentary bill. To deal with increasingly complex disciplinary questions -- patrolling a worldwide body of members, calling to account underwriting agencies that feel they owe allegiance to the public companies that own them rather than to Lloyd's -- the membership has recently approved the most significant changes in its rules since 1871.

At the largest members' meeting in history, the Society of Lloyd's voted Nov. 4 to accept a restructuring that expands the Committee of Lloyd's from 16 to 25, including three non-Lloyd's members and six "external members" who do not actively work on the market floor.

The bill, based on a study headed by Sir Henry Fisher, also establishes a separate disciplinary committee -- to sort out the very kinds of unpleasantnesses into which the Sasse affair (and more recent difficulties with yet another underwriting group) has thrown the market.

"The consequence of our failing to regulate our own affairs effectively," Mr. Green warned the meeting darkly, "will undoubtedly be regulation by government" -- an anathema to the free-market philosophies of most members, but not an implausible development in a nation known for widespread nationalizations.

"If in the future you get a government that is devoted to destroying private capital," Mr. Green told the Monitor, "how are those [underwriting] agencies to remain independent -- particularly if they get into the hands of overseas investors who know nothing about Lloyd's but are only interested in the money that comes out of it?"

If Lloyd's is to continue growing, Mr. Green says, passage of this bill is essential.