One of Lloyd's oldest insurers has collapsed. Cotesworth & Co's failure to find a financial backer has led its directors to place the syndicates into run-off.
In March, the managing agency's parent company, HIH Australia, went into provisional liquidation. Since then, Cotesworth has failed to find year 2002 funding for its marine syndicate 535 and non-marine syndicate 1688.
Last week, Insurance Times predicted the syndicates would collapse due to heavy exposure to reinsurance contracts taken out with Independent Insurance.
Cotesworth chairman and managing director Norman Britten said: "Given the fact that Cotesworth has been trading at Lloyd's since 1855, this is a very sad decision for this board. But, given the circumstances and however regrettable, the board feels there is no alternative."
It is now feared other corporate members, such as Riverside, may also collapse.
On Tuesday, Moody's Investors Service downgraded Cottrell & Maguire syndicate 1173 from B- to C+, following deterioration in results and uncertainties over its financial backing for 2002.
SVB's two syndicates 1007 and 1212 have also been placed under review for possible downgrade due to forecast losses and concerns over its balance sheet.
Patrick Moore, committee member of the High Premium Group and deputy chairman of the Australian Association of Lloyd's Members (AALM), said: "A quarter of syndicates will go into run-off, because they will not be able to find capital to support them. In 2003, they will say `we cannot cope unless Lloyd's does something drastically different'."
Director of Standard & Poor's financial services ratings, Kevin Willis, said: "The losses we are looking at for the 1999 year of account are reported to be £1.4bn by Lloyd's. That is an awful lot and, if syndicates are losing money, that money has to be taken from the capital provider, so there is a risk of some shortfall in the market.
"If the scale of losses is concentrated this may lead to syndicates going into run-off or merging."
Editor of Lloyd's directory Chatset, Charles Sturge, said: "Syndicates cannot rely on a corporate backer for security of capital. They can withdraw at any time and then go bust. Maybe Cotesworth would have done well with third-party capacity, instead of being greedy. It is a lesson to be learned.
"You cannot beat the traditional Name as your capital provider."
Head of regulation at Lloyd's David Gittings said: "It is regrettable that syndicates of that pedigree have gone into run-off."