Criticisms undermine market, says Elliot Lane
Sir William Jaffray, leader of the Claimant Names Association, set out a pretty damning indictment of accounting controls at Lloyd's in these pages last week. But was there anything in what he was saying?
As the Name most closely linked with the Lloyd's Names' court action against Lloyd's , Jaffray clearly still doesn't like the market. But thinking carefully about what he laid out - claims which seriously undermine the market - the answer is palpably no.
Let's look at them a bit closer.
Jaffray claimed that Lloyd's did not have basic auditing control in place. Well, that is not right. Each Lloyd's syndicate has to appoint an actuary and prepare annual syndicate accounts which are audited. Also, Lloyd's has to submit an annual Lloyd's return to the FSA, which is also reviewed by auditors.
The Court of Appeal didn't, as Jaffray alleged, rule that Lloyd's syndicates weren't audited. There was a regulated audit system at Lloyd's which included the calculation of proper reserves for outstanding losses.
With hindsight the system didn't produce reasonable estimates, but the court didn't find that the estimates were unreasonable given the known facts at the time. And there was no criticism of anyone involved in compiling those estimates.
Jaffray accused Lloyd's of being in ongoing breach of the Insurance Companies Act . Strange, since that law was repealed two years ago. He claimed Lloyd's had admitted its market solvency test does not conform with UK and EU insurance law. Lloyd's was quick to point out this week that this simply wasn't true.
And only last week EU Commissioner Fritz Bolkestein said the Commission considered the current supervisory system of Lloyd's complied with EU Law.
Finally, it just isn't the case, as Jaffray asserts, that Lloyd's survived by bankrupting the membership. What happened, as we all recall, is that through the Reconstruction and Renewal Programme (accepted by 95% of the membership) the liabilities of Lloyd's 1992 and prior syndicates were reinsured into Equitas.
As for the damaging suggestion that Lloyd's is insolvent, there isn't any evidence for that.
Jaffray must be allowed his anger. But such baseless criticism unfairly undermines those who make their living there, and rightly trade on their probity, expertise and the market's promise to pay valid claims.