Lloyd's regulators have continued to tighten up market practices this week, by imposing financial penalties on 19 syndicates, representing 15% of its £10bn capacity.
The syndicates' managing agents have been told they may have to increase their combined £1.5bn capital base by up to 20% for the 2001 year of account. The action falls one step short of the ultimate sanction of de-registration.
Regulators from the Prudential Supervision Committee acted after the named syndicates were alleged to have breached strict thresholds for losses and forecast results.
The move follows a review of the market's capacity earlier this year.
A spokesman for Lloyd's said the capital loading was intended to reduce the syndicates' risk exposure to more acceptable levels. He said: “Lloyd's has said it is going to raise standards, and capital loadings are one way we can achieve this.”
But he added that Lloyd's could not comment on the loadings imposed on individual syndicates.
Penalised syndicates have 14 days to request reasons for the sanction, and a further 14 days to appeal. The appeal process must be concluded by November, when managing agents traditionally bring their accounts into line. David Gittings, head of regulation at Lloyd's, said: “We have told them they have until November to put their house in order.”
Lloyd's regulators embarked on a similar exercise last November, when they criticised 19 unnamed syndicates for their over-exposure to the market. Since then, they have added two other criteria which can trigger an increase in syndicates' capital levels – their levels of absolute and forecast losses.
In all, 14 syndicates have had capital loadings imposed following the Lloyd's regulators' review earlier this year. Another nine syndicates, including four of the 14, have had capital loadings triggered because of their forecasting and/or losses.
The loading penalty can also be imposed for inaccurate forecasts and management weaknesses.
Peter Barder, director of Marlborough Underwriting Agency, questioned the arbitrary way in which loading sanctions are imposed.
He said: “The sensitivity of the criteria is open to debate because they are set at a straightforward level across the whole market. It's a fairly unscientific process.”
Barder added that he had made “strenuous” representations to Lloyd's regulators over the loading applied to Marlborough syndicate 744, which has a capacity of only £22m. He said the results of the specialist marine reinsurance syndicate tended to reflect market volatility, and this could unintentionally trigger the penalty. Barder also claimed that it was difficult to overturn the Prudential Supervision Committee's decision on appeal.
“You can only appeal on procedural grounds – if, for example, certain representations have not been taken into account at the first hearing,” he said. “Furthermore, the appeal tribunal cannot overturn the regulator's decision, only refer it back to be reconsidered.”
Syndicate 1121, a pure marine catastrophe syndicate which is one of six managed by Crowe Syndicate Management is predicted to suffer losses of more than 10% in 1998 and 1999. Crowe may approach Lloyd's before November to review the loading imposition.
Ewen Gilmour, managing director of Chaucer Syndicates, whose motor syndicate 587 has received a loading, said: “The naming is more of a punishment than the loading.”