Riley says end to unlimited liability not appropriate

Lloyd's is considering allowing unlimited liability Names to trade through a high-level stop loss scheme, according to market sources.

This would mean they could continue to trade, but their losses would be capped.

In January, the Chairman's Strategy Group (CSG) and management consultants Bain & Co drew up a list of recommendations to modernise the market.

One of the major proposals was to buy out unlimited liability Names, ending a 314-year-old tradition. Sale and leaseback, where Lloyd's or managing agents purchase an individual's ability to underwrite and then lease it back, was touted as the most likely way to implement the recommendation.

But in a recent letter to members, Lloyd's chairman Sax Riley said it "may not be the most appropriate way to proceed".

Senior market sources have revealed Lloyd's is now considering reintroducing a high-level stop loss scheme. This was originally established by the Council of Lloyd's in 1993 to provide protection for individual members, in the event of severe losses.

All unlimited liability Names paid a compulsory levy of 0.3% of underwriting capacity, which went to a reserve fund.

This gave Lloyd's £31m in both 1993 and 1994 and Lloyd's paid out for losses exceeding 80%. The scheme ended following Reconstruction & Renewal in 1996, although some insurers continue to offer voluntary stop loss policies.

Chatset editor Charles Sturge said: "It would be a compromise to make Names more attractive. Lloyd's is now realising Names are a major cornerstone to its chain of security."

Euclidian managing director James Corrigan-Stuart said the success of the scheme would only work "depending on the level it comes in". The insurer originally offered its Integer policy to cap individual member's losses.

"If Lloyd's brought it in at 50% it would treat unlimited liability Names the same as limited Names," he said. "It must be above that to make any difference."

A Lloyd's spokesman said CSG was considering all options.