Dollar to pound change could demand 30% extra funding
Lloyd’s has warned its members they may be forced to raise more capital to cope with the slide in the value of the pound., the Sunday Times has claimed.
Finance director and head of risk Luke Savage, has asked all syndicates to update their numbers within the next few weeks to take account of the currency changes.
Lloyd’s syndicates pay most of their claims in dollars but calculate their capital in sterling. Calculations for 2009 were based on an exchange rate of $1.99 to the pound, the letter reveals. The rate has since collapsed to $1.52 – meaning the cost to Lloyd’s of paying potential claims has risen about 30%.
Capital calculations are not normally revised until June 30.
“This may well mean, on a risk-based approach that takes account of the absolute level of shortfall, the circumstances of the member and the type and seasonality of the business, that members will be required to inject new money significantly ahead of June 30,” said Savage.
The paper quotes industry sources saying many larger Lloyd’s insurers would be able to meet any cash call from resources in other parts of their business – such as operations in Bermuda – but smaller firms might have to ask shareholders to support a rights issue.
Lloyd’s told Insurance Times this morning that the letter was sent in November.