Names are demanding a high price to exit Lloyd's. Yvette Essen asks where will the money come from?
As the furore over proposed changes to Lloyd's calms down, the insurance market is experiencing a completely new emotion.
When chairman Sax Riley's strategy group and management consultants Bain & Co suggested the end of Names with unlimited liability last month, the traditional investors were outraged. They felt they were being pushed out of one of the most profitable periods in the market's 314-year history.
But as that anger begins to subside, many Names have resigned themselves to the fact they no longer have a place in the future of Lloyd's. They now want their pound of flesh.
The majority are prepared to leave centuries of tradition behind, provided they are rewarded handsomely for their loyalty and for losing their right to underwrite after January 2005.
Market analyst Charles Sturge has suggested Names could receive 20p for every pound they underwrite, but the deputy chairman of the Australian Association of Lloyd's Members (AALM) Patrick Moore wants £1.84 for every pound he underwrites.
The big question is, where will Lloyd's get the money from? There are currently more than 2,490 private investors with unlimited liability so if a buy-out deal went ahead, the bill would be high.
As the Names represent the Society of Lloyd's, they cannot buy out their colleagues. Lloyd's will also be unable to raid its £323m piggy bank, the Central Fund, as the money is kept in reserve to protect its policyholders, should an insurer be unable to pay a justified claim.
One option would be to use the Corporation's assets, which add up to around £50m, to settle the tab. Another is to take out a bank loan.
The latter appears to be the most favourable choice as in 1996, Lloyd's borrowed £285m to fund its Reconstruction and Renewal package.
Market sources have speculated investment bank Lazards is already being consulted. Lloyd's has also admitted it is considering appointing two banks to represent interests of the Names and managing agents and to come up with a final figure.
But should the recommendation to end unlimited liability in the market go through, Lloyd's will have only one choice. It will have to dig deep to make the Names go quietly.