Nine Lloyd's underwriters in the market's worst performing 20 syndicates have been warned they could lose their right to trade because of their poor underwriting records.
Lloyd's regulators have taken the unusual step of writing to the nine underwriters and their managing agencies, informing them that their underwriting is “not up to scratch”.
David Gittings, director of regulation at Lloyd's, said he expected the managing agencies to take appropriate action against the underwriters, otherwise Lloyd's would take away the individual registrations.
He had this stark message for the underwriters' managing agencies: “The bowling ball is now rolling down the alley and the managing agencies can either remove the skittles or we will knock them down.”
Gittings said three or four managing agencies had replied to his letter and stated they would take appropriate action against the underwriters in question.
However, he would not reveal whether this action constituted sackings or other disciplinary sanctions.
The other affected managing agencies have until the end of March to provide their formal reponses to the letter.
Gittings said the targeted action was necessary and expected it would be supported by the Lloyd's Market.
“There is a fairly widely held view that the performance of some of the businesses in the market is letting down everyone else.
“There is a need to deal with those people who are letting the side down.”
He added: “They have to satisfy us that they are fit and proper people, and this includes their underwriting performance being up to scratch.”
But Gittings did not feel it was appropriate at this stage to release the names of the nine underwriters to the media as it was a “private process”.
The nine underwriters will be able to contest the Lloyd's regulators' action through the body's Authorisations Committee.
Gittings laid the ground for a rethink on regulation with a speech at Lloyd's in January.
He told the gathering that tough regulatory penalties would be triggered by what he termed “seven deadly sins”.
Gittings described these as the following: an individually and collectively weak board; failure to comply with codes of practice; inadequate independent business reviews; poor management of reinsurance recoveries, and poor performance monitoring, credit control and cash flow.
He said: “Historically, we have tackled management at agency and syndicate level by imposing capital loadings.
“They certainly have their place but are not adequate by way of a negative sanction.”
James Gerry, director of underwriting at XL Brockbank, welcomed the regulators' tough approach.
He said: “The sooner Lloyd's cracks down on agencies that are the weak links, the better. I would like Nick Prettejohn to tell them: ‘You are the weakest link, goodbye'.”
He explained: “There has been a problem in the past where underwriters with a lousy record were able to leave one managing agency only to be resurrected at another.
“The sooner everyone is held accountable by the same rules, the better.”
Gerry thought Lloyd's regulators were devoting more energy to raising underwriting standards now that the task of regulating brokers is transferring to the General Insurance Standards Council.
“Lloyd's wants to ensure that managing agencies are fulfilling their regulatory requirements and that they do not have any underwriters who have previously burnt up agencies,” said Gerry.