New arrangements will allow Names to convert to limited liability partnerships
Private investors behind some of Lloyd's largest insurers could get added protection against major losses in a new market initiative.
Members' agents and Lloyd's are working together with business advisors and accountants Mazars to introduce arrangements which will enable Names to convert to limited liability partnership (LLP) status in 2007.
English LLPs are already in use among professional service firms such as lawyers and accountants and are seen as a way to protect partners and others from the debts and liabilities of the partnership.
Tax expert and partner at Mazars, Andrew Green, said: "English LLPs obviously
provide limited liability but are also tax transparent, which means that income is taxable on the individual's income and not on the partnership's.
"From a tax viewpoint it is probably the most beneficial option for conversion Names because it replicates the position of a sole trader."
Following reconstruction and renewal at Lloyd's in the early 1990s, Names were given permission to convert to limited companies (conversion vehicles) as a way of limiting liability.
The latest initiative is a way of achieving added security and has been welcomed by Charles Harbord-Hammond, managing director of Lloyd's adviser and members' agent CBS Private Capital.
He said: "Anything that seeks to limit liability makes sense in a very, very high risk business. As a former chairman [of Lloyd's] once said, 'What's the point in riding a bicycle without brakes when you can ride one with brakes'."
Names provide an estimated £2.4bn of capacity to the Lloyd's market.
Green said that although the introduction of LLPs will "not be the answer for everybody" they could encourage more specialist investors, who are familiar with LLPs as an investment structure.
Harbord-Hammond added: "I don't see it as a substantial source of new capital. If you wish to buy capacity on a syndicate the only people you can buy it from are those already in the market, so as you come in somebody else will go out."