Lloyd's managing agency Duncanson & Holt Syndicate Management (DHSM) faces a desperate bid to find new capital for four syndicates this week after its major backer UNUMProvident reversed an earlier commitment.
The move is likely to result in all four Syndicates - 55, 1308, 1999 and 1101 - going into run-off.
American insurer UNUMProvident agreed on October 20 to guarantee capacity on the four syndicates for the year 2000 account, although it was not unconditional.
But the insurer made a U-turn last week in light of bleak projections for the four syndicates. Rating agency Moody's has this week revised its forecast for Lloyd's of London downwards for the year 2000 account (see page seven).
"Recent deterioration in projected results of the syndicates has led the company to this action, which will allow it to minimise and manage further costs and losses consistent with the related charge taken in its third quarter of this year," a statement from UNUMProvident said.
Duncanson Holt Underwriters board took the decision on November 17, after UNUMProvident had changed the articles for voting.
"The one UNUMProvident member on the five-strong board was given more votes, in effect the number of directors plus two," explained Andy Ripley, managing director of DHSM.
"This meant that the vote to pull the capital backing was won by six votes to four.The DHU board was emasculated."
A statement from the managing agency to brokers and capital providers stressed the board of Duncanson & Holt Syndicate Management had not agreed the late notice of termination of the managing agents agreement with Duncanson & Holt Underwriters.
But Ripley said that without the funds they would have to face reality and put the syndicates into run-off.
He added: "The syndicates were in the process of being sold, and Heads of Agreement had been signed for 1101."
UNUMProvident provided about 75% of the capital on DHSM managed syndicates. It was pulling out of the market next year.
UNUM and Provident merged this year and decided to concentrate on its core business of disability insurance and dispense with its reinsurance operations in North America and Lloyd's.
The insurer made a provision of about £128m in the third quarter to cover the run-off.
In September, DHSM ceased underwriting on Syndicate 957, and put its pooled reinsurance company, Duncanson Holt Europe, into run-off at the beginning of this month.
Lloyd's rules require managing agents to have the sufficient risk-based capital in place by November 26.
Ripley is seeking some leeway from Lloyd's in view of developments.
The syndicates affected are:
- Non-marine 55, for which DHU provided £34m out of a total capacity of £46m in 1999
- Non-marine Syndicate 1101, for which DHU provided £22m out of total of £54m in 1999
- Marine syndicate 1308, for which DHU provided £64m out of £90m in 1999
- Space Syndicate 1999, for which DHU provided £8.5m out of £15m in 1999.