Lloyd's in solvency probe

US regulators have launched an investigation into the solvency of the world's oldest insurance market, Lloyd's of London.

The National Association of Insurance Commissioners (NAIC) fears Lloyd's will not be able to meet all of its liabilities - estimated at more than $6bn - resulting from the terror attacks of 11 September.

The NAIC has brought in accountants Arthur Andersen to conduct an audit, which is designed to ensure American insurers are not left out of pocket by the unprecedented flood of claims following the suicide attacks on Washington and New York.

If at any stage in the process, Lloyd's is deemed unable to meet its liabilities it will be banned from the reinsurance business in the US.

'Serious' liquidity problem

John Oxendine, the commissioner for Georgia who is heading the investigation, said Lloyd's had already given the US authorities figures on its estimated gross and net liabilities.

"We basically want to verify those figures," he told the BBC's World Business Report.

"The scale of the liabilities of 11 September was phenomenal and because of that Lloyd's has admitted that it has a very serious liquidity problem.

"We suspect that liquidity problem is short term.

"Lloyd's says it is short term and we have no reason to disbelieve Lloyd's," Mr Oxendine added.

'Financial problems'

However, Mr Oxendine added: "We need to come in and verify that it is definitely short-term and not something more serious.

"If it turned out to be something more than a short-term problem and we don't go in to check then we would look like we are not doing our job.

"If Lloyd's can not meet its liabilities that could cause serious financial problems, possibly even insolvency for American primary insurers."

Long-term gains

Lloyd's recently made a cash call on its individual members - the so-called 'names' - to help it meet the cost of 11 September.

But it has said it is confident it can easily absorb all of the claims.

In the longer term, the insurance market stands to benefit from a massive increase in insurance premiums.

According to newspaper reports, several companies - backed by investment banks - are preparing to join the Lloyd's market, bringing in an estimated $5bn of new capacity.

The final bill for insurers of 11 September has been estimated as high as $40bn.

Lloyd’s of London may be rendered insolvent by September 11 insurance claims

-- Ain't Gonna Happen (Not Here Not@ever.com), November 06, 2001