January 25, 2005 by Canadian Underwriter
Lloyd’s of London has come up on the losing end of one decision in continuing arbitration over an insurance contract to support its new Central Fund. Lloyd’s is seeking payment from six insurers for claims under the five-year insurance contract in arbitration commenced in April, 2003.
In the case of one insurer, Swiss Re’s SR Business Insurance Co., the arbitration tribunal has come out against the London market, Lloyd’s notes in a statement. Swiss Re wrote about 32.5% of the cover.
“[The tribunal] found in favor of the Society of Lloyd’s on the issue of the proper interpretation of the wording of the policy,” notes a Lloyd’s release. “However, on the basis of its findings with respect to the presentation of the risk to Swiss Re, the tribunal held that Swiss Re was prima facie entitled to avoid the policy.”
However, the tribunal’s finding will still be subject to another panel to determine the validity of Lloyd’s contention that Swiss Re had affirmed the policy and should be bound by its terms. The tribunal says it will not make further considerations until it has dealt with the evidence in the claims involving the five other insurers, with presentation due to start in late February.
Lloyd’s notes that even if the arbitration finds none of the insurers are bound to make payments, it will reduce the market’s central resources from GBP1.9 billion to GBP 1.6 billion. This means the Society of Lloyd’s would still maintain a solvency ratio of 247%, still above the 227% ratio at the end of 2003. And the Central Fund net assets would drop to GBP525 million from GBP801 million as at October 31, 2004.
Responding to the news, rating agencies Fitch and A.M. Best say they will maintain current ratings on Lloyd’s. “The potential outcomes for this arbitration have been clearly transparent for some time,” says Greg Carter, managing director of Fitch’s insurance department. “Our rating analysis incorporates worst-case scenario reviews.”