Editing Lloyd's of London (section)

===1990s: Fallout of the asbestosis affair===
{{More citations needed|section|date=May 2022}}

====Emergence of claims====
The early to mid-1990s saw the continuation of Lloyd's most traumatic period in its history that had begun with the explosion on Piper Alpha. Unexpectedly large legal awards in US courts for [[punitive damages]] led to substantial claims on [[Asbestos and the law|asbestos]], pollution and [[Diethylstilbestrol|health hazard]] (APH) policies, some dating as far back as the 1940s. Many of these policies were open-peril policies, meaning that they covered any claim not specifically excluded. Other policies (called standard, or broad) only cover stated perils, such as fire.

The classic example of "long-tail" insurance risks is asbestosis/[[mesothelioma]] claims under employers' liability or workers' compensation policies. An employee at an industrial plant may have been exposed to asbestos in the 1960s, fallen ill 20 years later and claimed compensation from his former employer in the 1990s. The employer would report a claim to the insurance company that wrote the policy in the 1960s. However, because the insurer did not fully understand the nature of the future risk back in the 1960s, it and its reinsurers would not have properly priced or reserved for it. In the case of Lloyd's, this resulted in the bankruptcy of thousands of individual investors who indemnified general liability policies written from the 1940s to the mid-1970s for companies with exposure to asbestosis claims. A group of Names mounted a legal case as the Names Against Lloyd's of London, where they attempted to prove fraud among those brokers who had involved them in the underwriting syndicates.<ref>{{cite news | url=https://www.theguardian.com/money/2000/nov/04/business.personalfinancenews1 | title=How the Names lost their shirts | newspaper=The Guardian | date=4 November 2000 | last1=Griffin | first1=Rob | last2=Inman | first2=Phillip }}</ref>

====Reinsurance to close====
It may not be immediately clear how current members of current Lloyd's syndicates, which accept business one year at a time, could be liable to pay historical claims. This came about as a result of the Lloyd's accounting practice known as [[reinsurance to close]] (RITC).

A member "joined" a syndicate for one calendar year only, known as the "annual venture". At the end of the year, the syndicate as an ongoing trading entity was effectively disbanded. However, usually the syndicate re-formed for the next calendar year with the same identifying number and more or less the same membership. Since claims can take time to be reported and then paid, the profit or loss for each syndicate took time to realise. The practice at Lloyd's was to wait three years (that is, 36 months from the beginning of the year in which the business was written) before "closing" the year for accounting purposes and declaring a result.

To calculate the profit or loss, reserves were set aside for future claims payments, for claims that had already been notified but not yet paid, as well as estimated amounts for claims that had been [[incurred but not reported]] (IBNR). This estimation is difficult and can be inaccurate; in particular, long-tail liability policies tend to produce claims long after the policies are written.

The reserve for future claims liabilities was set aside in an unusual way. The syndicate bought a RITC policy to pay any future claims; the premium was equal to the amount of the reserve. This transaction allowed the year to be closed, and the syndicate's profit or loss declared. The reinsurer was always another Lloyd's syndicate(s), often the succeeding year of the same syndicate: the members of syndicate '1' in 1985 reinsured the future claim liabilities for members of syndicate '1' in 1984. The membership might be the same, or it might have changed.

In this manner, liability for past losses could be transferred year after year until it reached the current syndicate. A member joining a syndicate with a long history of such transactions could – and often did – pick up liability for losses on policies written decades previously. As long as the reserves had been accurately estimated, and the appropriate RITC premium paid every year, then all would have been well, but in many cases this had not been possible: no-one could have predicted the surge in APH losses. Therefore, the amounts of money transferred from earlier years by successive RITC premiums to cover these losses were grossly insufficient, and the current members had to pay the shortfall.

As a result, a great many Names whose syndicates wrote long-tail liability at Lloyd's faced significant financial loss or ruin by the late 1980s to mid-1990s.

====Dilution of liabilities and the consequences====
It was alleged that in the early 1980s some Lloyd's officials began a recruitment programme to enroll new Names to help capitalise Lloyd's prior to the expected onslaught of APH claims. This allegation became known as "recruit to dilute": in other words, recruit more Names to dilute the losses. When the huge extent of asbestosis losses came to light in the early 1990s, for the first time in Lloyd's history large numbers of members either were unable to pay the claims or refused, many alleging that they were the victims of fraud, misrepresentation, and/or negligence. The opaque system of accounting at Lloyd's made it difficult, if not impossible, for many Names to understand the extent of the liability that they personally and their syndicates had subscribed to.

Also, numerous underwriters of long-tail non-marine business, concerned at their exposures to the impending asbestosis crisis, had sought to reinsure their liabilities with other carriers. Approximately 20 syndicates, including Lloyd's deputy chairman Murray Lawrence's, paid millions of pounds in premiums to Richard H. M. Outhwaite, then considered a highly capable marine underwriter, to assume approximately 80 per cent of the market's asbestos exposure on his well-supported syndicates 317/661 in 1982.<ref name=Hodgson/> In 1985, under Lloyd's three-year accounting rule, auditors kept Outhwaite's 1982 year open, citing concerns over asbestos and pollution liability losses. These eventually ran into the hundreds of millions of dollars. After many years of litigation, Outhwaite retired to [[Guernsey]] and died on 20 November 2021.<ref>{{Cite web |title=Richard Henry Moffitt OUTHWAITE {{!}} Family Notices from the Guernsey Press |url=https://www.familynotices.gg/moreinfo/78770/outhwaite |access-date=2024-01-25 |website=www.familynotices.gg |language=en}}</ref>

Another asbestosis-hit operation, Pulbrook syndicates 90/334, had taken out reinsurance in 1981 on its general liability business with Merrett syndicate 418; however, in 1990 Stephen Merrett (who by now controlled Pulbrook) won an arbitration ruling to void that arrangement due to non-disclosure of the extent of asbestos exposure, leaving the Pulbrook Names without cover for their losses of £100,000 each on average. Even earlier, in 1974, the underwriter of R. W. Sturge syndicate 210, Ralph Rokeby-Johnson, who specialised in American industrial risks, bought "stop-loss" reinsurance from [[Fireman's Fund Insurance Company|Fireman's Fund]] and [[Kemper Corporation|Kemper Insurance]] in the US on Sturge's pre-1969 exposures that were accumulating into the present. This contract developed so poorly that Fireman's Fund later sought its own stop-loss cover for the losses assumed from Sturge. Rokeby-Johnson later prompted Lloyd's to create a [[working group|working party]] on asbestosis.<ref name=Luessenhop/>

====Reconstruction and Renewal====
During the mid-1990s the market was forced to restructure. Under the chairmanship of Sir David Rowland and chief executive Peter Middleton, an ambitious plan entitled "Reconstruction and Renewal" (R&R) was produced in 1995, with proposals for separating the ongoing Lloyd's from its past losses. Liabilities for all pre-1993 business (other than life assurance) were to be compulsorily transferred (by RITC) into a special vehicle named [[Equitas]] (which would require the approval of the UK's [[Department of Trade and Industry (United Kingdom)|Department of Trade and Industry]]) at a cost of around $21bn.<ref>{{cite news |last=Eisenhammer |first=John |date=23 October 2011 |title=Equitas day: final act in the Lloyd's nightmare |url=https://www.independent.co.uk/news/business/equitas-day-final-act-in-the-lloyd-s-nightmare-1341264.html |work=The Independent |location= |access-date=28 March 2021}}</ref> 

Many Names faced large bills, but the plan also provided for a settlement of their disputes, a tax on recent profits, and the write-off of nearly $5bn owed in the form of "debt credits", skewed towards those with the worst losses. The plan was debated at length, modified, and eventually strongly supported by the Association of Lloyd's Members (ALM) and most leaders of Names' action groups. New CEO [[Ron Sandler]] was instrumental in its implementation. Money was raised in many ways, including the sale and leaseback of the Lloyd's building, and a tax on future business. Individual offers of settlement were accepted by 95 per cent of Names. The past liabilities on the 1992 and prior years were transferred to Equitas in September 1996, including those under Lioncover and Centrewrite.{{cn|date=September 2023}}

The "recruit to dilute" fraud allegations were heard in an eight-month trial in 2000 in the case ''Sir William Jaffray & Ors v. The Society of Lloyd's'' and were rejected by the judge; an appeal was heard in 2002 and unanimously rejected. On each occasion the allegation that there had been a policy to recruit to dilute was dismissed and Names were urged to settle; however, at first instance the judge described the Names as "the innocent victims [...] of staggering incompetence" and the appeal court found that representations that Lloyd's had a rigorous auditing system were false and strongly hinted that one of Lloyd's main witnesses, former chairman Murray Lawrence, had lied in his testimony.<ref>[https://www.bailii.org/ew/cases/EWCA/Civ/2002/1101.html ''Jaffray v. Soc'y of Lloyds''] [2002] EWCA Civ 1101.</ref>

Lloyd's then instituted some major structural changes: corporate members with limited liability were permitted to join and underwrite insurance; no new unlimited-liability Names were allowed to join (although a few hundred existing ones remained); financial requirements for underwriting were changed, to prevent excess underwriting that was not backed by liquid assets; and market oversight significantly increased. Lloyd's rebounded and started to thrive again after the catastrophic losses arising out of the [[September 11 attacks|World Trade Center attack]], but it faced increased competition from newly-created companies in [[Bermuda]] and other markets.

In 2006 the [[Berkshire Hathaway]] subsidiary [[National Indemnity Company]] (NICO) agreed to assume all of Equitas' assets and liabilities, providing $7bn of new reinsurance cover for future claims payments in addition to the $8.7bn of existing reserves within Equitas.<ref>{{Cite web|url=http://www.equitas.co.uk/files/Names_Info_Doc_1206.pdf|title=EQUITAS LIMITED AGREEMENT WITH NATIONAL INDEMNITY COMPANY|archive-url=https://web.archive.org/web/20190215050413/http://www.equitas.co.uk/files/Names_Info_Doc_1206.pdf|archive-date=15 February 2019}}</ref> The transfer (in two phases between 2007 and 2009) represented "finality" under English law for all affected Names, who now faced "no further liability whatsoever" to the pre-1993 losses.<ref>{{cite web|url=http://www.equitas.co.uk/files/Equitas-LetterToNames1July2009.pdf|title=Finality under English Law|author=HA Stevenson |date=1 July 2009|website=Equitas}}</ref>

In 2020, following the [[George Floyd protests]], Lloyd's issued a statement, apologising "for the role played by the Lloyd's market in the 18th and 19th century slave trade – an appalling and shameful period of English history, as well as our own".<ref>{{Cite web |date=10 June 2020 |title=Building an inclusive Lloyd's marketplace |url=https://www.lloyds.com/news-and-risk-insight/news/lloyds-news/2020/06/building-an-inclusive-lloyds-marketplace |archive-url=https://web.archive.org/web/20200707193204/https://www.lloyds.com/news-and-risk-insight/news/lloyds-news/2020/06/building-an-inclusive-lloyds-marketplace |url-status=dead |archive-date=7 July 2020 |access-date=29 October 2020 |website=www.lloyds.com}}</ref><ref name="KahnJ">{{Cite news |last=Kahn |first=Jeremy |date=18 June 2020 |title=George Floyd protests force Britain to reckon with its role in slavery, leading some companies to pay reparations |language=en |work=Fortune |url=https://fortune.com/2020/06/18/george-floyd-protests-uk-slavery-reparations/ |access-date=29 October 2020}}</ref><ref name=HoltonK>{{Cite news |last1=Faulconbridge |first1=Guy  |last2=Holton |first2=Kate |date=18 June 2020 |title=Lloyd's of London to pay for 'shameful' Atlantic slave trade role |language=en |work=Reuters |url=https://www.reuters.com/article/us-minneapolis-police-protests-lloydsofl-idUSKBN23P0SM |access-date=29 October 2020}}</ref><ref>{{Cite news |last=Faulconbridge |first=Guy |date=18 June 2020 |title=Explainer: London faces up to former role insuring Atlantic slave trade |language=en |work=Reuters |url=https://www.reuters.com/article/us-minneapolis-police-protests-lloydsofl-idUSKBN23P2US |access-date=29 October 2020}}</ref>