Lloyd’s Settles with Central Fund Insurers for $ 292 Million; Best Comments
Lloyd’s announced that it has reached a settlement agreement with the insurers involved in the arbitration proceedings relating to an insurance policy supporting its New Central Fund. The settlement amount is £152 million ($292.4 million), which includes amounts previously paid.
In 1999 Lloyd’s negotiated a five-year policy to protect the Central Fund with six companies: Swiss Re; St Paul; Hannover Re; XL Re; Federal Insurance Company and Employers Re. The policy was to reimburse the fund for members cash calls exceeding £100 million ($192.4 million) in any one year up to £385 million ($740 million) with an upper limit of £500 million ($962 million). It expired at the end of December 2003.
Following the Sept. 11 attacks Lloyd’s made several cash calls and eventually filed claims for reimbursement of £477 million ($918 million). The insurers, led by Swiss Re claimed they weren’t obligated under the terms of the policy to pay, and arbitration proceedings, as provided in the policy, started in April 2003. Lloyd’s indicated that following the settlement, these will be discontinued. It also stated that, except as disclosed in its press bulletin, “the terms of the settlement agreement will remain confidential between the parties.”
Lloyd’s said it “has fully disclosed the potential financial impact of the arbitration. In our update of 25 January, 2005 we noted that the impact of a worst case scenario in which the policy was avoided would be to reduce Lloyd’s Central Fund by £276 million [$531 million]. This settlement agreement, taking account of premiums due under the policy and tax, improves that position by £50 million [$96.2 million], to £226 million [$435 million].
Commenting on the settlement Sean McGovern, Director and General Counsel at Lloyd’s, stated: “This agreement with the insurers involved in the Central Fund arbitration demonstrates a desire on all sides to draw a line and resolve the uncertainties of this dispute.”
A.M. Best Co. issued a comment which stated: “the financial strength rating of ‘A’ (Excellent) and issuer credit rating of “a” of Lloyd’s of London (United Kingdom), together with the “a-” issuer credit rating of the Society of Lloyd’s and the “bbb+” debt rating of subordinated notes issued by the Society, all remain unaffected following today’s announcement by Lloyd’s that a GBP 152 million (USD 293 million) settlement has been reached with the Central Fund insurers. Lloyd’s ratings already factor the possible impact of avoidance of the contract by insurers as a worst case scenario.”
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