THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Sunday, April 14, 1996 TAG: 9604130282
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Long : 118 lines
From an office in the Dominion Tower building in downtown Norfolk, the insurance brokerage firm London & Norfolk Ltd. has been seeking insurance for something out of the ordinary: a shipment of two container cranes, worth $6 million each, from Brazil to New Orleans.
What complicates the task is the timing of the 5,000-mile trip: in September, the middle of the hurricane season.
To date, the responses from American insurance companies have been cool. So London & Norfolk president Mike Gomez has checked out the world's most renowned insurer in London.
``I've been turned down by six American insurers. Some have said, `No thanks,' but a London company provided a quote immediately,'' he said.
When brokers like Gomez shop for maritime insurance, they routinely look to London. One reason is the presence of Lloyd's, a market that has been insuring ships and their cargoes for three centuries.
But Lloyd's, which has a reputation for insuring unusual risks, is under siege from thousands of angry investors. And some companies that rely on insurance from Lloyd's syndicates wonder about the ability of Lloyd's syndicates to pay claims.
Lloyd's isn't an insurance company. Like the New York Stock Exchange, it is a place for its members to conduct business. Groups of investors and underwriters, known as syndicates, evaluate the risks and determine what rates to charge on the policies brought to them by insurance brokers.
But a rapid expansion at Lloyd's during the 1970s and early '80s has come back to haunt several syndicates. In recent years, they have been crippled by billions of dollars of losses on claims involving asbestos and pollution liability. On top of these came claims from a string of costly natural disasters.
To pay their claims, some syndicates have had to call on their member-investors to put up more money. Some investors have been bankrupted in the process of making the payments. Other investors have refused to pay the money they have pledged.
Throughout the United States, many of these investors have argued that they were defrauded by Lloyd's and that they are not obligated to pay what Lloyd's says it is owed. In a handful of states, securities regulators have responded by blocking Lloyd's from taking the assets of these investors. Virginia's State Corporation Commission will consider a similar move at a hearing Thursday.
Departures by the thousands of Lloyd's member-investors and the inability of others to pay what they owe have restrained the ability of some syndicates to write new business.
The number of syndicates, which reached a peak of 431 in 1982, has steadily declined to slightly more than 200 today. Meanwhile, the roster of Lloyd's member-investors has plunged to fewer than 20,000 from 32,400 eight years ago.
Challenges by thousands of Lloyd's member-investors in the United States and England have complicated the institution's plan for isolating its money-losing insurance policies and attracting new investors.
Some investor groups in England have even called for Lloyd's to stop accepting new business and to let the existing insurance run off its books.
Gomez said London & Norfolk's ability to find insurance has not been hurt by turmoil at Lloyd's. But shipyards, cargo terminals and other maritime facilities in Hampton Roads have a stake in what happens there, he said.
``If the Lloyd's market were to go away, it would drive up their insurance rates,'' he said.
In addition to insuring ocean-going ships, tugs, terminals, and shipyards, Lloyd's provides reinsurance to companies throughout the world that write marine insurance, Gomez said. Without that reinsurance, insurance probably would be less available, he said.
Reinsurance enables an insurance company to reduce its risk by selling part of the coverage to another insurer for a share of the customer's premiums.
Lloyd's history dates back to 17th century, when shipowners met at Edward Lloyd's London coffeehouse to trade information. For almost three centuries, the institution concentrated on insuring ships and cargoes. In recent decades, several Lloyd's syndicates began providing insurance for other lines of business, including aviation, oil rigs and satellites.
To spread their risks, Lloyd's syndicates often provide a small part of the insurance, 5 percent or less, in a single policy. And brokers frequently rely on several syndicates and insurance companies to get the coverage they need.
That's what London & Norfolk did three years ago when it lined up insurance for 1,600 head of cattle being shipped from Mexico to the Philippines.
Gomez's company found 64 percent of the insurance at Lloyd's and got the remaining 34 percent from five insurance companies in London.
London & Norfolk is likely to use a similar arrangement for insuring the shipment of the container cranes from Brazil to New Orleans later this year, he said. said some of his friends who were investors at Lloyd's have been badly hurt by the syndicates' demands on their members.
Gomez, who worked at Lloyd's in 1974 as a broker, is not a member-investor in Lloyd's, but he maintains close business and personal ties with brokers, underwriters and others there. His partner in the London & Norfolk firm is a London brokerage firm that does business at Lloyd's, Newman Martin and Buchan.
However, the rich heritage surrounding Lloyd's isn't enough to allay worries among some companies that rely on insurance purchased at Lloyd's.
Gomez said a few of his clients have expressed concerns, especially about Lloyd's restructuring efforts. One client, who uses London & Norfolk to insure a fleet of tugboats, recently traveled to New York City for a day-long seminar on the future of Lloyd's, he said.
Lloyd's has had some success attracting fresh capital by opening up its membership to corporate investors, whose liability for losses is limited.
And Gomez expressed confidence that the influx of corporate members and infusion of new capital will bring stability to Lloyd's. But he is cautious when answering clients' questions about what might be in store for the tarnished institution.
``I tell them `I don't know,' '' he said. ``I just look at Lloyd's history and know that they've had other serious problems and overcame them.'' ILLUSTRATION: Color photo by RICHARD L. DUNSTON/ The Virginian-Pilot
Norfolk insurance broker Mike Gomez - shown at Colonna's Shipyard
Inc. in Norfolk - often looks to Lloyd's of London to insure ships
and their cargoes. He is president of London & Norfolk Ltd.
by CNB