Lloyd’s of London, the UK’s 300 year old insurance market, has just woken up to the very real threat posed by the year 2000 problem and fears that massive claims could devastate underwriting profits. In a bulletin to all its underwriters, Lloyd’s regulatory division has admitted that there is a potential for the Year 2000 to impact materially on syndicates throughout the Lloyds market, across all classes of business. In other words, there is potential for a flood of Year 2000 related claims to punch huge holes in Lloyds profits and anger its important and expanding base of corporate investors. But as yet, there is no clear picture of exactly how large the flood of claims will be, and Lloyds is scrambling to assess the scale of its exposure. Syndicates have been ordered to identify all policies against which Year 2000 claims could arise without delay. Additionally, all accounts for the year to December 1997 must now carry a health warning which informs investors of the syndicate’s potential exposure to Year 2000 claims. But while the issue has been raised, the problem will still be difficult and time consuming to quantify. A spokesperson for Lloyd’s regulatory division said that until the individual syndicates had carried out their reviews, he couldn’t even begin to guess at the breadth of insurance policies affected, let alone the size of future claims. And the problem will intensify over the coming year as syndicates are forced to put numbers to their exposure, and to create financial reserves to cover this. Providing underwriting capital for the Lloyd’s market has been a spectacularly good investment since the beginning of the nineties, with return on capital far outstripping even the buoyant UK equity market. Lloyd’s members will be praying that this latest development doesn’t herald a return to the problem days of the eighties when the market was nearly bankrupted by a mountain of claims from areas such as Asbestos poisoning which had not been foreseen.
