An Immoral Code Read Online Free PDF Page B

‘we’ve got a hearing in the House of Lords on Wednesday. You can help with that.’
    She nodded. ‘What’s it about?’
    ‘It’s this Lloyd’s Names case I’ve been involved in for a few months now. Do you know anything about it?’
    ‘Not really.’
    ‘Right,’ said Anthony, sitting down and feeling quite magisterial as he recounted the facts of the case to Camilla. ‘Our clients are all members of the Capstall syndicate, which unfortunately is one of the long-tail syndicates at Lloyd’s. Do you know what one of those is?’
    Camilla, with her double first from Oxford, didn’t like to profess ignorance in any area, but here she was forced to. ‘No,’ she admitted.
    ‘Well, a syndicate is a group of Lloyd’s investors, and a long-tail syndicate is one specialising in insuring long-term risks, like latent disease and pollution, which might result in claimsyears after the insurance was written. Now, Lloyd’s syndicates operate a three-year accounting period, and when a syndicate’s accounts are closed at the end of that three-year period, one of the decisions which the underwriter has to make is the amount of internal reinsurance to close. It’s called an RITC. It’s the amount required to reinsure any outstanding risks, and it’s the amount the Names on one year pay to the Names on the next year to take over liabilities. Sort of selling the risks on, if you like.’
    ‘But if you have a syndicate specialising in latent disease claims, like Capstall’s, how can you assess the amount of reinsurance to close? I mean, how can you possibly know the extent of future claims?’
    Very quick on the uptake, thought Anthony, with a flicker of admiration. ‘Precisely. On long-tail syndicates, like Capstall’s, the amount of RITC has to be judged very finely by the underwriter, because the Names on the new year may be different from those on the old years. So if the RITC is too low, the Names inheriting the risks lose out, because the premium’s too low to pay the claims, but if it’s too high, the old Names lose out by having paid too much. Now, run-off contracts, which are what Capstall was writing, are similar to RITCs, but whereas RITC is an internal syndicate transaction, a run-off is an arm’s-length policy written by another reinsurer. Our fellow Capstall wrote a load of run-off policies in the eighties, as a result of which the Names were exposed to massive claims arising out of asbestos and pollution actions, mainly in the States. And the Names’ argument is that Capstall was negligent when he wrote all those run-off contracts, because he completely failed to make adequate provision for the latent disease claims which were looming, particularly asbestosis. Which is why they’re trying to recover some of their losses by suing him.’
    ‘But I don’t understand how he could write those run-offs.It must have been obvious to anyone the kind of risks he was running. Why did he do it?’
    ‘A variety of reasons. Premiums were high and potential profits must have appeared good. Plus, he probably took the view that such claims as might be made would only arise over a very long period, and in the meantime profit would pile up on the investment income. Unfortunately, it didn’t turn out that way.’
    ‘But as an underwriter surely he had a duty to investigate the risks he was assuming on behalf of the Names?’
    ‘You would have thought so, given the amount of concern there was in the market at that time about asbestosis, but he seems to have been too lazy, or too arrogant. Or both. When you get a reputation as a high-flier, a risk-taker, you tend to live by that code. He’s a character – flamboyant, daring, all that stuff. Not exactly a man of prudence and caution. Anyway, you know the motto of Lloyd’s –
Uberrima Fides.
The utmost good faith. That seems to have been conspicuously lacking here. Now,’ sighed Anthony, ‘the asbestos and pollution claims are literally piling up in the American