Equitas and the Reconstruction and Renewal plan (1996)

At the end of the summer of 1996 the great majority of Names accepted the offer under the Reconstruction and Renewal plan, and Equitas took over the past of Lloyd's. The market was coming out of the 1988 to 1992 years of account, loaded with asbestos, pollution and US health hazards, and with the LMX spiral, in which the same excess of loss losses went round from one syndicate to another. Thousands of Names were ruined, many were suing, others had stopped paying their cash calls. The plan did one thing that is simple to describe: all non-life liabilities of the 1992 and prior years, from every syndicate, were reinsured in a single transaction by Equitas, funded by existing reserves and by a final premium charged to each Name. In return the Name who accepted received credits that reduced his debt, funded in part by the Corporation and by the agencies' liability insurers, and gave up his claims against Lloyd's. Those who refused were pursued for their premium; in Society of Lloyd's v Jaffray the Names failed to prove the fraud they alleged. The weakness lay in the structure. Equitas reinsured, it did not replace: in law the Names remained liable to the original policyholders, and the promised finality depended on Equitas's reserves holding up against asbestos claims that kept rising. In 2006-2007 a large American reinsurer reinsured all of those liabilities with several billion dollars of additional cover and took over their management; a portfolio transfer, sanctioned a few years later by the English courts, finally released the Names. Not to be confused with ordinary reinsurance to close, which carries one year of account into the next inside the same syndicate, nor with the retrocession spiral, which produced part of the losses.