Letters from London (28 page)

The presence of so many Tory MPs in the catalog of Names briefly raised a merry scenario of political destabilization. A bankrupt MP is automatically disqualified from sitting in the House of Commons, and loses his or her seat after six months. According to
The Times
, “at least thirteen” of the forty-seven Tories might be forced into bankruptcy by their losses. With John Major’s Parliamentary majority in the trembly midteens and dropping with each by-election, an ironic denouement looked possible: that of Lloyd’s inadvertently bringing down the party under whose aegis the City and Lloyd’s itself had boomed in the eighties. But a “scenario”— that’s to say, a piece of fictional hoping or fearing—is probably all this will be. In the first place, MPs, like other burnt Names, could put themselves in the hands of the Hardship Committee, a process that, even if humiliating, is specifically designed to avoid bankruptcy. And second, the Tory Party, of all parties, is famously skilled at looking after its own. Well-wishers unbuckle their money belts and secret funds disgorge their guineas. If Mr. Norman Lamont, the erstwhile Chancellor of the Exchequer, could be slipped £23,114.64 to prevent embarrassment when suing to rid his house of the tenancy of a flagellant prostitute, how much more readily would generous contributors come forth if it were a matter of the Government falling?

But the crisis at Lloyd’s has had some unexpected side effects. I wasn’t sure how flip Fernanda Herford was being in her reference to bed-and-breakfast until I read a story in
The Times
at the beginning of August: a company called Discover Britain, based in Worcester, has been enlisting cash-bothered Names to offer their homes as tony B and Bs. (Its managing director reported, “We have Names in the Cotswolds and in the Home Counties on our books. It gives foreign guests a chance to meet the more comfortably off British people and
stay in some of the nicer houses in Britain”) Elsewhere, the property market and the auction houses have received some tasty bits of business. Henry Cooper sold his three Lonsdale belts (each awarded for three successful defenses of his heavyweight-boxing title) at Sotheby’s for £42,000. The wine trade has felt the benefit of Lloyd’s. Stephen Browett, a director of Farr Vintners, confirms that a number of private cellars have unexpectedly become available. “No one says, ‘I’m selling because I’ve rucked up, I’ve lost money.’ But, on the other hand, often—excuse the pun—the most liquid asset they have is their wine. It’s more immediately salable than works of art or cars, or whatever.” So Farr Vintners now advertises for stock in the pages of the
Financial Times
. In Browett’s opinion, the recent collapse of the port market is partly attributable to events at Lloyd’s. This is confirmed in a back-to-front way by an offer of the 1991 port vintage sent out at the beginning of August by Messrs. Berry Bros. & Rudd of St. James’s, the most rampantly traditional of London vintners, with a bowfronted clientele to match. Among the various reasons proposed for buying a few cases of Churchill, Dow, Warre, Graham, or Quinta do Vesuvio was the following: “Alternatively, purchasing 1991 port would also make a decent investment should—heaven forbid—it need to be sold years hence either due to hitherto unnoticed teetotalism in one’s offspring, or unforeseen future losses at Lloyd’s.”

L
LOYD’S IS CURRENTLY
enduring its longest and least welcome spell of scrutiny, but its misfortunes receive only the minutest salve of public sympathy. This commodity, so freely bestowed on any three-legged dog that happens to cross the tabloid press, is vehemently, puritanically, even laughingly withheld from Lloyd’s Names. Partly, this is because there are more deserving cases out there; for instance, the pensioners of Mirror Group Newspapers, whose fund was systematically plundered by Lloyd’s Name Robert Maxwell for his own private financial purposes. Partly, and mainly, it is a question of class, envy, prim-lipped glee, and wise-virgin huzzahing. What an unimprovable chance for social gloating and below-stairs schadenfreude when the Master is forced to hock his christening mug. Weren’t we told at our
mother’s knee that there’s always a price to be paid, no such thing as money for nothing, let alone a free lunch, and all the other clichés of the prudent? Those a long way from Lloyd’s and its social circles can afford an even broader view, and reflect that in the strange and erratic trickle-down of the world’s wealth there might well be some social, even moral, justice in the transfer of money from a comfortable upper-middle-class golfing Englishman to, say, an elderly American seaman suffering from terminal asbestosis. As long as it was as simple as that—which of course it turns out not to be.

The Names are well aware that, outside their exclusive stockade, they are pretty much on their own. “You don’t get any sympathy,” one businesswoman in her thirties told me. “People look at you and think, Well, she must be a rich bitch anyway.” Rich, but not
rich
rich; moreover, for a girl of twenty-five, as she was when she signed up with Lloyd’s, almost dismayingly careful. A third-generation Name who had worked in the City for several years after graduating, she had all the insider’s advantages: she joined her father’s agents, who put her on good syndicates; she was warned away from the dangerous areas of the market, knew about taking out stop-loss policies to limit her possible liabilities, and consequently felt she had done her best to safeguard the money her grandfather left her. She started underwriting in 1986, made a small profit in the first two years, and then in the next three lost the whole of the trust fund she had come in with. Now she has resigned, not just because she hasn’t any money to underwrite with anymore but also because “I can’t bear the tension. I have to come to terms with the fact that I am going to lose all my money. Now I wish I’d spent it all on having some fun.” She doesn’t blame her agents in any way (indeed, her father has stayed with them and is trading through), but in a wider context is more rueful. “When I was growing up, the thickest men I knew went into Lloyd’s. I should have thought at the time. At school, I had a friend who couldn’t even get into the Navy. He took his maths O level five times and failed it five times.
He
joined Lloyd’s. I should have thought then and there.”

One who did think along these lines was Max Hastings, editor of the
Daily Telegraph
since 1986; he once said to a fellow board member
of the newspaper, “Rupert, I never joined Lloyd’s, because all the stupidest boys I was at school with seemed to go into it… and that worried me.” (Hastings was at Charterhouse.) But historically, thickness was no especial handicap in Lloyd’s—or, at least, not one that led inevitably to the impoverishment of the members whose interests you supposedly represented. The current chairman of Lloyd’s, David Rowland, put it like this in a television interview last October: “Back in the sixties, early seventies, Lloyd’s had a cost advantage over the rest of the world of maybe five to seven percentage points. Now, expressed in a different way, you could be quite thick and be a Lloyd’s underwriter and make money because, whether you knew it or not, you had that advantage to play with and you could use it by having lower rates, higher commissions, any competitive tool.” And now? By the end of the eighties, in Rowland’s view, Lloyd’s was operating at a cost disadvantage as other insurers had caught up: “You had to be quite seriously clever to be a Lloyd’s underwriter and to make money.”

But Lloyd’s didn’t reach its present crisis, where insiders and outsiders talk equally about the possibility of meltdown, merely because it was overstocked with Old Carthusians owning long names and short brain cells. The 1980s were particularly rich in bad things happening throughout the world, with the bill for them ending up at Lloyd’s. Of course, to a certain extent insurers not only like but depend upon catastrophes. The businesswoman recalled to me the quietly sinister professional satisfaction with which an underwriter friend of hers had greeted the Japan Air Lines jumbo-jet crash of 1985. This is, after all, the logic of the business: if there weren’t any burglars, no one would need house insurance against theft. But catastrophes, in a perfect insurance world, should come at the right intervals—just often enough to scare policyholders, harden rates, and make as much profit as possible before the next payout. The European storms of 1987 were said to be the worst for two hundred years; and so they may have been, except that this didn’t prevent Nature’s coming back for a second bite, and with just as much gourmandizing destructiveness, only three years later. Bad for business. Then there were the various
hurricanes—notably Alicia, Gilbert, and Hugo; the destruction of the Piper Alpha oil rig in the North Sea; the
Exxon Valdez
oil spill; and the 1989 San Francisco earthquake.

These well-publicized losses were not in themselves threatening to Lloyd’s; indeed, there is something sexy about being associated with famous disasters. Lloyd’s insured the
Titanic
, paid out a hundred million dollars for the 1906 San Francisco earthquake, covered Hitler’s private Junkers airplane, made a fortune out of “death and spare parts” policies during the V-1 and V-2 raids on London, underwrote the San Francisco-Oakland Bay Bridge, did well out of the Gulf War. Far less glamorous, and far more damaging to Lloyd’s Names, was the increasing realization through the seventies and eighties of the magnitude of present and future claims in two particular areas: pollution and asbestosis. This was “long-tail” business, in which a policy might be activated many years after it was written. Sometimes the policies had started off at Lloyd’s; sometimes they had started off in the States and been reinsured at Lloyd’s; sometimes they had started off at Lloyd’s, been reinsured in the States, and then reinsured back again at Lloyd’s. Whichever way, once the claims began coming in, once American lawyers started getting busy and American courts generous, the bill became enormous and continuing.

Another, more self-inflicted piece of damage was a practice of reinsurance popular at Lloyd’s in the 1980s. Just as bookmakers faced with money pouring in on the Kentucky Derby favorite minimize their potential losses by laying off the bets elsewhere, so insurers do the same. But whereas among the wise gentlemen of the turf one firm of bookmakers will devolve its liability onto another firm, at Lloyd’s the risk was kept within the same market. The original insurers of a big risk would take out reinsurance in case claims exceeded a certain figure; the reinsurers would then seek to lay off their risk with a new layer of reinsurance, and so on along the chain. The advantage to Lloyd’s was that with each reinsurance the underwriter took a premium and the broker a commission; often the same piece of business might go through the same syndicates and companies several times, to everyone’s short-term advantage. The system became known as
London Market Excess, or LMX, and the chain of reinsurance was known colloquially as “the spiral” The thinking behind it was based on the belief—or the hope—that there was little likelihood of a claim going up beyond a certain point: a thousand roofs might blow off in a tempest, but not ten thousand; an oil rig might experience a small explosion but not a big one. Therefore, as you got to the top end of the spiral the premiums got smaller, and the final reinsurers were increasingly ill-equipped to pay a claim when a big disaster occurred. It is like pass the parcel: good fun until the music stops. Then it becomes very expensive. In the case of the Piper Alpha oil rig, for instance, which blew up in July 1988, the basic sum for which it was insured was $700 million. But that amount was reinsured and reinsured—to the great profit of brokers and underwriters—so that by the end of the spiral of reinsurance a total of $15 billion was sloshing through the system: “which means,” as one underwriter commented, “that in some syndicates it must have passed through that syndicate fifty times.” The losers, at the end of the day, were the Lloyd’s Names: in 1989, a mere fourteen LMX syndicates lost £952 million, or nearly half the market’s total losses.

L
ONDON
M
ARKET
E
XCESS
developed for a series of interlocking reasons: greed, of course; the ease with which it could be done (“Making a turn”—in the spiral—“was the easiest way to make money,” one underwriter said); plus the presence of spare capacity in the market. Unreal business like LMX was written because there wasn’t enough real business out there to write. And the reason for this was that during the 1980s Lloyd’s participating membership—and hence its underwriting capacity—expanded faster than the market did.

It may have been noticed that on the list of high-profile Lloyd’s Names given earlier some were extremely posh, but others were-well, less than extremely posh. Starting in the mid-1970s, the graph of membership went Himalayan. Between 1955 and 1975, the numbers had gently doubled, from 3,917 to 7,710; by 1978, they had virtually doubled again, to 14,134; then they jumped greedily through the eighties to an all-time peak of 34,218 in 1989. In the single year of
1977, 3,636 new Names were admitted; back in 1953, the entire membership had amounted to only 3.399. Both the nature of the members and the nature of the recruitment had changed. No longer was it a case of the tweedy third baronet, having slaughtered a bucketful of grouse, deciding over the crusted port that it was time to put young Marmaduke up for Lloyd’s. Now it was a matter of active recruiters scouring for business: the accountant suggesting to the widow that Lloyd’s was a safe place for her inheritance; the commission tout working the dinner tables; the members’ agent specializing in one particular slice of high earners. In some cases, it was still a matter of the lowered voice and the “I could probably get you into Lloyd’s, old boy;” but often the approach was much more blatant, or, if you prefer, businesslike. In June of 1988, Nicholas Lander sold his successful Soho restaurant L’Escargot, a piece of news that made the papers. Shortly afterward an accountant he had never even met phoned him up and began lauding the tax advantages to be had from joining Lloyd’s. Lander declined the approach partly out of caution—“I don’t understand the world of insurance and reinsurance”—but mainly for a more forthright reason: “I wasn’t going to hand my money over to a bunch of upper-class twits to play with.”