Lloyd’s of London Bracing for a Loss : Insurance: The British giant’s chairman, David Ean Coleridge, blames most of his firm’s troubles on the American court system. But critics say management is stuck in the past.

David Ean Coleridge, once arguably the envy of the British business set, is decidedly more grim these days.

In a week, he’ll announce that Lloyd’s of London--the giant British insurer--posted a loss for the first time in more than 20 years.

And it’s a doozy.

Coleridge, Lloyd’s chairman, won’t yet reveal the exact figure, but the British press has pegged it at more than 300 million pounds--about $460 million U.S. dollars at current exchange rates.

Worse still, that loss only relates to Lloyd’s 1988 year-end. (Lloyd’s accounting lags the calendar by three years). The losses for 1989 will probably be steeper, possibly more than $1.5 billion.

That’s forced Coleridge to send letters to thousands of “names”--the well-heeled investors who back Lloyd’s policies--asking them to kick in more money. Not surprisingly, those letters are causing chaos among Britain’s upper crust, who fear they’ll lose their “exquisitely tailored shirts,” according to one Londoner.

On Wednesday, Coleridge, who has been blasted by the British Parliament, arrived in Los Angeles to lay the blame where, in his view, it belongs:

America.

“I realize it has been over two hundred years since a limey, with any sense of self-preservation, dared to suggest how the U.S. might conduct its affairs,” Coleridge said in a speech to the Los Angeles World Affairs Council.

But the U.S. legal system needs a serious overhaul, he nonetheless maintained.

The U.S. courts are deliberately “misinterpreting” insurance policies to address society’s problems, he added. “It is surely a negation of justice if contracts of insurance are to be rewritten by the judiciary to meet an, albeit worthwhile, social need.”

Right now that need is to “clean up America,” Coleridge said. The toxic sludge that’s accumulated in landfills and construction sites across the country since the early 1950s needs to be removed. The question, of course, is who will have to pay for the incredibly costly cleanup.

Coleridge believes that the U.S. courts are placing too much of the burden on the shoulders of the nation’s insurers, who often back their policies, in part, through reinsurance bought from Lloyd’s.

Indeed, he says the bulk of Lloyd’s current financial woes are caused by additional reserves that were needed to cover Lloyd’s potential liability for cleaning up pollution problems in the United States.

What may be most interesting about Coleridge’s visit, though, is the clear picture he provides of one of the oldest and most revered financial institutions in Europe. And Lloyd’s, which has insured everything from commercial jetliners to the legs of movie actresses, is in trouble.

Besides Lloyd’s exposure for environmental clean-up, the exchange’s syndicates are now reeling from a series of spectacular disasters, including the 1987 Piper Alpha oil platform explosion in the North Sea, the Exxon Valdez oil spill and the San Francisco earthquake in 1989. Huge awards from U.S. courts in asbestos-related cases also are costing Lloyd’s dearly.

About 35% of Lloyd’s business comes from the U.S., mostly in the form of reinsurance.

In addition to the huge sums being paid out in claims, there is widespread criticism that Lloyd’s is suffering from mismanagement and an archaic operating system better suited to the glory days when the sun never set on the British Empire.

As a result, Lloyd’s is said to be facing the worst crisis in its 300-year history.

Earlier this year, Lloyd’s management appointed a task force to examine every detail of Lloyd’s operations, with the objective of updating the system. Among the practices that could be radically overhauled or abolished is the system of unlimited personal liability for underwriters.

British newspapers recently have taken to naming “names” who are about to lose all as a result of Lloyd’s crash. There are widespread fears within the market that unless something is done, Lloyd’s will witness a mass exit of existing “names” and will be unable to attract new ones. That would make it virtually impossible for the renowned operation to continue issuing insurance policies.

Lloyd’s, which boasts more than $9 billion in revenues, is not organized like an American corporation. Instead of having shareholders and a corporate coffer, the firm is actually a “society of underwriters” whose members--all private individuals--accept insurance business for their own personal profit or loss.

The task force will report its findings at the end of the year. Meanwhile, a separate attempt to obtain retroactive tax breaks for the ailing Lloyd’s members has failed. The government abandoned the measure after the British press reported, among other things, that 62 Members of Parliament were among those well-to-do “names” who would benefit from the tax adjustment.

What ultimately will turn Lloyd’s around will be a boost in insurance prices and, hopefully, some sort of judicial reform, Coleridge indicated in his speech and an interview.

Lloyd’s of London at a Glance

What is Lloyd’s? Lloyd’s of London is an international insurer that operates through a series of syndicates. The syndicates underwrite policies on marine, aviation, automobile and general liability insurance. They also insure other insurers against the risk of major loss and offer less traditional coverages such as insuring the legs of actresses and football players.

Who underwrites the risks? Policies are backed by a society of underwriters, who accept personal liability for the profits and losses of the business they write. The 26,568 members are referred to as “names.” Most are members of Britain’s upper crust. “You can’t underwrite insurance on a shoestring,” explained David Ean Coleridge, the company’s chairman.

How’s business? The firm, reeling from massive potential liabilities on U.S. policies, expects to post losses of up to $460 million* for 1988 and more than $1.5 billion* for 1989 (its accounting system lags the calendar by three years).

Vital statistics: Number of employees: 2,319; Profit (1987): $835 million*; Revenues (1987): $6.89 billion*

* Figures are in U.S. dollars, based on current exchange rates.

Kathy M. Kristof reported from Los Angeles and Jeff Kaye from London.