Letters From London

  A few days later, I met Mrs. Herford at her Chelsea house just off the Fulham Road. We sat in a sunlit backyard with a brimming Cafetière between us; her husband, an accountant, was working upstairs; in the kitchen, a student daughter was dragging a feed-the-village sack of Elephant chapati flour across the floor toward the stove. Amid this upper-middle-class English normality sat a woman in trim middle age who until two years ago was, by all outside criteria, somewhere between comfortably off and rich, who implicitly trusted what was held to be one of the world’s great financial institutions, and who today is seriously insolvent. “Now they control every penny—and they will take it. They are ruthless,” she repeats. And yet, compared with others, her case is not so bad: “I’m not a sob story in Lloyd’s terms.”

  Asked to specify how and why she went into Lloyd’s back in 1977, she insists that “I didn’t do it for the money.” This may seem an odd reply at first, yet money, after all, comes both to those who are fascinated by its working and to those who are not. She also didn’t do it “to educate the children,” that traditional explanation of the Lloyd’s investor, who does not, of course, send his or her children to state schools. She did it “because my father was already a Name—I sort of slid into it.” You “slide” into such things because of the assumptions of your social circle. Fernanda Herford had a brother and two sisters-in-law who were in Lloyd’s; she also knew a Lloyd’s agent named Anthony Gooda. “I did it because I knew the Gooda setup, because women were allowed into Lloyd’s, and I thought it was a very English thing to do.” Her first foray into the market—underwriting business up to £150,000—came the following year. Given the normal haggling time it takes to settle most insurance claims, the accounting period at Lloyd’s is three years. So in 1981 Mrs, Herford received a check for £4,100, representing a 2.73 percent return for the year 1978. That may sound rather unimpressive but the point—one of the main points for those privileged enough to have been Lloyd’s Names over the three centuries of its existence—is that the money invested is not actually handed over. The, principle of the market is that a Name “shows” a certain amount of wealth, so that Lloyd’s knows that if things go wrong—if, classically, the ship fails to reach port—it will have that wealth to call upon. The investor is free, while awaiting this postulated call, to invest his or her money, that same money, in something else. Lloyd’s enables you, in this very precise way, to double your money. And it allowed Fernanda Herford to slightly more than double her money in a different sense, since the investor was allowed to underwrite business to a premium limit approximately two and a half times that of the wealth shown. In her first year, then, Mrs. Herford showed wealth of £75,000, insured business of £150,000, used her basic £75,000 elsewhere, and three years later received £4,100, which, though on one reading is a 2.73 percent return on investment, could also be seen as a 5.46 percent return on wealth shown; or, to put it another way, could be seen as money for jam.

  This agreeable situation continued for eight more years. The traditional optimistic profit figure that is whispered enticingly to Lloyd’s Names is a rather useful 10.00 percent on business insured. In nine years’ trading, Fernanda Herford only once hit that figure. Her returns varied from a low of 0.78 percent for 1979 to a high of 11.18 percent for 1982. On the other hand, she was able to increase her wealth shown to £200,000 for 1984–1986. By 1989, when the results for 1986 came in, she had made a cumulative total profit of £82,665, or 5.51 percent on the amount of business underwritten. A way short of the fabled 10.0 percent, but then Mrs. Herford had been assured that she was not at the risky end of the market. This seemed logical. “I never had big gains, and never thought I was big risk.” Indeed, her agent, Anthony Gooda, told her, in a phrase that not surprisingly lingered in her mind, that her investment was “so safe you could mortgage the cat.”

  In 1987, she increased her underwriting limit to £300,000, and in 1990 received news of her first loss: £13,391, which just about wiped out the previous year’s gain of £14, 199. Meanwhile, on the advice of her agent, she had increased her premium limit yet again: to £375,000 for the years 1988 and 1989, then to £500,000 for 1990. In late June of 1991, she received a letter from Anthony Gooda: “I am afraid you have sustained an overall loss [for 1988] of £219,985.27. I should be pleased if you would forward a cheque for this amount… by the 12th July. We have been advised by Managing Agents any amounts outstanding after the 15th July will attract interest.” Was she tempted to resign at this point, when the overall result of her eleven years in the market stood at a loss of £150,711? “In 1991, Anthony Gooda told me the worst was over. He told me another ninety thousand pounds was all I could lose. I still thought it was worth it.” And in any case, she was already committed to the gains or losses on business she had underwritten for the years 1989 and 1990. When those results arrived, it was clear that cat-mortgaging time had come. In 1992 she got a call for £527,348.03 for 1989; and this year calls amounting to £319,000. There is now a new select breed of people in Britain who might be called deficit millionaires. Fernanda Herford, with an admirable lack of self-pity, reflects that “I have to say I was the sitting target—I trusted, which was my fault.” By the time she became a deficit millionairess, her underwriting agents, Gooda Walker, had ceased trading, and Anthony Gooda, from being a sociable, wide-trawling agent, had become one of the most reviled figures in the market. There are three current options open to Mrs. Herford: file for bankruptcy, put herself into the hands of the Lloyd’s Members’ Hardship Committee, or sue those with whom she dealt for professional negligence. For the moment, she is suing. And one other thing as well: “We’re now doing bed-and-breakfast.”

  THE MONTH OF JUNE 1993 was a good one for those who scrutinize the faits divers for clues to the nation’s moral state. There was the luxury clifftop hotel in Scarborough which over a few much photographed days slowly collapsed into the sea; as a mud slide gobbled the building, prospectors lined the shore in the hope of plundering an intact bidet. Then there was the English soccer team’s seismic defeat by the supposed ragamuffins of the USA, a result that provoked pert comparisons between team manager Graham Taylor and national manager John Major. And there was the survey of domestic consumer habits which concluded that Britons were Europe’s scruffiest dressers. But who needed symbolic indicators of the state’s welfare when the real indicators were so particular? On June 22. Lloyd’s of London announced overall losses for 1990 of £2.91 billion, the worst losses in the market’s history. The previous year, it had also an nounced the worst losses in its history. And the year before that it had done the same. Almost £5.50 billion over those three years, and with losses of more than a billion already anticipated for 1991. Nor was the monstrous figure of £2.91 billion necessarily the final low point: two-fifths of the insurance syndicates (157 out of a total of 385) had left 1990 “open”—that is to say, with their accounts unfinalized, since the full extent of the damage could not yet be properly judged. To view it historically: since 1955 the market’s many felicitous years have brought cumulative profits of £3.7487 billion, while its few woeful years have brought cumulative losses of £5.3243 billion. Or to put it at the crudest, individual level: if the losses for the four years 1988–1991 were spread evenly among all the Names, each would be asked to fork out roughly a quarter of a million pounds.

  The estimated £2.1991 billion was the biggest annual loss achieved by a single British institution since the Coal Board set the national record at £3.90 billion in 1984. But the resonance of Lloyd’s cumulative catastrophe is wider than that comparison implies. Most citizens of this country don’t know what goes on in the City of London but have a loyal idea of it as “the financial capital of the world.” Asked to specify, the Briton might mention as its most famous institutions first the Bank of England and secondly Lloyd’s. “As safe as the Bank of England,” we like to quote, though after the Bank’s inept failure to regulate BCCI in the time up to its collapse the catchphrase should perhaps be altered to “as sl
eepy as the Bank of England.” As for Lloyd’s of London, the popular perception of it has always been as a rather mysterious, Masonic place that began in a Coffee House, that nobody outside understands, but that is obviously very good at whatever it is it might do. And what might it do? Oh, something sui generis, and therefore inexplicable to the unwashed; something very English, rather upper-class, and poshly efficient—say, the financial equivalent of Savile Row or Rolls-Royce. (Savile Row, of course, is not as flush as it used to be, while Rolls-Royce had to be rescued from receivership in the early seventies.) Furthermore, Lloyd’s has managed to present itself as an institution that is both very old and very modern: established before the Bank of England, yet capable of flourishing athletically in Mrs. Thatcher’s world; richly enshrining all manner of quaint traditions, yet working out of a spanking modern building at No. 1 Lime Street designed by Richard Rogers, architect of the Beaubourg in Paris.

  Lloyd’s is different from other insurers in two key respects. First, membership is individual; and second, the liability of that membership is unlimited: in other words, you risk not just your agreed investment but everything you own. You do not buy shares in Lloyd’s; you are elected to it on the basis of your wealth, and the accumulated wealth of the individual members makes up the funds that allow Lloyd’s to trade. This nexus of exclusivity and money meant that until recent years the identity of the few thousand Names was unknown to the wider public; membership in Lloyd’s was a badge of status murmured about rather than confirmed. But TOP PEOPLE LOSE MONEY is always a page-filling story, and nowadays high-profile Names are widely named: the Duchess of Kent, Prince and Princess Michael of Kent, Princess Alexandra and her husband, Sir Angus Ogilvy; Maj. Ronald Ferguson, father of the Duchess of York, and Maj. Peter Phillips, father of Princess Anne’s first husband; Camilla Parker-Bowles, the confidante of Prince Charles; forty-seven Tory MPs, including former Prime Minister Edward Heath, Scottish Secretary Ian Lang, Heritage Minister Peter Brooke, Party Chairman Sir Norman Fowler, and Attorney General Sir Nicholas Lyell; various peers, such as Lord Wakeham, the Leader of the Lords, and Lord Hausham of St. Marylebone; eleven judges and at least fifty-four Queen’s Counsel; Sir Peter de la Billière, commander of the British forces in the Gulf War, and Nick Mason, of Pink Floyd; writers Frederick Forsyth, Melvyn Bragg, Edward de Bono, and Jeffrey Archer; the publisher Lord Weidenfeld and the champion jockey John Francome; former British tennis No. is Virginia Wade, Mark Cox, and Buster Mottram; various earls and viscounts, marquesses and baronesses, lords and ladies, squires and squiresses. Recently deceased members include Robert Maxwell; recently resigned members include boxer Henry Cooper, golfer Tony Jacklin, actress Susan Hampshire, jockey Lester Piggott. James Hunt, the former world motor-racing champion, known on the track in his early days as Hunt the Shunt, had a series of terrible shunts at Lloyd’s; he died of a heart attack as the news was still emerging that he was on many of the worst-performing syndicates.

  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.”

  LLOYD’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 po
licies 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.”