ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, April 4, 1996 TAG: 9604040062
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
SOURCE: MEGAN SCHNABEL STAFF WRITER
Virginia's State Corporation Commission will be asked this month to stop Lloyd's of London from collecting payments from Virginia investors, on the grounds that the British insurance underwriter violated state securities laws.
The SCC's division of securities and retail franchising alleges that Lloyd's violated state laws by selling unregistered securities to at least 26 individual Virginia investors. Lloyd's is not licensed to conduct insurance business in Virginia, according to an SCC statement issued late Wednesday.
Separately, Lloyd's and state securities regulators, represented by the North American Securities Administrators Association, said Wednesday they have reached an agreement that Lloyd's for the next month will cease calling on U.S. investors to make additional payments through letters of credit to cover claims in the British insurance market.
Nine states have cases against Lloyd's alleging securities fraud and other violations in its recruitment of U.S. investors in the 1970s and 1980s. One case, filed by state securities regulators in Arizona, alleges some investors were defrauded because they were put in excessively risky insurance syndicates, such as those underwriting asbestos claims, against their wishes.
The Virginia investors, along with 30,000 investors worldwide, were being asked by Lloyd's to pay hundreds of thousands of dollars each to cover asbestos and environmental claims against the company.
The agreement gives Lloyd's a chance to educate state regulators about the insurance market's complex workings, said Peter Lane, Lloyd's North American managing director.
Lane some of the states ``leapt before they looked'' and filed cases ``based upon misunderstandings and misperceptions.''
``The Lloyd's insurance market is vital to the interests of thousands of American citizens around the world,'' he said. Lloyd's still intends to fulfill its insurance commitments during the period, Lane added.
The SCC on April 17 will hear the Virginia case, seeking to temporarily enjoin Lloyd's from collecting payments.
The company criticized the Virginia SCC action.
"We are surprised at this hasty action which could threaten policyholders in Virginia," Lane said.
As early as the late 1970s, the SCC division said, investors were not told that their Lloyd's participation obligated them to pay huge claims, which Lloyd's representatives knew were being filed, the SCC division said.
Virginia investors have lost $2.7 million so far, according to the division. Though all but one of the Virginia investors have resigned their Lloyd's memberships, the company continues to seek additional funds and assets, the SCC said. At least 10 of the Virginia investors have a total outstanding balance on letters of credit at risk of $2.8 million.
The division also will ask the SCC to bar further sales of unregistered Lloyd's securities.
Under the agreement reached Wednesday between the insurance company and state securities regulators, Lloyd's for the next month will cease calling on U.S. investors to make additional payments through letters of credit to cover claims in the British insurance market, according to the North American Securities Administrators Association Inc., a group of state regulators investigating Lloyd's.
``We believe it will be of benefit to tone things down for a while and give both sides a chance to talk with each other,'' said Philip A. Feigin, a Colorado Securities Commissioner and chairman of the association's task force.
In a statement, Feigin said he hoped that over the next month both sides would gain a better understanding of their opponents' issues and talks would begin ``to promote equitable and comprehensive solutions to these important problems.''
Feigin said the agreement isn't supposed to act as a stay of any pending court proceeding. Instead, the agreement encourages state regulators to hold off on initiating new legal action until the NASAA committee sifts through the complex legal issues surrounding the Lloyd's investigation, he said.
The state cases created an uproar in the U.S. insurance community, which said the lawsuits could damage reinsurance agreements with Lloyd's and perhaps stop Lloyd's ability to pay out on some U.S. claims.
Lloyd's lost more than $12 billion in the five years ended in 1992 because it paid out on a wide variety of insurance claims for asbestos lawsuits, hurricanes and earthquakes in the United States.
In March, Lloyd's sent letters to 34,000 investors to settle disputes over insurance claims that evaporated their investors' personal fortunes. Lloyd's has offered the investors $4.3 billion to absorb some of their liability.
Louisiana regulators broke ranks with the NASAA task force and reached a separate settlement with Lloyd's last week. That agreement will let Lloyd's pay claims to policyholders while it tries to resolves disputes with investors.
The other states with pending cases are California, Ohio, Arizona, Illinois, Colorado, Missouri, West Virginia, Pennsylvania and Virginia, according to NASAA.
- The Associated Press contributed to this story.
LENGTH: Medium: 93 linesby CNB