They called him Goldfinger because it seemed that almost everything he touched turned to money. His average earnings of about $1 million a year made him the thirdhighest-paid man in Britain, and his flamboyant, risk-taking style earned him a mixture of dislike, awe and admiration from the pinstriped denizens of Lloyd’s of London, the world’s best-known insurance market. But when Ian Posgate’s career as Lloyd’s star underwriting agent collapsed last month, few mourned the fall, and many said—with ill-disguised complacency—that they had seen it coming.
For his part, the 50-year-old Posgate, a member of Lloyd’s eminent governing
challenged old, established City of London ways, was initially unabashed. “I will live off my wife,” he said, while Lloyd’s suspended his lucrative marine underwriting business. “She is a member of Lloyd’s and is very rich and can keep me in the style to which I am accustomed.” But the welter of rumors of fraud and financial scandal were of much more concern to many of the big names in British society. With their wealth underpinning Lloyd’s business, some of them face the threat of personal financial collapse.
At the root of the scandal is $64 million, believed to have been misappropriated, channelled through a Panamanian company, and then converted into shares in a Swiss bank, a villa, paintings and other enterprises. The affair, in turn, has jolted Lloyd’s to its august foundations. Posgate’s suspension marked the first time in the firm’s 300-year history that such action has been taken. From its origins as an informal gathering of brokers at a coffee-
house (whose name the organization eventually adopted as its own), Lloyd’s now derives as much as four-fifths of its estimated $6-billion annual turnover from overseas—one-third from the United States alone. Currently, Lloyd’s is made up of some 300 individual underwriting agents, such as Posgate, who act on behalf of about 20,000 members, or “names,” who are joined into syndicates in which each of them has invested at least $10,000 to finance underwriting risks. To join a syndicate, each “name” must satisfy Lloyd’s committee that he or, infrequently, she has personal wealth of at least $200,000. In turn, each stands to make huge profits from Lloyd’s worldwide insurance and
reinsurance business, but the individual is also liable to lose everything if there is a failure.
Things started to go wrong for Posgate’s Syndicate 127—Lloyd’s largest, with some 3,000 members—in midAugust, normally the time of year when underwriters and “names” are happily shooting grouse on Scottish moors. It was then that Alexander & Alexander Services Inc., the giant U.S. insurance company, revealed that auditors were looking into “unacceptable accounting practices” at its British subsidiary, the Alexander Howden Group P.L.C., which it had acquired in January for $330 million. Howden, one of the largest insurance brokers in London, managed Syndicate 127 through a subsidiary. Late last month the U.S. parent informed the U.S. Securities and Exchange Commission that it had started legal action against Posgate, former Howden chairman Kenneth Grob and three other
Howden directors on the evidence that $64 million of Howden’s funds had been siphoned into Liechtensteinand Panama-based companies. What is more, A & A also claimed that part of the money was used by Posgate and the four Howden directors to purchase a “substantial interest” in the Swiss-registered Banque du Rhône et de la Tamise. The U.S. firm has since started High Court proceedings for the return of those assets and for damages. Meanwhile, in Britain, the trade department launched its own investigation and asked for help from the City of London fraud squad.
The full details of the tangled web are still obscure, but it appears that the scheme revolved around a manipulation of reinsurance, the method by which Lloyd’s syndicates spread their risks by
taking out insurance with independent companies. In order to divert money from Howden, it seems that reinsurance policies were written with two companies that, Alexander & Alexander charges, were secretly owned by the four former Howden directors. These firms, while accepting the premiums, in turn assumed little or no insurance risk. Indeed, one of them—Panama-based Southern International RE Company S.A.—is not even licensed to engage in reinsurance. As well, it seems there was a third company—also based in Panama—owned by the four directors, plus Posgate, that completed the plan. A & A charges that the first two companies pumped about $8.2 million of the reinsurance premiums into New Southern RE Company S.A. and that these funds were eventually used to buy the Swiss bank’s shares.
Of the questions that remain, the one that looms largest is why it was not discovered earlier. Not only had Howden’s usual auditors not discovered the scheme since its beginnings seven years ago, but
it also escaped the notice of the accountants who looked at the company during the A & A purchase. Perhaps the answer is Howden’s structure: the firm is a grouping of about 200 companies engaged in a very complex business.
Posgate now is fighting back with relish, but the response of the four former directors has been quite different. In August Grob and the other directors tried to work out an immunity deal. That brought into the already complex picture Grob’s pink-walled $3.7-million Riviera villa, paintings by Redon and Pissarro worth $284,000 and numerous other works of art, cash and assets. The directors agreed to hand over all of that and tell their whole story in exchange for severance pay and immunity from civil legal proceedings. But that plan, too, was to run into problems. In its investigation, A & A discovered that the house was actually owned by a Liechtenstein company and that French government tax officials would take half the proceeds if it were sold. At the same time, the company was apparently misled on the ownership and value of the artworks. The deal collapsed. Nevertheless, A & A now had in its hands full statements from the directors outlining their involvement in the scheme. Posgate denies any knowledge of, or interest in, the Panamanian company and he says that his shares in the Banque du Rhône were financed by loans from that bank. In declaring his innocence, Posgate said, “I have been stabbed in the back.” A man who once boasted he carried everything he needed in his pockets, he presents a challenge to the investigators as he sits out the storm in his elegant riverside home at Henley-on-Thames.
Members of his syndicate, however, are having a more uncomfortable time. These include such well-known British names as the Earl of Inchcape, chairman of the P & O Shipping Line; Lord (Sam) Vestey, the immensely wealthy meat-packing heir; tennis star Virginia Wade; and champion jockey Lester Piggott. From past experience it seems unlikely that syndicate members will have to foot the whole bill for the diverted funds. An earlier case involving suspect fire-risk insurance in the Bronx produced $40 million in claims, but this was reduced in the end to about $11 million.
Of more immediate concern to Lloyd’s and its chairman, Sir Peter Green, is the very real threat that if the hallowed institution cannot deal convincingly with abuses within its own house, it will be forced by Parliament to submit to an investigation by a royal commission. That, in the end, could have a swift and incalculable effect on the worldwide reputation that Lloyd’s has painstakingly built over the centuries.
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