Libya may invest in Lloyd's of London: Insurance market's standing with important US interests could be jeopardised

THE investment arm of the Libyan government is considering investing in the Lloyd's insurance market, following the changes in Lloyd's investment rules.

Next year, Lloyd's is to admit companies as well as individuals into its market in an effort to raise more money. The market needs extra cash to save it from collapse following more than pounds 6bn of losses that have flooded into its community and brought its 20,000 existing investors or underwriting members to the brink of financial ruin.

If Libya were to invest in Lloyd's it would be its second controversial move in the British business community.

In March last year the Libyans bought a third of the shares in Lonrho's Metropole Hotel chain for pounds 177.5m through the Libyan Arab Foreign Investment Company.

The interest of the Libyans poses a possible diplomatic and commercial problem for Lloyd's. If it were to admit Libyan capital it could jeopardise the market's standing with the US authorities. The US provides the largest part of Lloyd's insurance business.

To enter the Lloyd's insurance market the Libyans would have to set up a company incorporated with limited or unlimited liability within the European Community. Companies at Lloyd's will have to show a minimum net worth of pounds 1.5m or foreign currency equivalent. They will be required to lodge a minimum of pounds 1.5m at Lloyd's. All corporate members will require a sponsor and a licensed Lloyd's adviser or advisers.

But corporate members will have to overcome a number of hurdles before they gain admission. Lloyd's authorities will retain an absolute discretion to determine whether a corporate member is 'fit and proper'.

Lloyd's has told its members that in arriving at its decision its ruling body, the council, will have regard to any facts or circumstances it considers appropriate.

It would reject an application if the corporate member jeopardised 'the standing of Lloyd's with its policyholders or its regulators'.

Many companies are considering investing in the Lloyd's market as they see that the business cycle is turning for insurers and there is the prospect of large profits. Lloyd's has set itself a target to make profits of pounds 900m by the late 1990s. However, many companies are holding back until they see what the tax advantages are likely to be. Lloyd's is holding extensive talks with the Inland Revenue to resolve the issue, but nothing has yet been concluded.

The interest of outside organisations has angered many existing members, who feel that the new investors will be able to participate on more favourable terms than them.