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Yet by the early 1980s Lloyd's had begun to fear not only the onset of asbestos losses but future litigation arising from the recruitment drive. Its answer was to persuade Parliament to grant the company immunity from lawsuits by the Names--something the lawmakers might not do were they to get wind of the insurer's financial problems. And so, according to the London suit, Lloyd's duly set out to cook the books. The complex scheme allegedly involved closing the books prematurely on growing losses to conceal them.
That was good enough for an unwitting Parliament, which in 1982 gave Lloyd's its exemption from future lawsuits. The insurer could thenceforth be held liable for damages only if a plaintiff could prove "bad faith," something that is difficult to establish under British law.
The Bank of England was less awed by Lloyd's than Parliament. In fact, it grew alarmed by what it was hearing and in that same year launched a top-secret inquiry into Lloyd's. The bank concluded, in a letter to Lloyd's chairman, Peter Green, that if the insurer collapsed, it would threaten the entire British banking system. As an insider told TIME: "This was a significant factor behind the continued recruitment, or indeed the increased rate of recruitment, of Names."
In an effort to stabilize Lloyd's worsening condition, the Bank of England exerted its influence to have an outsider, Ian Hay Davison, named chief executive officer in 1983. But the real power remained with chairman Green, a richly corrupt official who in 1986 was found guilty by a tribunal of Lloyd's members of "gross negligence" and "discreditable conduct." Davison lasted only two years as Lloyd's CEO, and later published a bitter book describing the experience.
By the late 1980s the signs of trouble at Lloyd's had surfaced enough to alert investors. News accounts noted that a growing number of Lloyd's Names were cashing in their investments. Lloyd's finally acknowledged the extent of the asbestos calamity in 1991, when it reported a loss of $980 million. The jarring news accompanied a cash call to unlucky Names who had backed the affected syndicates. Lloyd's reported loss climbed to $3.85 billion in 1992, in part as a result of disasters ranging from the Exxon Valdez oil spill to the San Francisco earthquake of 1989. The 1993 loss was even more dismal: $4.4 billion.
The disclosures of Lloyd's true financial condition set off a frenzy of lawsuits and government probes on both sides of the Atlantic. British police were swamped by reports of fraud. "We were hearing the same thing from every direction," a senior law-enforcement source told TIME. "There was worry that the whole insurance business of the U.K. could collapse." In Washington the Securities and Exchange Commission launched two separate investigations of Lloyd's in 1991, only to halt both a year later in what former chairman Richard Breeden describes as deference to British court actions.