Lloyd’s of London underwriters are braced for one of their biggest ever specie losses following the theft of as much as £50 million ($87.4 million) in new and used banknotes from a depot in Kent, U.K. The depot is run by Securitas Cash Management.
In what could be the biggest bank robbery in U.K. history, an armed gang seized cash being held by Securitas for the Bank of England, after holding the depot manager’s wife and eight year old son hostage.
The heist easily tops the £26.5 million raid on the Northern Bank in Belfast in 2004 and the 1983 £26 million Brinks Mat bullion robbery. At least 80% of the insurance placement covering the loss is believed to be with Lloyd’s underwriters, who traditionally specialise in crime risks.
Such large cash-in-transit risks usually carry a large deductible, probably between £10 million and £20 million in this case, leaving Lloyd’s underwriters liable for around £30 million. The risk is shared around the Lloyd’s market with no single underwriter picking up more than 10% of the loss.
As Securitas self-insures a large proportion of the risk it was able to make a first payment of £25 million to its client, the Bank of England, almost immediately. Lloyd’s underwriters also pay out quickly, within a fortnight, because the loss assessment procedure is relatively uncomplicated.
Securitas has a captive insurer, which will take the first part of the loss. Above this, there is a primary commercial insurance policy. The lead underwriter on this policy is Ascot Underwriting‘s Syndicate 1414, which has a 35% share. The rest is placed with non-Lloyd’s insurers, including Great American, Zurich and Hannover. There is then an excess insurance policy, which is led by Millennium Syndicate 1221 at Lloyd’s. This excess layer is placed mostly in Lloyd’s.
The total insured loss from the event is not yet clear. “Police haven’t allowed site access to Securitas’s auditing team or our loss adjuster,” says David Edward, senior underwriter and director at Ascot. But he adds: “It is a significant loss.”
The excess layer of the policy is expected to bear the brunt of the losses. “If the loss is in excess of £20m, the primary cover will be exhausted. I can’t say what the primary is but it is small,” says Edward. “The loss will affect Ascot, but I hasten to add that it isn’t very significant to us either at the class or the syndicate level. A lot of the loss will fall on the excess placement.”
Although the loss is not big enough on its own to push up specie rates, it comes at a difficult time for Lloyd’s underwriters. In February last year, robbers stole diamonds and other gems worth £52 million from Amsterdam’s Schiphol airport.
And this month, the specie market was sent reeling by the news that one of Germany’s biggest money transport companies has filed for bankruptcy.
The company, Heros, which has more than 3,000 employees, is being investigated amid allegations that €300 million ($357.6 million) in cash is missing.
Market sources say that Heros had excess insurance coverage in place of between €120 million and €360 million, and that the cover was led by Lloyd’s underwriters.
“Taken together, the Securitas and the Heros losses are significant for specie underwriters and we expect rates for this type of business to increase dramatically as a result,” a Lloyd’s broker told Reactions.
Edward agrees. “There has been a series of large losses in the cash-in-transit market in the past 18 months,” he says. “If the Securitas loss doesn’t make rates harden, nothing will. It was a loss year for cash-in-transit business at Lloyd’s in 2005, and this will ensure that 2006 will also be – and there’s still a very long way to go in 2006.” He adds: “I’m quite cynical about how it will affect rates, but it should push rates up.”