The open accounts measure – which currently affects those who insured the airlines involved – means members have no idea what kind of profit or loss they face as a result of the horrific attacks. It could be years before a true picture emerges.
It also means that despite the uncertainties, the syndicate members will be locked in and unable to leave until the accounts are closed.
Airline insurers are believed to be facing costs of about $6bn (£3.8bn) in total, with Lloyd’s estimating the loss to aviation sector syndicates to be 70% of the premium income they are permitted to write.
Neil Coulson, partner at Littlejohn Frazer, which audits about 15% of Lloyd’s syndicates explained the impact of having open accounts, or runoff year, was that it left members with a uncertainty over their profit and loss.
He said: ‘It could make companies that are members of syndicates put a fundamental uncertainty clause in their accounts.’
The concern affects those syndicates that insured American Airlines and United Airlines where an added worry has emerged. Because of the turmoil following the World Trade Center disaster, the airlines’ insurance policy was left open instead of being closed in at the beginning of October. This then brought a separate New York air disaster within the 2000 year.
Lloyd’s accounts are filed over three years and it is in the third year the accounts are finalised and the investors’ p&l are calculated. But when there is an uncertainty about costs, the accounts are left open.
Administratively, it creates more work for the accountants who must keep reporting the year until there is a certainty.
Lloyd’s is still trying to close accounts from 1993 when the insurance market was hit by claims by victims of Hurricane Andrew and a raft of asbestosis lawsuits which have wreaked havoc on the US insurance sector.
Does Darwin's theory apply to taxation? Colin ponders...
The EC has been instructed to draft a European Union (EU) directive authorising an EU financial transaction tax, which would apply to ten of the EU’s 28 member states
Accountancy watchdog the FRC has dropped its investigation into the former chief financial officer of Tesco, nearly two years after the supermarket was engulfed in an accounting scandal
Colin imagines how Apple's logo might change in the wake of the EC's ruling over its Irish tax arrangements