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LONDON-Behind closed doors in the offices of Lloyd's of London regulators is what looks like an electric circuit grid drawn on a whitewashed wall.

The boxes in this circuit represent syndicates, Lloyd's director of the regulatory division David Gittings explained. The lines connecting the boxes represent the movement of syndicates' reinsurance programs from one syndicate to another. And if too many lines go to one syndicate, a regulator makes a visit to the syndicate because it may indicate the beginning of another "spiral" reinsurance market, the likes of which caused many of Lloyd's past problems. If too many lines leave the market up at the ceiling and go to one insurance company, Lloyd's regulators tell the Department of Trade and Industry, which regulates non-Lloyd's insurance companies.

Meanwhile, every day one person in Lloyd's regulatory division picks out 100 underwriting slips out of the thousands that are submitted to the Lloyd's Policy Signing Office, said Mr. Gittings. The person is looking to see what underwriters are covering and whether it will cause potential harm to the market, he said.

Regulators want in the future to sieve electronically through all of the thousands of slips that pass through the LPSO to detect problems before they occur.

The object of these exercises and many others in Lloyd's regulatory division is to detect early "where the next major risk of loss is going to come from," Mr. Gittings explained. "We want to do everything we can to identify that before it happens. We don't want to be left cleaning up the mess again after the event."

Last week, Lloyd's regulatory board and Mr. Gittings' division, which reports to the board, published a report outlining the progress made in 1996 on the regulatory front and the regulatory plan of action this year.

Among the priorities for the regulators this year is to complete a regulatory review of the market, Mr. Gittings said. The review could lead to a new Lloyd's Act or incorporation of Lloyd's into other financial services regulations. This review will be completed in the summer to coincide with a new British government coming into power, following a general election likely to be held by May.

This year there also will be a review of Lloyd's broker regulations and a consultative document is due out shortly. Among the questions to be asked are whether Lloyd's should be regulating brokers at all or just the business of the brokers into the market, according to Mr. Gittings.

Lloyd's regulators visited 39 of the 197 registered Lloyd's brokers

last year as part of a review into the market. Thirty-six of those visits were with regard to 57 underwriting slips in which there were suspicions of "grossing up" premium. Grossing up premium refers to a broker quoting a higher premium to a policyholder than than that quoted by the underwriter. Six disciplinary investigations are now pending against brokers as a result of the visits, Mr. Gittings said.

Regulators also this year will work on protection of the market following the changes in the control of syndicates from individual members to corporations. Regulators already are vetting the new capital coming into the market and have already refused to allow some questionable new owners into Lloyd's, according to Mr. Gittings.

The regulatory board and Lloyd's Market Board also are reviewing the security of the market and in particular the role of the Central Fund. Lloyd's also is considering whether to be rated by an outside agency, said several executives in the market.

Last year, regulators tackled four clear priorities that Mr. Gittings set out when he joined Lloyd's in October 1995 from his post as director of surveillance at the Securities and Futures Assn. They were:

To simplify the regulation book, which consisted of two volumes of bylaws. There are now 10 simple principles-"like the 10 commandments," says Mr. Gittings-that must be followed by underwriting agents. The principles are similar to rules other financial institutions in the United Kingdom must follow. They include acting with "due skill, care and diligence," disclosing conflicts of interest and maintaining adequate financial resources to meet commitments.

To simplify Lloyd's disciplinary machinery in order for it to be more effective. "It must be quick" and out in the public domain so everyone can be cautious, said Mr. Gittings.

Last year there were fines imposed on eight underwriting agents and one Lloyd's broker for minor breaches such as late submissions of syndicate quarterly figures. These were published in Lloyd's bulletins and the monthly market magazine "One Lime Street."

There are 63 current investigations into allegations of misconduct, mainly in regard to problems of the past and one of the priorities this year is to complete these investigations, said Mr. Gittings.

To register 3,606 individual directors of underwriting agents and those who report to them as well as active underwriters and senior underwriting staff.

"That's quite a big job," Mr. Gittings said.

So far, 2,000 applications have been dealt with and 45 of those have either been restricted, refused or withdrawn. There are another 150 that require "further analysis," he said.

To go out and visit every underwriting agency to make sure they conducted business properly. This inspection process resulted in more than 1,000 recommendations for improvement. Some of the shortcomings found included poor control over the aggregation of risk-a problem that caused the demise of many syndicates in the past-and inadequate control over the use of reinsurers.

In some cases, at the heart of the problem was that the agency did not know what the underwriter was doing, according to Mr. Gittings.

"To some extent, I was surprised by what I found" because in some pockets of the market there were practices that could cause problems similar to the past, he said.

Regulators will be returning to some of these agencies this year to make sure that they have improved their practices, Mr. Gittings added.