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LONDON -- Finally past the dark days before Equitas, Lloyd's of London announced record results without the threat of market failure looming.

In May, Lloyd's reported a 1.1 billion pounds ($1.88 billion) profit for the 1994 underwriting year, up from its previous year's 225 million pounds ($349.4 million) profit. The five prior years' combined losses reached almost 8 billion pounds ($12.56 billion).

The profit was the feather in the reconstruction and renewal cap. Earlier, Lloyd's efforts to secure its future were recognized when Chairman David Rowland was knighted in the Queen's New Year's honors list.

The scale of the 1994 profits and healthy profit predictions for 1995 and 1996 -- currently 913 million pounds ($1.4 billion) and 600 million pounds ($1.03 billion), respectively -- made Lloyd's R&R plan possible. On that foundation, Lloyd's was able to fund Equitas, which took over all pre-1993 liabilities in September 1996.

In fact, the reduction of reserves for prior-year closed accounts possible because Equitas assumed the pre-1993 liabilities added 113 million pounds ($193.2 million) to 1994 profits. The comparable reduction of reserves amounted to 485 million pounds ($753.2 million) for the previous accounting year. After members' expenses were factored in, the 1994 year profit was 1.01 billion pounds ($1.73 billion), down from 1.08 billion pounds ($1.68 billion) in '93.

But even as these figures were issued, warnings were given on expected returns for '97 and '98. The Assn. of Lloyd's Members said, "Lloyd's will be lucky to escape a marketwide loss in the current down cycle."

That hasn't deterred a surge of corporate investors. Nine of the 10 syndicates set up for the 1997 underwriting year had corporate backing. New parents included Nissan Fire & Marine Insurance Co. Ltd., which set up the first syndicate fully backed by Japanese capital, and CNA International Reinsurance Co. Ltd.

Of the 10.3 billion pounds ($17.64 billion) of 1997 Lloyd's capacity, more than 8 billion pounds ($13.7 billion) was managed by 44 agencies wholly or partly owned by corporate investors.

Corporate investors' involvement also grew through agency takeovers. Among the first in 1997, USF&G Corp. acquired 80% of Ashley Palmer Holdings Ltd. A joint venture between Aon Corp. Inc. and Unionamerica Holdings Ltd., called Unionamerica Insurance Co. Ltd., bought a 49% stake in JMA Holdings Ltd. MMI Cos. Inc. acquired Unionamerica this month. With that acquisition, MMI owns 39.2% of JMA Holdings. Commercial Union P.L.C. became the first -- and so far only -- U.K. composite insurer to invest in Lloyd's when it bought 51% of Marlborough Underwriting Agency Ltd.

Soon after, corporate spread funds, those trusts that spread their investment over several syndicates, stepped up their own acquisition activity.

As corporate capital grew, however, Lloyd's said that to keep some parity among the various categories of members, unlimited liability names would have to up the assets backing their underwriting and deposit a greater proportion with their agents. The feeling that Lloyd's was shifting its loyalty from individual investors was reinforced when Sir David announced he will convert his underwriting to limited liability status when he steps down as chairman at the end of this year.

Lloyd's also began internal reorganization. The Corporation, the service and regulation arm of the market, organized into business units, operating on a "user pays" principle.

A consultative document issued by Lloyd's anticipated a government proposal that an external body eventually oversee Lloyd's regulation. Details on interim measures are pending.

Regulators in 1997 handed out bans, fines and reprimands to those who failed to meet Lloyd's increasingly tough regulatory standards.

In October, Standard & Poor's and A.M. Best Co. rated Lloyd's A+ and A, respectively, giving the market independent verification of its security.

It still has some issues to settle, however. Names' litigation in the United States continues; certain syndicates writing in 1992 and 1993 still can't close their books; and a group of U.K. members is challenging aspects of R&R in the British courts.

On the plus side, New York regulators have halved the securitization requirements for Lloyd's syndicates writing surplus lines business in the United States.

This month, Equitas and the Department of Trade and Industry gave Lloyd's its most wanted present by agreeing to reinsure the liabilities of Lioncover Insurance Co. Ltd., set up in 1987 to run off the accounts of several syndicates and agencies that had traded fraudulently in the late 1970s and early 1980s.