Lloyd’s Names are considering legal action against the management of two Lloyd’s motor syndicates, including one owned by IAG.

Its targets are the IAG-owned Equity Red Star motor syndicate 218 and KGM motor syndicate 260, owned by Lloyd’s managing agents Canopius.

A pressure group of about 80 private investors have formed a group called 218equity and set up a website (www.218equity.co.uk) to recruit more members.

It is considering whether it has the grounds for legal action over the losses recorded by the syndicates in recent years.

According to the website, the Names are questioning why the losses at the syndicates have been so large compared to competitors, and why action to boost reserves was delayed.  

“Losses now amount to more than 100% of capacity and blame is laid on an explosion of claims fraud,” the group says. “Yet competitor Admiral’s profits continue to motor ahead.”

A recent report by actuaries at Ernst & Young shows that Equity Red Star’s net combined ratio (NCR) doubled to 200% in 2010 from 100% in 2009, while KGM’s NCR increased from 140% in 2009 to more than 160% in 2010.

IAG injected $365 million into its prior-year claims reserves for Equity Red Star in June last year due to a “significant deterioration” in its UK claims experience.

At its London annual general meeting in June, IAG executives were questioned over what action would be taken to compensate investors on the 2008 year of account who were hit with a huge reserving charge for the reinsured 2007 year of account.

According to reports, the Names have been told it is not possible to redress loss allocations across underwriting years of account to appease disgruntled investors.