Lloyd's of London
Overview
 
"Lloyd's" redirects here. For other uses, see Lloyd
Lloyd
The name Lloyd is a variation of the Welsh word llwyd or clwyd, which means "grey" or "brown".-People:See main articles:* Lloyd * Lloyd * Lloyd Lloyd or Lloyd's or Lloyds may also refer to:...


Lloyd's, also known as Lloyd's of London, is a British insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...

 and reinsurance
Reinsurance
Reinsurance is insurance that is purchased by an insurance company from another insurance company as a means of risk management...

 market. It serves as a partially mutualised marketplace where multiple financial backers, underwriters, or members, whether individuals (traditionally known as Names) or corporations, come together to pool and spread risk
Risk
Risk is the potential that a chosen action or activity will lead to a loss . The notion implies that a choice having an influence on the outcome exists . Potential losses themselves may also be called "risks"...

. Unlike most of its competitors in the insurance and reinsurance industry, it is not a company, but it is a corporate body under the Lloyd's Act 1871 of the British Parliament.
Encyclopedia
"Lloyd's" redirects here. For other uses, see Lloyd
Lloyd
The name Lloyd is a variation of the Welsh word llwyd or clwyd, which means "grey" or "brown".-People:See main articles:* Lloyd * Lloyd * Lloyd Lloyd or Lloyd's or Lloyds may also refer to:...


Lloyd's, also known as Lloyd's of London, is a British insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...

 and reinsurance
Reinsurance
Reinsurance is insurance that is purchased by an insurance company from another insurance company as a means of risk management...

 market. It serves as a partially mutualised marketplace where multiple financial backers, underwriters, or members, whether individuals (traditionally known as Names) or corporations, come together to pool and spread risk
Risk
Risk is the potential that a chosen action or activity will lead to a loss . The notion implies that a choice having an influence on the outcome exists . Potential losses themselves may also be called "risks"...

. Unlike most of its competitors in the insurance and reinsurance industry, it is not a company, but it is a corporate body under the Lloyd's Act 1871 of the British Parliament. Uberrimae fidei (Latin
Latin
Latin is an Italic language originally spoken in Latium and Ancient Rome. It, along with most European languages, is a descendant of the ancient Proto-Indo-European language. Although it is considered a dead language, a number of scholars and members of the Christian clergy speak it fluently, and...

 for "of the utmost good faith") is the motto of Lloyd's.

In 2009, over £21.97 billion of gross premium was transacted in Lloyd's, and it achieved a record pre-tax profit of over £3.8 billion. The Lloyd's building
Lloyd's building
The Lloyd's building is the home of the insurance institution Lloyd's of London, and is located at 1, Lime Street, in the City of London, England.-Design:...

 is located at 1 Lime Street in the City of London
City of London
The City of London is a small area within Greater London, England. It is the historic core of London around which the modern conurbation grew and has held city status since time immemorial. The City’s boundaries have remained almost unchanged since the Middle Ages, and it is now only a tiny part of...

.

Formation

The market began in Lloyd's Coffee House
Lloyd's Coffee House
thumb|Lloyd's Coffee HouseLloyd's Coffee House was a coffee house opened by Edward Lloyd around 1688 in Tower Street, London. This establishment was a popular place for sailors, merchants, and ship owners, and Lloyd catered to them with reliable shipping news. The shipping industry community...

, opened by Edward Lloyd
Edward Lloyd (coffeehouse owner)
Edward Lloyd ran the Lloyd's Coffee House in Lombard Street in the City of London which became a meeting place for merchants and shipowners. From the habit of their members to meet there, Lloyd's Coffee House spawned Lloyd's of London, Lloyd's Register, and Lloyd's List. There is no connection...

 around 1688 in Tower Street, London. This establishment was a popular place for sailors, merchants, and ship owners, and Lloyd catered to them with reliable shipping news. The shipping industry community frequented the place to discuss insurance deals among themselves. Just after Christmas 1691, the coffee shop relocated to Lombard Street
Lombard Street, London
Lombard Street is a street in the City of London.It runs from the corner of the Bank of England at its north-west end, where it meets a major junction including Poultry, King William Street, and Threadneedle Street, south-east to Gracechurch Street....

 (a blue plaque
Blue plaque
A blue plaque is a permanent sign installed in a public place to commemorate a link between that location and a famous person or event, serving as a historical marker....

 commemorates this location). This arrangement carried on until 1774, long after Lloyd's death in 1713, when the participating members of the insurance arrangement formed a committee and moved to the Royal Exchange
Royal Exchange (London)
The Royal Exchange in the City of London was founded in 1565 by Sir Thomas Gresham to act as a centre of commerce for the city. The site was provided by the City of London Corporation and the Worshipful Company of Mercers, and is trapezoidal, flanked by the converging streets of Cornhill and...

 on Cornhill as The Society of Lloyd's.

Lloyd's and the Slave Trade

Due to the focus on marine business, during the formative years of Lloyd's (between 1688 and 1807), one of the primary sources of Lloyd's business was the insurance of ships engaged in slave trading, as Britain rapidly established itself as the chief slave trading power in the Atlantic. British shipping carried more than 3.25 million people into slavery, meaning that by the end of the eighteenth century, slave trading had become one of the primary constituents of all British trade. The dangers involved necessarily meant that insurance of slave-trade shipping was a major concern. Between 1689 and 1807, 1,053 British vessels were lost whilst undertaking slave-trading activities.

First Lloyd's Act

The Royal Exchange was destroyed by fire
Fire
Fire is the rapid oxidation of a material in the chemical process of combustion, releasing heat, light, and various reaction products. Slower oxidative processes like rusting or digestion are not included by this definition....

 in 1838, and, although the building was rebuilt by 1844, many of Lloyd's early records were lost. In 1871, the first Lloyd's Act was passed in Parliament
Parliament of England
The Parliament of England was the legislature of the Kingdom of England. In 1066, William of Normandy introduced a feudal system, by which he sought the advice of a council of tenants-in-chief and ecclesiastics before making laws...

 which gave the business a sound legal footing. The Lloyd's Act of 1911 set out the Society's objectives, which include the promotion of its members' interests and the collection and dissemination of information.

The membership of the Society, which had been largely made up of market participants, was realised to be too small in relation to the market's capitalisation
Market capitalization
Market capitalization is a measurement of the value of the ownership interest that shareholders hold in a business enterprise. It is equal to the share price times the number of shares outstanding of a publicly traded company...

 and the risks that it was underwriting. Lloyd's response was to commission a secret internal inquiry, known as the Cromer Report, which reported in 1968. This report advocated the widening of membership to non-market participants, including non-British subjects and women, and to reduce the onerous capitalisation requirements (which created a more minor investor known as a mini-Name). The Report also drew attention to the danger of conflicts of interest
Conflict of interest
A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....

.

Changes in the UK financial markets

During the 1970s, a number of issues arose which were to have significant influence on the course of the Society. The first was the tax structure in the UK: capital gains were taxed at 40%, earned income was taxed in the top bracket at 83%, and investment income in the top bracket at 98%. Lloyd's income counted as earned income, even for Names who did not work at Lloyd's, and this heavily influenced the direction of underwriting: in short, it was desirable for syndicates to make a (small) underwriting loss but a (larger) investment profit. The losses were 98% funded by the taxpayer while the gains largely accrued to the Names; when Margaret Thatcher
Margaret Thatcher
Margaret Hilda Thatcher, Baroness Thatcher, was Prime Minister of the United Kingdom from 1979 to 1990...

's government greatly reduced the top rate of income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...

, the proportion of the losses paid by the Names increased astronomically. The investment profit was typically achieved by 'bond washing' or 'gilt stripping': buying the bond
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...

 'cum dividend' and selling it 'ex dividend', creating an income profit and a capital loss. Syndicate
Syndicate
A syndicate is a self-organizing group of individuals, companies or entities formed to transact some specific business, or to promote a common interest or in the case of criminals, to engage in organized crime...

 funds were also moved offshore (which later created problems through fraud and self-dealing).

Because Lloyd's had turned itself into a tax shelter, the second issue affecting Lloyd's was an increase in its external membership, such that, by the end of the decade, the number of passive investors dwarfed market investors. Thirdly, during the decade a number of scandals had come to light, including the collapse of the Sass syndicate, which had highlighted both the lack of regulation and the legal inability of the Council to manage the Society.

Arising simultaneously with these developments were wider issues: firstly, in the United States, an ever-widening interpretation by the Courts of insurance coverage in relation to workers' compensation in relation to asbestos
Asbestos
Asbestos is a set of six naturally occurring silicate minerals used commercially for their desirable physical properties. They all have in common their eponymous, asbestiform habit: long, thin fibrous crystals...

-related losses, which had the effect of creating a huge, and initially unrecognised and then unacknowledged hole in Lloyd's reserves. Secondly, by the end of the decade, almost all of the market agreements, such as the Joint Hull Agreement, which were effectively cartels mandating minimum terms, had been abandoned under pressure of competition. Thirdly, new specialised policies had arisen which had the effect of concentrating risk: these included 'run-off policies', under which the liability of previous underwriting years would be transferred, and 'time and distance' policies, whereby reserves would be used to buy a guarantee of future income.

Second Lloyd's Act

In 1980, Sir Henry Fisher
Henry Arthur Pears Fisher
Sir Henry "Harry" Fisher was a British High Court judge and President of Wolfson College, Oxford.-Early life and education :He was the eldest of six sons of Geoffrey Fisher, at the time of Harry's birth the headmaster of Repton, later Bishop of Chester and of London, and Archbishop of...

 was commissioned by the Council of Lloyd's to produce the foundation for a new Lloyd's Act. The recommendations of his Report addressed the 'democratic deficit' and the lack of regulatory muscle.

The Lloyd's Act of 1982 further redefined the structure of the business, and was designed to give the 'external Names', introduced in response to the Cromer Report, a say in the running of the business through a new governing Council.

Immediately after the passing of the 1982 Act, evidence came to light, and internal disciplinary proceedings were commenced against, a number of individual underwriters who had siphoned sums from their businesses to their own accounts. These individuals included a Deputy Chairman of Lloyd's, Ian Posgate, and a Chairman, Sir Peter Green.

In 1986 the UK government commissioned Sir Patrick Neill
Patrick Neill, Baron Neill of Bladen
Francis Patrick Neill, Baron Neill of Bladen QC is a cross bench member of the House of Lords.Educated at Highgate School and Magdalen College, Oxford, he was Warden of All Souls College, Oxford from 1977 until 1995, where he has been an Honorary Fellow since 1995. He was Vice-Chancellor of Oxford...

 to report on the standard of investor protection available at Lloyd's. His report was produced in 1987 and made a large number of recommendations but was never implemented in full.

1988–96

In the late 1980s and early 1990s, Lloyd's went through the most traumatic period in its history. Unexpectedly large legal awards in U.S. courts for punitive damages led to large claims by insureds, especially on APH (asbestos
Asbestos and the law
This article concerns asbestos-related legal and regulatory issues. Litigation related to asbestos injuries and property damages has been claimed to be the longest-running mass tort in U.S. history...

, pollution
Pollution
Pollution is the introduction of contaminants into a natural environment that causes instability, disorder, harm or discomfort to the ecosystem i.e. physical systems or living organisms. Pollution can take the form of chemical substances or energy, such as noise, heat or light...

 and health hazard
Diethylstilbestrol
Diethylstilbestrol is a synthetic nonsteroidal estrogen that was first synthesized in 1938. Human exposure to DES occurred through diverse sources, such as dietary ingestion from supplemented cattle feed and medical treatment for certain conditions, including breast and prostate cancers...

) policies, some dating as far back as the 1940s. Many of these policies were designed to cover all liabilities not excluded on broadform liability policies.

Also in the 1980s Lloyd's was accused of fraud by several American states and the names/investors.
Some of the more high profile accusations included:
  • Lloyd's withheld their knowledge of asbestosis and pollution claims until they could recruit more investors to take on these liabilities that were unknown to investors prior to investing in Lloyd's;
  • Enforcement officials in 11 U.S. states charged Lloyd's and some of its associates with various wrongs such as fraud and selling unregistered securities;
  • Ian Posgate, one of Lloyd's leading underwriters, was charged with skimming money from investors and secretly trying to buy a Swiss bank; he was later acquitted.

'Recruit to dilute'

It may be wondered how the current Members of Lloyd's could be liable to pay these historical losses. This came about as a result of the Lloyd's accounting practice known as 'reinsurance-to-close' (RITC).

Membership of a Lloyd's Syndicate was not like owning shares in a company. An individual "joined" for one calendar year only – known as the Lloyd's annual venture. At the end of the year, the Syndicate as an ongoing trading entity was effectively disbanded.

It was very common for the Syndicate to re-form for the next calendar year with more or less the same membership and the same identifying number. In this way, a Syndicate could appear to have a continuous existence going back (in some cases) fifty years or more, but in reality it did not. There would have been fifty separate incarnations of the Syndicate, each one a unique trading entity that underwrote insurance for one calendar year only.

Claims take time to be reported and paid, so the profit or loss for each Syndicate took time to become apparent. The practice at Lloyd's was to wait three years (that is, 36 months from the beginning of the Syndicate) before 'closing' the year and declaring a result.

For example, a 2003 Syndicate would ordinarily declare its results at the end of December 2005. The Syndicate's members would be paid any underwriting profit during the 2006 calendar year, in proportion to their 'participation' in the Syndicate; conversely, they would have to reimburse the Syndicate during 2006 for their share of any underwriting loss.

Part of the result would include setting aside reserves for future claims payments; that is, reserves both for claims that had been notified but not yet paid, and estimated amounts required for claims which have been "incurred but not reported" (IBNR). The estimation process is difficult and can be inaccurate; in particular, liability (or long-tail) policies tend to produce claims long after the policies are written.

The reserve for future claims liabilities was set aside in a unique way. The Syndicate bought a reinsurance policy to pay any future claims; the premium was the exact amount of the reserve. In other words, rather than putting the reserve into a bank to earn interest, the Syndicate transferred its (strictly, its Members') liability to pay future claims to a reinsurer. This was "reinsurance-to-close" – a transaction that allowed the Syndicate to be closed, and a profit or loss declared.

The reinsurer was always another Lloyd's Syndicate, often the succeeding year of the same Syndicate. The Members of Syndicate X in 2004 reinsured the future claims liabilities for members of Syndicate X in 2003. The membership may remain the same, or may have changed.

In this manner, liability for past losses could be transferred year after year until it reached the current Syndicate. A member joining a Syndicate with a long history of such transactions could – and often did – pick up liability for losses on policies written decades previously. So long as the reserves had been correctly estimated, and the appropriate RITC premium paid every year, then all would have been well, but in many cases this had not been possible. No one could have predicted the surge in APH losses. Therefore, the amounts of money transferred from earlier years by successive RITC premiums to cover these losses were insufficient, and the current members had to pay the shortfall.

(By contrast, within a stock company, an initial reserve for future claims liabilities is set aside immediately, “in year 1”. Any deterioration in that initial reserve in subsequent years will result in a reduced profit-and-loss for the later year, and a consequently reduced dividend and/or share price for shareholders in that later year, whether or not those shareholders in the later year are the same as the shareholders in “year 1”. Arguably, Lloyd's practice of using reserves in “year 3” to establish the RITC premiums should have resulted in a more equitable handling of “long-tail” losses such as APH than would the stock company approach. Nevertheless, the difficulties in correctly estimating losses such as APH overwhelmed even Lloyd's extended process.)

As a result a great many individual Members of syndicates underwriting long-tail liability insurance at Lloyd's faced financial loss by the mid 1990s.

It is alleged that, in the early 1980s, some Lloyd's officials began a recruitment programme to enrol new Names to help capitalise Lloyd's prior to the expected onslaught of APH claims. This allegation became known as “recruit to dilute”; in other words, recruit Names to dilute losses. When the huge extent of asbestosis
Asbestosis
Asbestosis is a chronic inflammatory and fibrotic medical condition affecting the parenchymal tissue of the lungs caused by the inhalation and retention of asbestos fibers...

 losses came to light in the early 1990s, for the first time in Lloyd's history large numbers of members refused or were unable to pay the claims, many alleging that they were the victims of fraud, misrepresentation, and negligence. The opaque system of accounting at Lloyd's made it difficult, if not impossible, for many Names to realise the extent of the liability that they personally and their syndicates subscribed to.

The market was forced to restructure. In 1996 the ongoing Lloyd's was separated from its past losses. Liability for all pre-1993 business was compulsorily transferred (by reinsurance-to-close) into a special vehicle called Equitas
Equitas
Equitas is the general label given to a group of companies linked to Lloyd's of London. It was set up in 1996 specifically to reinsure liabilities that had accumulated in the syndicates at Lloyd's of London on policies written from the 1930s up to and including 1992. This business was reinsured by...

 at a cost of over $21 billion and enormous personal losses to many Names.

The 'recruit to dilute' fraud
Fraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...

 allegations were heard at trial in 2000 in the case Sir William Jaffray & Others v. The Society of Lloyd's, and the appeal was heard in 2002. On each occasion the allegation that there had been a policy of 'recruit to dilute' was rejected, however, at first instance the judge described the Names as the innocent victims [...] of staggering incompetence and at appeal the Court found that representations that Lloyd's had a rigorous auditing system were false ([item 376 of the judgment:] [...] the answer to the question [...] whether there was in existence a rigorous system of auditing which involved the making of a reasonable estimate of outstanding liabilities, including unknown and unnoted losses, is no. Moreover, the answer would be no even if the word 'rigorous' were removed.) and strongly hinted that one of Lloyd's main witnesses, Murray Lawrence, a previous Chairman, had lied in his testimony ([item 405 of the judgment:] We have serious reservations about the veracity of Mr. Lawrence's evidence [...].).

Links:

Lloyd's then instituted some major structural changes. Corporate members with limited liability were permitted to join and underwrite insurance. No new “unlimited” Names can join (although a few hundred existing ones remain). Financial requirements for underwriting were changed, to prevent excess underwriting that was not backed by liquid assets. Market oversight has significantly increased. It has rebounded and started to thrive again after the September 11 attacks, but it has not regained its past importance as newly created companies in Bermuda
Bermuda
Bermuda is a British overseas territory in the North Atlantic Ocean. Located off the east coast of the United States, its nearest landmass is Cape Hatteras, North Carolina, about to the west-northwest. It is about south of Halifax, Nova Scotia, Canada, and northeast of Miami, Florida...

 captured a large share of the reinsurance market.

Structure

Lloyd's is not an insurance company. It is an insurance market of members. As the oldest continuously active insurance marketplace in the world, Lloyd's has retained some unusual structures and practices that differ from all other insurance providers today. Originally created as an unincorporated association of subscribing members in 1774, it was incorporated by the Lloyd's Act 1871, and it is currently governed under the Lloyd's Acts of 1871 through to 1982.

Lloyd's itself does not underwrite insurance business, leaving that to its members (see below). Instead the Society operates effectively as a market regulator, setting rules under which members operate and offering centralised administrative services to those members.

Council of Lloyd's

The Lloyd's Act 1982 defines the management structure and rules under which Lloyd's operates. Under the Act, the Council of Lloyd's is responsible for the management and supervision of the market. It is regulated by the Financial Services Authority
Financial Services Authority
The Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...

 (FSA) under the Financial Services and Markets Act 2000
Financial Services and Markets Act 2000
The Financial Services and Markets Act 2000 is an Act of the Parliament of the United Kingdom that created the Financial Services Authority as a regulator for insurance, investment business and banking.-Outline:...

.

The Council normally has six working, six external and six nominated members. The appointment of nominated members, including that of the Chief Executive Officer, is confirmed by the Governor of the Bank of England
Governor of the Bank of England
The Governor of the Bank of England is the most senior position in the Bank of England. It is nominally a civil service post, but the appointment tends to be from within the Bank, with the incumbent grooming his or her successor...

. The working and external members are elected by Lloyd's members. The Chairman and Deputy Chairmen are elected annually by the Council from among the working members of the Council. All members are approved by the FSA.

The Council can discharge some of its functions directly by making decisions and issuing resolutions, requirements, rules and byelaws. The Council delegates most of its daily oversight roles, particularly relating to ensuring the market operates successfully, to the Franchise Board.

The Franchise Board lays down guidelines for all syndicates and operates a business planning and monitoring process to safeguard high standards of underwriting and risk management, thereby improving sustainable profitability and enhancing the financial strength of the market.

Businesses at Lloyd's

There are two classes of people and firms active at Lloyd's. The first are Members, or providers of capital. The second are agents, brokers, and other professionals who support the Members, underwrite the risks and represent outside customers (for example, individuals and companies seeking insurance or insurance companies seeking reinsurance).

Members

For most of Lloyd's history, rich individuals (Names) backed policies written at Lloyd's with all of their personal wealth (unlimited liability). Since 1994, Lloyd's has allowed corporate members into the market, with limited liability
Limited liability
Limited liability is a concept where by a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership with limited liability. If a company with limited liability is sued, then the plaintiffs are suing the company, not its...

. The losses in the early 1990s devastated the finances of many Names (upwards of 1,500 out of 34,000 (4.4%) Names were declared bankrupt
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....

) and scared away others. Today, individual Names provide only 14% of capacity at Lloyd's, with UK-listed and other corporate members providing 31% and the remainder via the international insurance industry. No new Names with unlimited liability are admitted, and the importance of individual Names will continue to decline as they slowly withdraw, convert (generally, now, into Limited Liability Partnerships) or die.

Managing agents

Managing agents sponsor and manage syndicates. They canvas members for commitments of capacity, create the syndicate, hire underwriters, and oversee all of the syndicate's activities. Managing agents may run more than one syndicate.

Members' agents

Members' agents coordinate the members' underwriting and act as a buffer between Lloyd's, the managing agents and the members. They were introduced in the mid 1970s and grew in number until many went bust; many of the businesses merged, and there are now only four left (Argenta, Hampden, Alpha and LMAS, which has no active Names). It is mandatory that unlimited Names write through a members' agent, and many limited liability members choose to do so.

Recent results have benefited from tougher underwriting standards imposed by the Franchise Board and improved terms and conditions following widespread underwriting losses during the period 1998 to 2001, the September 11 attacks, and large hurricane-related property and energy claims in both 2004
2004 Atlantic hurricane season
The 2004 Atlantic hurricane season officially began on June 1, 2004, and lasted until November 30, 2004. These dates conventionally delimit the period of each year when most tropical cyclones form in the Atlantic basin...

 and 2005
2005 Atlantic hurricane season
The 2005 Atlantic hurricane season was the most active Atlantic hurricane season in recorded history, repeatedly shattering numerous records. The impact of the season was widespread and ruinous with an estimated 3,913 deaths and record damage of about $159.2 billion...

.

Lloyd's coverholder

Coverholders are an important source of business for Lloyd's. Their numbers have increased steadily in recent years, and there are now about 2,500 Lloyd's coverholders producing around 30% of Lloyd's premium income each year. The balance of Lloyd's business is distributed around the world through a network of brokers.
Coverholders allow Lloyd's syndicates to operate in a region or country as if they were a local insurer. This is achieved by Lloyd's syndicates delegating their underwriting authority to coverholders.
A coverholder can have full or limited authority to underwrite on behalf of a Lloyd's syndicate. It will usually issue the insurance documentation and will often handle claims. The document setting out the terms of the coverholder’s delegated authority is known as a binding authority.

Lloyd's brokers

Outsiders, whether individuals or other insurance companies, cannot do business directly with Lloyd's syndicates. They must hire Lloyd's brokers, who are the only customer-facing companies at Lloyd's. They are therefore often referred to as intermediaries. Lloyd's brokers shop customers' policies among the syndicates, trying to obtain the best prices and terms.

Integrated Lloyd's vehicles

When corporations became admitted as Lloyd's members, they often disliked the traditional structure. Insurance companies did not want to rely on the underwriting skills of syndicates they did not control, so they started their own. An integrated Lloyd's vehicle (ILV) is a group of companies that combines a corporate member, a managing agent, and a syndicate under common ownership. Some ILVs allow minority contributions from other members, but most now try to operate on an exclusive basis.

Market structure

  • Capital providers
    • 1,238 corporate members
    • 773 individual Names with unlimited liability
  • Market participants
    • 52 managing agents
    • 84 syndicates
    • 181 Lloyd's brokers


Lloyd's is not publicly traded, though some of its members are listed companies, such as Hiscox Ltd
Hiscox
Hiscox Ltd. is a Bermuda-incorporated insurance provider, listed on the London Stock Exchange. An underwriter at Lloyd's of London, the company largely specialises in niche areas of the market, offering property and casualty insurance aimed at companies and high net worth individuals, as well as...

, Catlin Group Ltd
Catlin Group
Catlin Group Limited is a Bermuda-based specialty insurance and reinsurance company. Catlin operates six underwriting hubs worldwide and operates nearly 50 offices. It owns the largest syndicate at Lloyd's of London, based on 2009 gross written premiums. Catlin shares are listed on the London...

 and Hardy Underwriting Bermuda Ltd.

Financial security

Lloyd's capital structure, often referred to as the Chain of Security, provides financial security to policyholders and capital efficiency to members. The Corporation is responsible for setting both member and central capital levels to achieve a level of capitalisation that is robust and allows members the potential to earn superior returns.

There are three 'links' in the chain: the funds in the first and second links are held in trust, primarily for the benefit of policyholders whose contracts are underwritten by the relevant member. Members underwrite for their own account and are not liable for other members' losses.

The third link — the Central Fund — contains mutual assets held by the Corporation which are available, subject to Council approval, to meet any member's insurance liabilities.

Timeline of significant events at Lloyd's

  • 1774 Foundation of Lloyd's
  • 1871 Lloyd's Act 1871
  • 1906 San Francisco earthquake
    1906 San Francisco earthquake
    The San Francisco earthquake of 1906 was a major earthquake that struck San Francisco, California, and the coast of Northern California at 5:12 a.m. on Wednesday, April 18, 1906. The most widely accepted estimate for the magnitude of the earthquake is a moment magnitude of 7.9; however, other...

  • 1911 Lloyd's Act 1911
  • 1925 1925 building completed
  • 1958 1958 building completed
  • 1965 Hurricane Betsy
    Hurricane Betsy
    Hurricane Betsy was a Category 4 hurricane of the 1965 Atlantic hurricane season which caused enormous damage in the Bahamas, Florida, and Louisiana. Betsy made its most intense landfall near the mouth of the Mississippi River, causing significant flooding of the waters of Lake Pontchartrain into...

  • 1968 Cromer Report
  • 1975 Computer Leasing
  • 1977 Sasse syndicate [Lioncover] - Peter Cameron-Webb (PCW)
  • 1982 Lloyd's Act 1982
  • 1986 1986 building
    Lloyd's building
    The Lloyd's building is the home of the insurance institution Lloyd's of London, and is located at 1, Lime Street, in the City of London, England.-Design:...

     completed
  • 1988 Piper Alpha disaster
  • 1990 Asbestosis
    Asbestosis
    Asbestosis is a chronic inflammatory and fibrotic medical condition affecting the parenchymal tissue of the lungs caused by the inhalation and retention of asbestos fibers...

     and LMX Spiral
  • 1991 Gooda Walker, Feltrim, etc.
  • 1996 Equitas
    Equitas
    Equitas is the general label given to a group of companies linked to Lloyd's of London. It was set up in 1996 specifically to reinsure liabilities that had accumulated in the syndicates at Lloyd's of London on policies written from the 1930s up to and including 1992. This business was reinsured by...

     set up
  • 2001 September 11 attacks
  • 2006 Berkshire Hathaway
    Berkshire Hathaway
    Berkshire Hathaway Inc. is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States, that oversees and manages a number of subsidiary companies. The company averaged an annual growth in book value of 20.3% to its shareholders for the last 44 years,...

     assumed Equitas liabilities
  • 2011 Great East Japan earthquake
    2011 Tōhoku earthquake and tsunami
    The 2011 earthquake off the Pacific coast of Tohoku, also known as the 2011 Tohoku earthquake, or the Great East Japan Earthquake, was a magnitude 9.0 undersea megathrust earthquake off the coast of Japan that occurred at 14:46 JST on Friday, 11 March 2011, with the epicenter approximately east...

  • 2011 In September, Lloyd’s of London pulled deposits from European banks because of concerns that European governments may be unable to support lenders in a worsening debt crisis. Lloyd's finance director Luke Savage explained, “There are a lot of banks who, because of the uncertainty around Europe, the market has stopped using to place deposits with. If you’re worried the government itself might be at risk, then you’re certainly worried the banks could be taken down with them.”

Asbestosis and unforeseen risk

The classic example of long-tail insurance risks are asbestosis
Asbestosis
Asbestosis is a chronic inflammatory and fibrotic medical condition affecting the parenchymal tissue of the lungs caused by the inhalation and retention of asbestos fibers...

 claims under employers' liability or workers' compensation insurances. A worker at an industrial plant may have been exposed to asbestos in the 1960s, fallen ill 20 years later, and claimed compensation from his former employer in the 1990s. The employer would report a claim to the insurance company that wrote the policy in the 1960s. However because the insurer did not understand the full nature of the future risk back in the 1960s, it and its reinsurers would not have properly reserved for it. In the case of Lloyd's this resulted in the bankruptcy of thousands of individual investors who indemnified (via RITC) general liability insurance written from the 1940s to the mid 1970s for companies with exposure to asbestosis claims.

Types of policies

Lloyd's syndicates write a diverse range of policies, both direct insurance and reinsurance, covering casualty, property, marine, energy, motor, aviation and many other types of risk. Lloyd's has a unique niche in unusual, specialist business such as kidnap and ransom, fine art, aviation, marine, and other insurances.

The general public knows Lloyd's for some unusual or notable policies it has written. For example, Lloyd's has insured:
  • silent film
    Silent film
    A silent film is a film with no synchronized recorded sound, especially with no spoken dialogue. In silent films for entertainment the dialogue is transmitted through muted gestures, pantomime and title cards...

     comedian Ben Turpin
    Ben Turpin
    Ben Turpin was a cross-eyed American comedian and actor, best remembered for his work in silent films.-Personal life:...

    's eyes against uncrossing
  • Betty Grable
    Betty Grable
    Elizabeth Ruth "Betty" Grable was an American actress, dancer and singer.Her iconic bathing suit photo made her the number-one pin-up girl of the World War II era. It was later included in the LIFE magazine project "100 Photos that Changed the World"...

    's, Brooke Shields
    Brooke Shields
    Brooke Christa Shields is an American actress and model. Some of her better-known movies include Pretty Baby and The Blue Lagoon, as well as TV shows such as Suddenly Susan, That '70s Show and Lipstick Jungle....

    's, and Tina Turner
    Tina Turner
    Tina Turner is an American singer and actress whose career has spanned more than 50 years. She has won numerous awards and her achievements in the rock music genre have led many to call her the "Queen of Rock 'n' Roll".Turner started out her music career with husband Ike Turner as a member of the...

    's legs
  • cricketer Merv Hughes
    Merv Hughes
    Mervyn Gregory Hughes is a former Australian cricketer. A right-arm fast bowler, he represented Australia between 1985 and 1994 in 53 Test matches, taking 212 wickets. He played 33 One Day Internationals, taking 38 wickets. He took a hat trick in a Test against the West Indies at the WACA in...

    's trademark walrus mustache while playing for Australia between 1985-1994
  • Jimmy Durante
    Jimmy Durante
    James Francis "Jimmy" Durante was an American singer, pianist, comedian and actor. His distinctive clipped gravelly speech, comic language butchery, jazz-influenced songs, and large nose helped make him one of America's most familiar and popular personalities of the 1920s through the 1970s...

    's nose
  • the hands of the 1932 World Yo-Yo Champion
    World Yo-Yo Contest
    The World Yo-Yo Contest is a contest of yo-yo competitors from around the worldhosted by Gregory Cohen and YoYoGuy.com. As of 2006, 19 countries fed into the World Yo-Yo Contest from their respective national yo-yo contests. Also in 2006, almost 700 people were in attendance...

     Harvey Lowe
    Harvey Lowe
    Harvey Lowe was a Canadian radio presenter and world yo-yo champion.-Early life:Lowe was born in Victoria, British Columbia, Canada in 1918, the youngest of eight daughters and two sons of his parents. Wanting more male children, Lowe's father had also had a son with his concubine, making Lowe the...

  • Keith Richards
    Keith Richards
    Keith Richards is an English musician, songwriter, and founding member of the Rolling Stones. Rolling Stone magazine said Richards had created "rock's greatest single body of riffs", and placed him as the "10th greatest guitarist of all time." Fourteen songs written by Richards and songwriting...

    ' slender fingers
  • food critic and gourmet Egon Ronay
    Egon Ronay
    Egon Ronay was a Hungarian-born food critic who wrote and published a famous series of guides to British and Irish restaurants and hotels in the 1950s and '60s. He was an innovator when Britain had little appreciation of foreign cuisine.-Early life:Born in Budapest, Austria-Hungary, in 1915, he...

    's taste buds for £250,000
  • Celine Dion
    Celine Dion
    Céline Marie Claudette Dion, , , is a Canadian singer. Born to a large family from Charlemagne, Quebec, Dion emerged as a teen star in the French-speaking world after her manager and future husband René Angélil mortgaged his home to finance her first record...

    's, Bob Dylan
    Bob Dylan
    Bob Dylan is an American singer-songwriter, musician, poet, film director and painter. He has been a major and profoundly influential figure in popular music and culture for five decades. Much of his most celebrated work dates from the 1960s when he was an informal chronicler and a seemingly...

    's and Bruce Springsteen
    Bruce Springsteen
    Bruce Frederick Joseph Springsteen , nicknamed "The Boss," is an American singer-songwriter who records and tours with the E Street Band...

    's vocal cords
  • Michael Flatley
    Michael Flatley
    Michael Ryan Flatley is an American Irish dancer, choreographer, actor, musician and occasional television presenter. He became internationally known for Irish dance shows Riverdance, Lord of the Dance, Feet of Flames, and Celtic Tiger...

    's legs for $47 million (the policy was only in effect when he was touring, and forbade him from dancing except on stage)
  • America Ferrera
    America Ferrera
    America Georgina Ferrera is an American actress, best known for playing the lead role in the television comedy series Ugly Betty...

    's smile for $10 million
  • Ken Dodd
    Ken Dodd
    Kenneth Arthur Dodd OBE is a British comedian and singer songwriter, famous for his frizzy hair or “fluff dom” and buck teeth or “denchers”, his favourite cleaner, the feather duster and his greeting "How tickled I am!", as well as his send-off “Lots and Lots of Happiness!”...

    's teeth for $7.4 million
  • Tempest Storm
    Tempest Storm
    Tempest Storm is the stage name of an American stripper, burlesque star, and motion picture actress. Along with Lili St. Cyr and Blaze Starr, she was one of the best known burlesque performers of the 1950s and 1960s. She is regarded as having one of the longest careers as a burlesque performer,...

    's breasts
  • Steve Fossett
    Steve Fossett
    James Stephen Fossett was an American commodities trader, businessman, and adventurer. Fossett is the first person to fly solo nonstop around the world in a balloon...

    's life for $50 million
  • the bodies of several professional wrestlers, including Bret Hart
    Bret Hart
    Bret Hart is a Canadian on-screen personality, writer, actor and Semi-retired professional wrestler. Like others in the Hart wrestling family, Hart has an amateur wrestling background, including wrestling at Ernest Manning High School and Mount Royal College...

    , Ric Flair
    Ric Flair
    Richard Morgan Fliehr is an American professional wrestler, better known by his ring name Ric Flair. Also known as "The Nature Boy", Flair is one of the most well-known professional wrestlers in the world....

    , Curt Hennig
    Curt Hennig
    Curtis Michael "Curt" Hennig , also known by the ring name Mr. Perfect, was an American professional wrestler, manager and color commentator who worked for, among other promotions, Total Nonstop Action Wrestling , the American Wrestling Association , World Championship Wrestling and the World...

    , Rick Rude, Brian Adams
    Brian Adams (wrestler)
    Brian Keith Adams was an American professional wrestler. Adams gained fame in the 1990s while performing for the World Wrestling Federation , under the name Crush, and for World Championship Wrestling under his given name.Trained in Japan by Antonio Inoki, Adams was a two time WCW World Tag Team...

    , and Joe Laurinaitis, better known as Road Warrior Animal
    Road Warrior Animal
    Joseph Aaron "Joe" Laurinaitis is an American professional wrestler, better known by his ring names, Road Warrior Animal and Road Warrior...

  • Diana Lee
    Diana Lee
    Diana Lee or Diana Lee-Hsu is an American model and actress. She was chosen as Playboy's Playmate of the Month for May 1988. Her centerfold was photographed by Stephen Wayda and Richard Fegley....

    's hair
  • Troy Polamalu
    Troy Polamalu
    Troy Aumua Polamalu is an American football strong safety for the Pittsburgh Steelers of the National Football League. He was drafted in the first round of the 2003 NFL Draft by the Steelers. He played college football at the University of Southern California.-High school:Troy Polamalu graduated...

    's hair for $1 million
  • Holly Madison
    Holly Madison
    Hollin Sue Cullen, professionally known as Holly Madison, is an American model, showgirl and television personality. She is widely known for being one of Hugh Hefner's girlfriends on the reality television series The Girls Next Door...

    's breasts for $1 million
  • participating automobiles in the carpools involved in the Montgomery Bus Boycott
    Montgomery Bus Boycott
    The Montgomery Bus Boycott was a political and social protest campaign that started in 1955 in Montgomery, Alabama, USA, intended to oppose the city's policy of racial segregation on its public transit system. Many important figures in the civil rights movement were involved in the boycott,...

  • a grain of rice with a portrait of the Queen and the Duke of Edinburgh
    Duke of Edinburgh
    The Duke of Edinburgh is a British royal title, named after the city of Edinburgh, Scotland, which has been conferred upon members of the British royal family only four times times since its creation in 1726...

     engraved on it for $20,000
  • a confident comedy theatre group against the risk of a member of their audience dying of laughter
  • the development of the new World Trade Center with workers' compensation, general liability, excess liability and speciality insurance programmes


Lloyd's is in talks with Virgin Galactic
Virgin Galactic
Virgin Galactic is a company within Richard Branson's Virgin Group which plans to provide sub-orbital spaceflights to the paying public, along with suborbital space science missions and orbital launches of small satellites...

 to insure spaceflights.

Miscellaneous

The present Lloyd's building
Lloyd's building
The Lloyd's building is the home of the insurance institution Lloyd's of London, and is located at 1, Lime Street, in the City of London, England.-Design:...

, at 1 Lime Street
Lime Street, London
Lime Street is a street in the City of London between Fenchurch Street to the south and Leadenhall Street to the north.The northern portion of the street is pedestrianised...

, was designed by architect
Architect
An architect is a person trained in the planning, design and oversight of the construction of buildings. To practice architecture means to offer or render services in connection with the design and construction of a building, or group of buildings and the space within the site surrounding the...

 Richard Rogers
Richard Rogers
Richard George Rogers, Baron Rogers of Riverside CH Kt FRIBA FCSD is a British architect noted for his modernist and functionalist designs....

 and was completed in 1986. It stands on the site of the old Roman Forum. The 1925 facade still survives, appearing strangely stranded with the modern building visible through the gates on the northern side on Leadenhall Street
Leadenhall Street
Leadenhall Street is a street in the City of London, formerly part of the A11. It runs east from Cornhill to Aldgate, and west vice-versa. Aldgate Pump is at the junction with Aldgate...

.

In the great Underwriting Room of Lloyd's stands the Lutine Bell
HMS Lutine (1779)
The Lutine was a Magicienne-class frigate of the French Navy, launched in 1779, captured by the Royal Navy, recommissioned as HMS Lutine, and lost in 1799. The Lutine Bell from the ship is preserved at Lloyd's of London....

, which was struck when the fate of a ship “overdue” at its destination port became known. If the ship was safe, the bell would be rung twice; if it had sunk, the bell would be rung once. (This had the practical purpose of immediately stopping the sale or purchase of “overdue” reinsurance on that vessel.) Now it is only rung for ceremonial purposes, such as the visit of a distinguished guest (two rings), or for the annual Remembrance Day
Remembrance Day
Remembrance Day is a memorial day observed in Commonwealth countries since the end of World War I to remember the members of their armed forces who have died in the line of duty. This day, or alternative dates, are also recognized as special days for war remembrances in many non-Commonwealth...

 service and anniversaries of major world events (one ring).

The Lloyd's building was used in the beginning of the film Mamma Mia!
Mamma Mia! (film)
Mamma Mia! is a 2008 musical/romantic comedy film adapted from the 1999 West End/2001 Broadway musical of the same name, based on the songs of successful pop group ABBA, with additional music composed by ABBA member Benny Andersson...

 to represent a New York office building from where Pierce Brosnan
Pierce Brosnan
Pierce Brendan Brosnan, OBE is an Irish actor, film producer and environmentalist. After leaving school at 16, Brosnan began training in commercial illustration, but trained at the Drama Centre in London for three years...

's character left for the Greek island.

Lloyd's was named Business Insurance Readers Choice winner 2007 for Best Reinsurance Company.

Lloyd's is also the main plotline in English author Penny Vincenzi's novel An Absolute Scandal (2007), which centres around the scandals during the 1980s and 1990s told via a large ensemble cast.

See also

  • BS 1088
    BS 1088
    In materials, the BS 1088 specification is a marine plywood specification that applies to plywood produced with untreated tropical hardwood veneers that have a set level of resistance to fungal attack. The plies are bonded with WBP glue. Although the initials BS are for "British Standard", the...

     – Marine materials standard
  • Jonathan's Coffee-House
    Jonathan's Coffee-House
    Jonathan's Coffee-House in Change Alley is famous as the original site of the London Stock Exchange. The Coffee-House was founded by Jonathan Miles, in Exchange Alley, around 1680....

     – original home of the London Stock Exchange
    London Stock Exchange
    The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...

  • Lloyd's List
    Lloyd's List
    Lloyd's List is one of the world's oldest continuously-running journals, having provided weekly shipping news in London as early as 1734. Now published daily, a recent issue was numbered 59,200...

  • Lloyd's unlimited rating
    Lloyd's unlimited rating
    Lloyd's unlimited rating is a rating applied to hydroplanes competing for the water speed record, as applied by Lloyd's of London. It is usually denoted by a circular white badge on the hull, with an infinity symbol "∞" above the K and number for Lloyd's "unlimited" group. The group has...

  • Marine insurance
    Marine insurance
    Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination....

  • Shipping line
    Shipping line
    -History of shipping lines:Large-scale shipping lines became widespread in the nineteenth century, after the development of the steamship in 1783. At first, Great Britain was the centr of development; in 1819, the first steamship crossing of the Atlantic Ocean took place and by 1833, shipping lines...



Further reading

  • Cuthbert Heath: Maker of the Modern Lloyd's of London by Antony Brown. Illustrated with black-and-white photographic plates, which include the Twin Towers in New York, with a colour frontispiece of 'The Room' at Lloyd's (Originally supplied in cardboard box).
  • Hazard Unlimited:The Story of Lloyd's of London by Antony Brown.
  • Raphael, Adam
    Adam Raphael
    Adam Eliot Geoffrey Raphael is an award-winning English journalist and author. In the British Press Awards of 1973, he was named Journalist of the Year for his work on labour conditions in South Africa, and he has also been a presenter and editor of BBC Television's Newsnight. Since 2004, he has...

    , Ultimate Risk: the inside story of the Lloyd's catastrophe (London, Four Walls Eight Windows, 1994, ISBN 978-1568580562).

External links


Data

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