• Reinsurance to close[edit] It may not be immediately clear how current members of current Lloyd’s syndicates, which accept business one year at a time, could be liable to
  pay historical claims.

• The Names (few in number for such large losses) took legal action and ultimately paid only £6.25m of c. £15m of Den-Har claims under the 1976 year, leaving the Corporation
  of Lloyd’s to pay the remainder.

• 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.

• Around that time, it was unusual for a Lloyd’s syndicate to have more than five or six backers; this lack of underwriting capacity meant Lloyd’s was losing many of the larger
  risks to rival insurance companies.

• Third, 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 to the current year, and “time and distance” policies, whereby reserves would be used to buy a guarantee of future income.

• [3] Having survived multiple scandals and significant challenges through the second half of the 20th century, most notably the asbestosis affair, Lloyd’s today promotes its
  strong financial “chain of security” available to promptly pay all valid claims.

• While some insurance companies were denying claims for fire damage under their earthquake policies or vice versa, one of Lloyd’s leading underwriters, Cuthbert Heath, famously
  instructed his San Francisco agent to “pay all of our policy-holders in full, irrespective of the terms of their policies”.

• Third, during the decade a number of scandals had come to light, including the collapse of F. H. “Tim” Sasse’s non-marine syndicate 762, which had highlighted both the lack
  of regulation and the lack of legal powers of the Committee of Lloyd’s (as it was then) to manage the Society.

• Another asbestosis-hit operation, Pulbrook syndicates 90/334, had taken out reinsurance in 1981 on its general liability business with Merrett syndicate 418; however, in 1990
  Stephen Merrett (who by now controlled Pulbrook) won an arbitration ruling to void that arrangement due to non-disclosure of the extent of asbestos exposure, leaving the Pulbrook Names without cover for their losses of £100,000 each on average.

• Because Lloyd’s was a tax shelter as well as an insurance market, the second issue affecting it was an increase in its external membership: by the end of the 1970s, the number
  of passive investors dwarfed the number of underwriters working in the market.

• Lloyd’s was later forced to make a settlement with the roughly 3,000 Names on the various PCW syndicates involved and to reinsure their liabilities into a new syndicate, number
  9001, in turn reinsured by a unique vehicle named Lioncover, which was set up as a Lloyd’s subsidiary insurance company.

• Once the three-year Lloyd’s accounting period passed, the 110 Names on syndicate 762 were told they faced substantial losses, from mostly fraudulent claims.

• Liabilities for all pre-1993 business (other than life assurance) were to be compulsorily transferred (by RITC) into a special vehicle named Equitas (which would require the
  approval of the UK’s Department of Trade and Industry) at a cost of around $21bn.

• In this manner, liability for past losses could be transferred year after year until it reached the current syndicate.

• Centrewrite still exists today but has not written any EPPs since 2011 and conducts little other business; its most recent transaction was in 2013 when it assumed the 2001
  liabilities of the life syndicate 1171.

• Lloyd’s then instituted some major structural changes: corporate members with limited liability were permitted to join and underwrite insurance; no new unlimited-liability
  Names were allowed to join (although a few hundred existing ones remained); financial requirements for underwriting were changed, to prevent excess underwriting that was not backed by liquid assets; and market oversight significantly increased.

• Traditionally business is transacted at each syndicate’s “box” in the underwriting “Room” within this building, with the policy document being known as a “slip”,[3] but in
  more recent years it has become increasingly common for business to be conducted outside of the Lloyd’s building itself, including remotely.

• [3] Problems also developed out of the Oakley Vaughan agency run by brothers Edward and Charles St George, which had written far more business than its capacity allowed in
  order to invest premium to take advantage of high interest rates.

• As a result, a great many Names whose syndicates wrote long-tail liability at Lloyd’s faced significant financial loss or ruin by the late 1980s to mid-1990s.

• [17] Sasse had also been one of 57 underwriters on other syndicates that wrote loss-making “computer leasing” policies in the late 1970s.

• [18] Arising simultaneously with these developments were wider issues: first, in the US, an ever-widening interpretation by the courts of insurance coverage in relation to
  workers’ compensation for asbestosis-related claims, which created a huge hole in Lloyd’s loss-payment reserves, which was initially not recognised and then not acknowledged.

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

• Money was raised in many ways, including the sale and leaseback of the Lloyd’s building, and a tax on future business.

• Lloyd’s losses from the earthquake and fires were substantial, even though the writing of insurance business overseas was viewed with some wariness at the time.

• Late 1970s: Sasse scandal and other issues[edit] The collapse of the Sasse syndicate came after it wrote a “binding authority” in 1975 that delegated underwriting authority
  to Florida-based expatriate Dennis Harrison to write property and fire risks through his Den-Har Underwriters agency, even though Den-Har was not an approved Lloyd’s coverholder (a fact noticed neither by Sasse nor Lloyd’s Non-Marine Association).

• This came about as a result of the Lloyd’s accounting practice known as reinsurance to close (RITC).

• In 1885, he wrote the first fire reinsurance contract, reinsuring the Hand in Hand Insurance Company and marking the start of Heath’s push to diversify the market into “non-marine”
  business.

• [22] Many Names faced large bills, but the plan also provided for a settlement of their disputes, a tax on recent profits, and the write-off of nearly $5bn owed in the form
  of “debt credits”, skewed towards those with the worst losses.

• Unlike most of its competitors in the industry, it is not an insurance company; rather, Lloyd’s is a corporate body governed by the Lloyd’s Act 1871 and subsequent Acts of
  Parliament.

• Late 1980s: Piper Alpha and the LMX spiral[edit] It has long been normal for one Lloyd’s syndicate to reinsure another, but when Piper Alpha, a North Sea oil rig, exploded
  on 6 July 1988 causing an initial $1.4bn loss, the practice had become so widespread that the underwriters in Lime Street initially had no idea how extensive their exposure was: the loss was passed around in what became known as the London
  market excess of loss (LMX) “spiral” and claim values escalated out of control.

• When the huge extent of asbestosis losses came to light in the early 1990s, for the first time in Lloyd’s history large numbers of members either were unable to pay the claims
  or refused, many alleging that they were the victims of fraud, misrepresentation, and/or negligence.

• The practice at Lloyd’s was to wait three years (that is, 36 months from the beginning of the year in which the business was written) before “closing” the year for accounting
  purposes and declaring a result.

• As long as the reserves had been accurately 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.

• This contract developed so poorly that Fireman’s Fund later sought its own stop-loss cover for the losses assumed from Sturge.

• The business underwritten at Lloyd’s is predominantly general insurance and reinsurance, although a small number of syndicates write term life insurance.

• Within a year he was underwriting for himself on a three-man syndicate; in 1883 he also opened a brokerage business.

• 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 gain.

• [24] Structure Lloyd’s is not an insurance company; it is a market of members.

• He also wrote Lloyd’s first burglary insurance policy, its first “all risks” jewellery policy and invented “jewellers’ block” cover.

• Since claims can take time to be reported and then paid, the profit or loss for each syndicate took time to realise.

• Fisher, working with Richard Southwell QC, drafted the Lloyd’s Act of 1982 which further redefined the structure of the business and was designed to give external Names, introduced
  in response to the Cromer report, a say in the running of the business through a new governing Council.

• In 1986, the year Lloyd’s moved into a new building at 1 Lime Street (where it remains today), the British government commissioned Sir Patrick Neill to report on the standard
  of investor protection available at Lloyd’s.

• Dilution of liabilities and the consequences[edit] It was alleged that in the early 1980s some Lloyd’s officials began a recruitment programme to enroll new Names to help
  capitalise Lloyd’s prior to the expected onslaught of APH claims.

• This report advocated the widening of membership to non-market participants, including non-British subjects and then women, and the reduction of the onerous capitalisation
  requirements (thus creating a minor investor known as a “mini-Name”).

• The reserve for future claims liabilities was set aside in an unusual way.

• By writing swathes of business regardless of whether the premiums were adequate, the St Georges left their Names with serious losses.

• The employer would report a claim to the insurance company that wrote the policy in the 1960s.

• In the case of Lloyd’s, this resulted in the bankruptcy of thousands of individual investors who indemnified general liability policies written from the 1940s to the mid-1970s
  for companies with exposure to asbestosis claims.

• Warrilow syndicate and Centrewrite Lloyd’s also faced action from Names on C. J. Warrilow’s syndicate 553, which had chronically exceeded its underwriting capacity in the
  early 1980s and failed to adequately reinsure the huge quantity of risks it was taking on.

• This entity was named Centrewrite Ltd and in 1993 it assumed Warrilow’s 1985 and prior years’ liabilities, separately also offering “estate protection plans” (EPPs) for resigned
  Names.

• Lloyd’s rebounded and started to thrive again after the catastrophic losses arising out of the World Trade Center attack, but it faced increased competition from newly-created
  companies in Bermuda and other markets.

• A marine underwriter named Frederick Marten is credited for first identifying this issue and creating the first “large syndicate”, initially of 12 capacity providers.

• The prompt and full payment of all claims helped to cement Lloyd’s reputation for reliable claim payments and as an important trading partner for US brokers and policyholders.

• [3] It was soon realised that the membership of the Society, which had been largely made up of market participants, was too small in relation to the market’s capitalisation
  and the risks that it was taking on.

• A greater debacle arose when Peter Cameron-Webb and Peter Dixon, of PCW Underwriting Agencies, allegedly defrauded their business of some $60m through rigged reinsurance transactions
  and fled to the United States, never to return.

• 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.

• His report was produced in 1987 and made a large number of recommendations, but was never implemented in full.

• To calculate the profit or loss, reserves were set aside for future claims payments, for claims that had already been notified but not yet paid, as well as estimated amounts
  for claims that had been incurred but not reported (IBNR).

• This arrangement carried on until 1773, long after the death of Edward Lloyd in 1713, when the participating members of the insurance arrangement formed a committee and underwriter
  John Julius Angerstein acquired two rooms at the Royal Exchange in Cornhill for “The Society of Lloyd’s”.

• The syndicate bought a RITC policy to pay any future claims; the premium was equal to the amount of the reserve.

• However, usually the syndicate re-formed for the next calendar year with the same identifying number and more or less the same membership.

• This chain consists of £55.2 billion of syndicate-level assets, £31bn of members’ “funds at Lloyd’s” and £4.9bn in a third mutual link which includes the “Central Fund” and
  which is under the control of the Council of Lloyd’s.

• Therefore, the amounts of money transferred from earlier years by successive RITC premiums to cover these losses were grossly insufficient, and the current members had to
  pay the shortfall.

• Even earlier, in 1974, the underwriter of R. W. Sturge syndicate 210, Ralph Rokeby-Johnson, who specialised in American industrial risks, bought “stop-loss” reinsurance from
  Fireman’s Fund and Kemper Insurance in the US on Sturge’s pre-1969 exposures that were accumulating into the present.

• Historian Eric Williams noted that “Lloyd’s, like other insurance companies, insured slaves and slave ships, and was vitally interested in legal decisions as to what constituted
  ‘natural death’ and ‘perils of the sea’.

• The catastrophe halted the capital that hitherto had been pouring into Lloyd’s, and twice as many members left between 1965 and 1968 as had left over the prior eight years.

• [23] The transfer (in two phases between 2007 and 2009) represented “finality” under English law for all affected Names, who now faced “no further liability whatsoever” to
  the pre-1993 losses.

• Some of the leading LMX reinsurers at the time that suffered serious spiral losses included the numerous syndicates managed by the Gooda Walker agency, Devonshire syndicate
  216, Rose Thomson Young 255, R. J. Bromley 475, and Patrick Fagan’s already challenged Feltrim syndicates 540 and 542.

• Unexpectedly large legal awards in US courts for punitive damages led to substantial claims on asbestos, pollution and health hazard (APH) policies, some dating as far back
  as the 1940s.

• Second, 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.

 

Works Cited

[‘”Lloyd’s”. craft.co.
2. ^ “Coffee and commerce 1652-1811”.
3. ^ Jump up to:a b c d e Mantle, Jonathan (1992). For Whom the Bell Tolls. London, SW7: Sinclair-Stevenson. ISBN 1-85619-152-4.
4. ^ “Introduction to Lloyd’s: background”. Hmrc.gov.uk.
11 January 2008. Retrieved 20 March 2011.
5. ^ “Capital structure”. Lloyd’s. Retrieved 29 June 2019.
6. ^ Marcus, G. J. (1975). Heart of Oak: A Survey of British Sea Power in the Georgian Era. Oxford University Press. p. 192. ISBN 0192158120.
7. ^
Jump up to:a b Williams, Eric (1994). Capitalism and Slavery. Chapel Hill: University of North Carolina Press. pp. 104–05. Retrieved 25 September 2017.
8. ^ “Building an inclusive Lloyd’s marketplace”. www.lloyds.com. 10 June 2020. Archived from
the original on 7 July 2020. Retrieved 29 October 2020.
9. ^ Kahn, Jeremy (18 June 2020). “George Floyd protests force Britain to reckon with its role in slavery, leading some companies to pay reparations”. Fortune. Retrieved 29 October 2020.
10. ^
Faulconbridge, Guy; Holton, Kate (18 June 2020). “Lloyd’s of London to pay for ‘shameful’ Atlantic slave trade role”. Reuters. Retrieved 29 October 2020.
11. ^ Faulconbridge, Guy (18 June 2020). “Explainer: London faces up to former role insuring
Atlantic slave trade”. Reuters. Retrieved 29 October 2020.
12. ^ Jump up to:a b c Brown, Antony (1980). Cuthbert Heath: Maker of the Modern Lloyd’s of London. London, W1: George Rainbird Ltd. ISBN 0-7153-7942-9.
13. ^ “San Francisco earthquake”.
Lloyd’s. Retrieved 29 June 2019.
14. ^ “Lloyd’s Act 1911” (PDF). Archived from the original (PDF) on 28 September 2011. Retrieved 26 February 2011.
15. ^ “Sweeping change, new standards 1827-1945”.
16. ^ “The age of new frontiers 1965-2014”.
17. ^
Jump up to:a b c d e Hodgson, Godfrey (1984). Lloyd’s of London: A Reputation at Risk. New York: Elisabeth Sifton Books – Viking Penguin, Inc. ISBN 0-670-43595-3.
18. ^ Jump up to:a b c Luessenhop, Elizabeth (1995). Risky Business. New York: Scribner.
ISBN 0-684-19739-1.
19. ^ “Lloyd’s Act 1982” (PDF). Archived from the original (PDF) on 28 September 2011. Retrieved 26 February 2011.
20. ^ “Peter Cameron-Webb dies in California”. i-law.com.
21. ^ Moore, John (23 January 1993). “Lloyd’s
underwriter commits suicide”. The Independent. Retrieved 28 June 2019.
22. ^ Eisenhammer, John (23 October 2011). “Equitas day: final act in the Lloyd’s nightmare”. The Independent. Retrieved 28 March 2021.
23. ^ “EQUITAS LIMITED AGREEMENT WITH
NATIONAL INDEMNITY COMPANY” (PDF). Archived from the original (PDF) on 15 February 2019.
24. ^ http://www.equitas.co.uk/files/Equitas-LetterToNames1July2009.pdf[bare URL PDF]
25. ^ “Regulation of Lloyd’s – About Lloyd’s – Lloyd’s”. Lloyds.com.
31 December 2005. Retrieved 20 March 2011.[permanent dead link]
26. ^ “Council of Lloyd’s – About Lloyd’s – Lloyd’s”. Lloyds.com. 31 December 2005. Retrieved 20 March 2011.[permanent dead link]
27. ^ “Franchise Board – About Lloyd’s – Lloyd’s”.
Lloyds.com. 31 December 2005. Retrieved 20 March 2011.[permanent dead link]
28. ^ Jump up to:a b “Lloyd’s Annual Results 2011” (PDF). Lloyd’s of London. 31 December 2011. Archived from the original (PDF) on 14 January 2013. Retrieved 28 September
2012.
29. ^ Jump up to:a b c d “Annual Report 2021”. lloyds.com.
30. ^ “Tell me more about coverholders – Coverholder – Lloyd’s”. Lloyds.com. Archived from the original on 10 March 2012. Retrieved 22 March 2012.
31. ^ Jump up to:a b “Annual
Report 2017” (PDF). lloyds.com. Archived from the original (PDF) on 23 May 2019. Retrieved 25 March 2018.
32. ^ Markus Gesmann (7 June 2016). “Current underwriting challenges” (PDF). actuaries.org.uk. Lloyd’s of London.
33. ^ “Annual Report 2020”.
lloyds.com.
34. ^ “Annual Report 2019”. lloyds.com.
35. ^ “Annual Report 2018” (PDF). lloyds.com.
36. ^ “Annual Report 2016”. lloyds.com. Archived from the original on 19 September 2018. Retrieved 19 May 2017.
37. ^ “Annual Report 2015” (PDF).
lloyds.com. Archived from the original on 2 February 2017. Retrieved 23 September 2018.
38. ^ “Annual Report 2014” (PDF). lloyds.com. Archived from the original (PDF) on 21 February 2016. Retrieved 20 May 2017.
39. ^ “Annual Report 2013” (PDF).
Archived from the original (PDF) on 26 August 2014. Retrieved 20 May 2017.
40. ^ “Annual Report 2012” (PDF). lloyds.com. Archived from the original (PDF) on 23 May 2019. Retrieved 20 May 2017.
41. ^ “Kaleidoscope of Insurance History”. history.swissre.com.
42. ^
“Spreading the risks”. Archived from the original on 23 July 2013. Retrieved 17 April 2011.
43. ^ “Truth About Lloyds”. Truth About Lloyds. 5 August 1998. Retrieved 22 March 2012.
44. ^ “1988 The Piper Alpha explosion – Lloyd’s – The world’s
specialist insurance market. Also known as Lloyd’s of London; is a market where members join together as syndicates to insure risks”. lloyds.com. Archived from the original on 28 June 2017. Retrieved 20 May 2017.
45. ^ “Lloyd’s Community Programme
celebrates its 20th year”. 7 February 2009. Retrieved 10 December 2012.
46. ^ “1993: IRA bomb devastates City of London”. BBC News. 24 April 1993. Retrieved 24 March 2021.
47. ^ “Reinsurance (Acts of Terrorism) Act 1993”. National Archives.
48. ^
Griffiths, Katherine (6 October 2011). “Equitas day: final act in the Lloyd’s nightmare”. The Independent. Retrieved 28 March 2021.
49. ^ Eisenhammer, John (23 October 2011). “Lloyd’s faces huge new claims for Ground Zero compensation”. The Independent.
Retrieved 28 March 2021.
50. ^ Treanor, Jill (1 December 2005). “US hurricanes cost Lloyd’s of London a record £2.9bn”. The Guardian. Retrieved 15 April 2022.
51. ^ “Berkshire Steps Up for Equitas”. The Wall Street Journal. 22 October 2006. Retrieved
28 March 2021.
52. ^ Crowley, Kevin (26 May 2010). “Lloyd’s Sees Deepwater Horizon Claims at $600 Million”. Bloomberg. Retrieved 24 March 2021.
53. ^ Neligan, Myles (28 March 2012). “Lloyd’s Of London swings to second-worst loss”. Reuters. Retrieved
24 March 2021.
54. ^ Maria Tadeo (16 December 2013). “Lloyd’s of London appoints first ever female chief executive Inga Beale – Business News – Business”. The Independent.
55. ^ “Lloyd’s of London estimates Maria claims of $900 million, cuts
Harvey, Irma estimates”. Reuters. 23 October 2017. Retrieved 24 March 2021.
56. ^ “Coronavirus: Lloyd’s of London expects to pay out £5bn in claims”. BBC News. 10 September 2020. Retrieved 24 March 2021.
57. ^ Makortoff, Kalyeena (1 September
2020). “Lloyd’s of London reopens building for first time since March”. The Guardian. Retrieved 24 March 2021.
58. ^ “What Lloyd’s insures – Lloyd’s”. Lloyds.com. Retrieved 13 May 2021.
59. ^ Jump up to:a b c d “Lloyd’s: insuring the famous
and the bizarre”. BBC News. 29 October 1999. Retrieved 20 March 2011.
60. ^ “Case studies – About Lloyd’s – Lloyd’s”. Lloyds.com. 31 December 2005. Retrieved 20 March 2011.[permanent dead link]
61. ^ “WOR: WrestleMania 2018, Raw, Tokyo Dome,
Ronda Rousey, more!”. WON/F4W – WWE news, Pro Wrestling News, WWE Results, UFC News, UFC results. 2 January 2017. Retrieved 2 January 2017.
62. ^ Jump up to:a b c d e “HowStuffWorks ‘9 Odd Things Insured by Lloyds of London'”. People.howstuffworks.com.
14 September 2007. Retrieved 20 March 2011.
63. ^ “British Porn Star Keiran Lee Insures Penis For $1m”. 24 January 2012. Retrieved 2 May 2018.
64. ^ Troy Polamalu has hair insured ESPN.com, Associated Press report. 30 August 2010
65. ^ @patmcafeeshow
(5 February 2020). “If anyone is wondering how the insurance policies work in case of an injury I had a “Lloyds of London” policy on my legs during my Franchise tag season and it is quite a hustle #PatMcAfeeShowLIVE” (Tweet). Retrieved 16 July 2020
– via Twitter.
66. ^ “Will Smith’s leap was insured for $200 million”. Archived from the original on 23 January 2021.
67. ^ Glancey, Jonathan (19 December 2011). “How we learned to love the Lloyds building”. The Guardian. London. Retrieved 19
December 2011.
68. ^ “Lloyd’s buildings”. Lloyd’s of London. Retrieved 7 February 2021.
69. ^ Dunkley, Jamie (7 July 2015). “City Spy: How to store future wealth for your kids”. London Evening Standard. p. 39.
Photo credit: https://www.flickr.com/photos/cycletours_holidays/6325571510/’]