Lloyd's of London
Lloyd's of London, generally known simply as Lloyd's, is an insurance and reinsurance market located in London, England. 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. It operates as a partially-mutualised marketplace within which multiple financial backers, grouped in syndicates, come together to pool and spread risk. These underwriters, or "members", include both corporations and private individuals, the latter being traditionally known as "Names".
The business underwritten at Lloyd's is predominantly general insurance and reinsurance, with a small amount of term life insurance. The market has its roots in marine insurance and traces its origins to a coffee-house established by Edward Lloyd on Tower Street 1689, making it one of the oldest insurance companies in the world. Today, it has a dedicated building on Lime Street, a Grade I historic landmark. Traditionally business is transacted at each syndicate's "box" in the underwriting room, with the policy document being known as a "slip", but in recent years it has become increasingly common for business to be conducted remotely and electronically.
The market's motto is Fidentia, Latin for "confidence", and it is closely associated with the Latin phrase uberrima fides, or "utmost good faith", representing the ideal relationship between underwriters and brokers.
Having survived multiple scandals and significant challenges through the second half of the 20th century, most notably the asbestosis losses which engulfed the market, Lloyd's today promotes its strong financial "chain of security" available to promptly pay all valid claims. As of 31 December 2024, this chain consists of £92.5 billion of syndicate-level assets, £30.5bn of members' "funds at Lloyd's", and £2.9bn in a third mutual link which includes the "Central Fund" and which is under the control of the Council of Lloyd's.
In 2023 there were 78 syndicates managed by 51 "managing agencies" that collectively wrote £52.1bn of gross premiums on risks placed by 381 registered brokers. Around half of Lloyd's premiums are paid from North America and around one quarter from Europe. Direct insurance represents roughly two-thirds of the premiums, mostly covering property and casualty liability, while the remaining one-third is reinsurance.
History
17th–19th centuries: Formation and first Lloyd's Act
The market began in Lloyd's Coffee House, owned by Edward Lloyd, on Tower Street in the City of London. The first reference to it can be traced to the London Gazette in 1688. The establishment was a popular place for sailors, merchants, and ship-owners, and Lloyd catered to them with reliable shipping news. The coffee house soon became recognised as an ideal place for obtaining marine insurance. The shop evolved into a meeting place for people of all types of maritime occupations, who would make bets on which ships would make it back to port. Soon, the captains of ships that were suggested to fail to return were betting against the return of other ships. It was the start of Lloyd's insurance. During this time, the coffee house was also frequented by mariners involved in the slave trade. 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. Lloyd's obtained a monopoly on maritime insurance related to the slave trade and maintained it until the abolition of the slave trade in 1807.Just after Christmas 1691, the small club of marine insurance underwriters relocated to No. 16 Lombard Street; a blue plaque on the site commemorates this. 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". In July 1803, the Lloyd's Patriotic Fund was established by a group of Lloyd's underwriters.
The Royal Exchange was destroyed by fire in 1838, forcing Lloyd's into temporary offices at South Sea House, Threadneedle Street. The Royal Exchange was rebuilt by 1844, but many of Lloyd's early records were lost in the blaze. The , the first Lloyd's Act, was passed in Parliament which gave the business a sound legal footing. 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. A marine underwriter named Frederick Marten is credited for first identifying this issue and creating the first "large syndicate", initially of 12 capacity providers. By the 1880s Marten's syndicate had outgrown many of the major insurance companies outside Lloyd's.
Early 20th century: San Francisco earthquake and first Lloyd's building
On 18 April 1906, a major earthquake and resulting fires destroyed over 80 per cent of the city of San Francisco. This event was to have a profound influence on building practices, risk modelling and the insurance industry.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. 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". 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. It was estimated that around 90 per cent of the damage to the city was caused by the resultant fires and as such, since 1906 "fire following earthquake" has generally been a specified insured peril under most policies. Heath is also credited for introducing the now widely used "excess of loss" reinsurance protection for insurers following the San Francisco quake.
Heath had become an underwriting member of Lloyd's in 1880, upon reaching the minimum age of 21, on J. S. Burrows' syndicate. Within a year he was underwriting for himself on a three-man syndicate; in 1883 he also opened a brokerage business. 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. He also wrote Lloyd's first burglary insurance policy, its first "all risks" jewellery policy and invented "jewellers' block" cover. Later, during World War I he offered air-raid insurance, protecting against the risk of German strategic bombing.
The subsequent set out the society's objectives, which include the promotion of its members' interests and the collection and dissemination of information.
A year later in April 1912 Lloyd's suffered perhaps its most famous loss: the sinking of the Titanic. It was insured for £1 million, which represented 20 per cent of the entire market's capacity, making it the largest marine risk ever insured. The record of its sinking in the 1912 "Loss Book" is on display in the Lloyd's building.
The society moved into its first owned, dedicated building in 1928. It was located at 12 Leadenhall Street and had been designed by Sir Edwin Cooper.
1960s: Hurricane Betsy and the Cromer report
In 1965 Lloyd's wrote the first satellite insurance policy, covering Intelsat I in pre-launch.Later that year, when Lloyd's had around 6,000 members on 300 syndicates, Hurricane Betsy struck the Gulf of Mexico coastlines, costing the market over £50 million. 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. 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.
Lloyd's response was to commission a secret internal inquiry in 1968, headed by Lord Cromer, a former Governor of the Bank of England. 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. The report also drew attention to the danger of conflicts of interest. The liability of the individual Names was unlimited, and thus all their personal wealth and assets were at risk.
1970s: Changes in the 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: for a time, capital gains were taxed at up to 40 per cent ; earned income was taxed in the top bracket at 83 per cent, and investment income in the top bracket at 98 per cent. 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 underwriting loss but a investment gain. The investment gain was typically achieved by "bond washing" or "gilt stripping": selling the gilt or other bond cum dividend and buying it back ex-dividend, thus forfeiting the interest income in exchange for a tax-free capital gain. Syndicate funds were also moved offshore.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. The third issue related to a series of losses as a result of scandal. 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 issued large fire insurance claims that had highlighted both the lack of regulation and the lack of legal powers of the Committee of Lloyd's to manage the Society.