Lloyd’s

Lloyd’s history can be traced to 1688, when Edward Lloyd kept a coffeehouse on Tower Street (or, from 1692, on Lombard Street). There merchants, bankers, and seafarers assembled to transact business informally. It also became a popular meeting place for underwriters—those who would accept insurance on ships for the payment of a premium. In 1696, for a short period, Edward Lloyd published Lloyd’s News, providing news of shipping movements and other matters of interest; this was the forerunner of Lloyd’s List, first published in 1734.

Gradually, the underwriters at Lloyd’s formed an association, and in 1774 they moved their operations to the royal exchange. In 1928 Lloyd’s moved to Leadenhall Street, and in 1957 the association moved to a new building on Lime Street. In 1986 Lloyd’s moved to a new building adjoining Leadenhall Market; the new Lloyd’s building was a dramatic structure with a soaring interior atrium.

In 1871 control over the affairs of the association by its committee was consolidated by an act of incorporation (Lloyd’s Act, 1871), which gave it the power to make its own bylaws, to acquire real and personal property, and to perform all acts in its corporate name. By the act of 1871 the association was restricted to marine insurance, but by an act of 1911 it was empowered to carry on insurance of every description. Following a series of financial scandals in the late 1970s and early ’80s, Parliament passed a new constitution (Lloyd’s Act, 1982) to replace the original act. To avoid conflicts of interest, the newer act regulated the amount of interest that a broker could have in an underwriter. It also established a formal governing body to write and amend bylaws and to set up a disciplinary committee and an internal appeals court.

The members are formed into many different syndicates, each comprising from a few to several hundred members. These syndicates are represented at Lloyd’s by underwriting agents, who accept insurance business on behalf of syndicate members. The syndicate system, which was developed to handle the greatly increased insured values of the 20th century, created a means of spreading an insurance risk over a number of individuals. When a claim is made, each underwriter is responsible only for his portion. Syndicate members who did not underwrite personally became known as “names.” Traditionally, names had unlimited personal liability for the business transacted for them by their underwriting agents. This policy was modified after thousands of names were bankrupted by record losses in the late 1980s and early ’90s (many of which stemmed from pollution and asbestos claims). From 1993, personal losses were limited to 80 percent of a name’s total permitted annual premium income over a period of four years. Losses exceeding the limit would be paid from a pool funded by an annual levy on all names. In the same year, Lloyd’s voted to allow corporate and institutional investors to participate in its underwriting business for the first time. Eventually, the number of names dropped from more than 30,000 to fewer than 10,000.

In 1998 the Financial Services Authority, a nongovernmental financial regulator in the United Kingdom, initiated oversight of Lloyd’s. Serious liabilities for the names persisted, however, prompting a $7 billion bailout plan arranged in 2006 by the American holding company Berkshire Hathaway.