A brief introduction to Lloyds of London.
Unlike many other insurance brands, Lloyd’s is not a company; it’s a market where the members join together in syndicates to insure risk.
When we talk of Lloyd’s, we’re really referring to two distinct parts. The market, which is made up of many independent businesses, and the Corporation of Lloyd’s, which is there – broadly speaking – to oversee that market. These parts are distinct, but far from independent. Both work closely to maintain high standards of performance across the market.
Much of Lloyd’s business works by subscription, where more than one syndicate takes a share of the same risk. Business is conducted face-to-face between brokers and underwriters in the Underwriting Room.
As of mid 2024 there were 57 Managing Agents managing 77 syndicates and the estimated annual gross written premium was more than £50bn. Please see Lloyd’s of London website for more details
In February 1688, Edward Lloyd’s Coffee House in Tower Street was referred to for the very first time in the London Gazette. What Lloyd’s coffee house specialised in was information about shipping. In the 17th century, London’s importance as a trade centre led to an increasing demand for ship and cargo insurance. Lloyd’s coffee house became recognised as the place for obtaining marine insurance.
In fact Edward Lloyd use to send waiters down to the docks for information on the arrival of vessels in this time Lloyd’s also moved to Lombard Street
In 1734 the first edition of Lloyd’s List, one of the world’s oldest continuously running journals, was first published by Thomas Jemson. He used Lloyd’s name and not his own because by this time, the establishment had instant recognition in the shipping community and a dedicated audience who would pay for subscriptions. Nearly 300 years on, the paper still provides weekly shipping news to London and beyond.
After a long period of prosperity particularly in the early 1760’s (in part due to the 7 years’ war) things started to come to an end, marine premiums returned to a lower level. This drove certain underwriters to more ‘speculative’ lines – putting their names to other kinds of risks, including highway robbery and death by gin drinking – and Lloyd’s coffee house soon became notorious as a gambling den. An extract from the London Chronicle of the time stated: ‘The amazing progress of illicit gambling at Lloyd’s coffee-house is a powerful and very melancholy proof of the degeneracy of the times.’ In 1769 a breakaway group of professional underwriters, keen to disassociate themselves from Lloyd’s growing unfortunate reputation, established a new Lloyd’s coffee house at 5 Pope’s Head Alley, London. The so-called ‘Old Lloyd’s’ ceased to exist. In its wake came New Lloyd’s, whose professionalism and ordered existence entirely quashed the anarchy of the Lombard Street gamblers.
In the 1760’s and 1770’s Underwriters at Lloyd’s formed the independent society that becomes Lloyd’s Register of Shipping shortly followed by Seventy-nine underwriters subscribing £100 each towards a new building and making them Lloyd’s first subscribers. Nine of these subscribers were elected to a Committee and in 1774 Lloyd’s moves to the Royal Exchange in Cornhill. At this same time John Julius Angerstein, a man of great moral standing, leadership and flair, began to gain a formidable reputation as a Lloyd’s insurer. Policies written or endorsed by him came to be known as ‘Julians’ and would have no trouble finding backing; it seems he originated the Lloyd’s concept of a ‘lead’ underwriter setting a rate which others would then follow. He became known as the Father of Lloyd’s.
By 1811, the complexity of the information used by the insurance industry had evolved significantly, but it was the creation of a network of Agents by Lloyd’s which profoundly accelerated both the reach and impact of that information. For the first time, a global network of individuals could act as the eyes and ears of the market, finding out the truth, detecting problems and suggesting solutions. The flow of information they sent back to Lloyd’s was a vital component of the consolidation and growth of both Lloyd’s reputation and the added values and expertise it could offer customers.
Outside of Lloyd’s, the underwriting of insurance in the UK was limited by statute to just two companies. Because the monopoly did not apply to individuals writing insurance, Lloyd’s underwriters were free to carry on their underwriting and in the absence of significant competition were able to thrive. Around 1824 Lloyd’s entered a difficult period. A Bill was finally passed ending the company monopolies and restrictions on insurance which had so favoured Lloyd’s, and so prompting Nathan Rothschild to found his rival insurance firm, the Alliance Assurance Company (now RSA Insurance Group). Subscribers at Lloyd’s began to fall away.
In 1828 George Richard Robinson, who had earlier been MP for Poole, was appointed Chairman, and helped Lloyd’s to recover its prestige over the next decade and a half. Stamp duty was reduced on policies; Lloyd’s List became a daily paper and the Agency system was extended.
Financial security began to be taken much more seriously at Lloyd’s. Members were forced to resign if they became bankrupt, and by the 1860s most new candidates were required to put up a deposit or guarantee to support their underwriting.
Things again changed in the 1870’s a marine underwriter Frederick Marten invented the concept of large syndicates. Lloyd‘s had been losing ground to the new and wider company market due to its smaller capacity – most syndicates had only two or three members. Marten bucked the trend and began writing for a 12-man syndicate.
The Underwriting Room (usually called ‘the Room’) was astounded by the size of the lines he could write, and foretold disaster. But Marten was vindicated. He’d stood up to the threat from the company market and brought the marine business back to Lloyd’s.
Also in 1871 Lloyd’s Act of Parliament made it illegal for anyone who is not a recognised underwriting member of Lloyd’s to sign his name to a Lloyd’s policy.
At the time Cuthbert Heath was underwriting at Lloyd’s, the London market wrote exclusively for marine and fire risks. It didn’t take long for Heath to change that. In 1877, Heath was approached by the Hand in Hand Insurance Company for the reinsurance of its fire policies; he made the bold decision to accept the risk. Over the following years, with Heath leading the way, Lloyd’s began to insure risks way beyond the traditional shipping ventures. He was a prominent and visionary Lloyd’s underwriter and wrote the first Lloyd’s reinsurance policy on American risks for a British company doing business in the US.
Throughout this decade and for years to come, Heath would forge a brand new, highly adventurous path for Lloyd’s, and establish an astonishing presence for the Society in America and on a global scale.
In an effort to properly weigh new risk, Heath became the first Lloyd’s underwriter to accumulate detailed probability of loss statistics; he would pay for historic documents and maps detailing windstorms and earthquakes. He became a specialist in the risks he took on and left a legacy for Lloyd’s modern day underwriters.
At the time of the famous San Francisco earthquake, in 1906, Heath was a leading earthquake underwriter. His actions after the disaster cemented Lloyd’s reputation in the US. He insisted on paying all claims in relation to the earthquake and fires regardless of the policy wording, and, in doing so, built the foundations of the modern Lloyd’s.
It wasn’t until 1965 that Lloyd‘s first admitted foreign members, although the far-sighted Cuthbert Heath had proposed American and French underwriters in the pre-war era.
Around now, the jet age began to change the way business was conducted, and the market rapidly became more international. Just one example: cover for the Delaware River Port Authority was brokered in the 1960s at Washington’s Dulles airport – the London broker arriving and leaving on the same Concorde plane.
In 1973 Liliana Archibald became the first female Lloyd’s broker. After her first day in the Room at Lloyd’s, she passed the building on her way home and observed, ‘The roof was still on.’
Things again changed in 1977 when Frederick Sasse ran up losses of £21m on Syndicate 762. The 110 members, facing bankruptcy, successfully argued that controls were not in place. In 1978, a general meeting of members agreed to a working party to examine self-regulation, chaired by Sir Henry Fisher. In 1982, a Bill aimed at tightening controls received Royal Assent. The first Council of Lloyd’s was elected to perform a supervisory role.
Then in the late 1980’s Lloyd’s were hit with huge claims by the American courts on asbestosis and other long tail liability business this coupled with some large catastrophe losses from windstorms and Piper Alpha oil rig led to action groups being formed by members intent on suing Lloyd’s and nearly brought Lloyd’s to its knees. The chain of capital behind Lloyd’s including the Lloyd’s Central Fund was nearly exhausted. This led to the Reconstruction and Renewal Plan being adopted with all 1992 and prior liabilities being reinsured into Equitas and the introduction of Corporate Capital, with the concept of limited liability. In 2002 new franchise proposals were approved and a Franchise Board was appointed to ensure the marketplace is working to the highest standards, which brings us to where we are today.
The franchise board established a set of protocols called the “Minimum Underwriting Standards” (MUS) by which each syndicate operating at Lloyd’s were to operate by or face sanctions. The MUS were eestablished to ensure the Central Fund would be protected as a core fund backing all Lloyd’s policies and not be vulnerable in the way it was in the latter part of the 20th century.
The MUS were updated in 2021 and replaced by a principles based approach consisting of 13 core principles formerly kown as the “Principles for Doing Business”. The unprecendented losses from Natural Catastrophes from 2017 to 2022 provide some degree of comfort to Lloyd’s policyholders and investors that the underwriting regimes and regulations introduced now provide a far more stable environment.
