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Lloyd’s of London, generally known simply as Lloyd’s, is an insurance market located in London’s primary financial district, the City of London. Unlike most of its competitors in the industry, it is not a company but rather is a corporate body governed by the Lloyd’s Act of 1871 and subsequent Acts of Parliament. Lloyd’s serves as a partially mutualised marketplace within which multiple financial backers come together to pool and spread risk. These underwriters, or “members”, are a collection of both corporations and private individuals, the latter being traditionally known as “Names”.
The insurance business underwritten at Lloyd’s is predominantly general insurance and reinsurance, although a small number of syndicates write term life assurance. The market has its roots in marine insurance and was founded by Edward Lloyd at his coffee house on Tower Street in 1688. Today, it is based in a dedicated building on Lime Street, opened in 1986. Its motto is Fidentia, Latin for “confidence”.
In 2014, there were 94 syndicates that wrote £25.28 billion of gross premiums on business produced by 219 Lloyd’s brokers. The year saw few catastrophic loss events, and collectively the market reported a pre-tax profit of £3.16 billion.
Formation and first Lloyd’s Act
The Subscription Room in the early 19th century.
The market began in Lloyd’s Coffee House, opened by Edward Lloyd in around 1688 on Tower Street in the historic City of London. This 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 was also frequented by mariners involved in the slave trade. Historian Eric Williams notes: “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 up through the early 19th century.
Just after Christmas 1691, the small club of marine insurance underwriters relocated to Lombard Street; a blue plaque on the site commemorates this. 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 on Cornhill as The Society of Lloyd’s.
The Royal Exchange was destroyed by fire in 1838 and, although the building was rebuilt by 1844, many of Lloyd’s early records were lost. In 1871, the Lloyd’s Act was passed in Parliament 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.
San Francisco earthquake
On 18 April 1906, a major earthquake and resulting fires destroyed more than 80 per cent of the Californian 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 at the time the placement of insurance business overseas was viewed with some wariness. One of Lloyd’s leading underwriters, Cuthbert Heath, famously instructed his agent in San Francisco to “pay all of our policyholders in full, irrespective of the terms of their policies”. The prompt and full payment of all claims arising out of the disaster helped to cement Lloyd’s reputation for reliable claims payment 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. Since 1906, fire following earthquake has generally been an insured peril under most policies.
Courtesy : Wikipedia