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2002 CARE Seminar, June 2-4

Coffeehouses to Catastrophe

Lloyd’s of London

A Brief History

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Century One - Origins

• Medieval Times - “Voyage Accounting” = assets and liabilities of a voyage were not determined until the ship returned safely to home port. A ship traveling around the world could take 2.5 - 3 years.

• 1690 - Edward Lloyd opens his coffeehouse attracting shipowners and Captains trading overseas, and merchants dabbling in marine insurance.

• 1696 - Lloyd’s News; 1934 Lloyds List.

• 1713 - Edward Lloyd dies.

• 1721 - Bubble Act - Insurer’s given exclusive rights to the trade.

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Century Two - Formal Marketplace

• 1769 - Move to Coffeehouse on Pope’s Head Alley.

• 1774 - Move to Royal Exchange = Lead by John Julius Angerstein (Father of Lloyd’s) ,79 Underwriters establish a formal marketplace.

• 1780 - Seven Year War brings about 1st Big Loss.

• Early 1800’s - Napoleon Wars bring about profits & expansion.

• 1811 - Trust Deed - 1st Formal Constitution.

• 1838 - Fire = Move to Jerusalem Coffeehouse, then London Tavern, then back to rebuilt Royal Exchange 6 years later.

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Century Two - Formal Marketplace

• 1851 - Committee passes bye-law to expel any member becoming bankrupt.

• 1855 - Gibson request committee to accept responsibility for a bankrupt member’s outstanding claims.

• 1856 - New members required to show security by posting a bond.

• 1870 - Forwood’s inside information regarding the Venezuelan's “Mid-Ocean Horror” = leads to procedures for discernable conduct.

• Act of 1871 = Lloyd’s becomes a Legal Entity.

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Century Three - Uberrima Fides

• 1870’s - Worldwide expansion = “Report Me to Lloyd’s”

• 1880 - Cuthbert Eden Heath = “Why Not?”

• 1906 - San Francisco earthquake.

• 1908 - Annual Statement requirement = self-regulation preserved.

• 1920’s - Harrison Scandal = “Collectively we are Lloyd’s”.

• 1928 - Move to Leadenhall Street building.

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Century Three - Uberrima Fides

• 1958 - Move to 1st Lime Street building.

• 1965 - Hurricane Betsy = 1st time in 20th Century Lloyd’s recorded a loss, -13% below New Premiums.

• 1969 - Cromer Investigation = “Conflict of Interest” ignored.

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Century Four - Changing Landscape • Rapid Expansion in the number of Names.

– 6,001 in 1970

– 18,552 in 1980

– 32,433 in 1988

• New Breed of Names = Women, Foreigners, Middle Class.

• 1986 - Move into new Headquarters on Lime Street

– The building’s architect was told that the new building must be able to cope with the market tripling in numbers and capacity over the next half century.

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Century Four - Dishonesty • 1974 - Savonita Affair

• 1970’s - Sasse Affair.

• 1982 - Christopher Moran.

• Early 1980’s

– Howden’s Gang of Four.

– PCW’s “Baby Syndicates”.

– Chairman Sir Peter Green - Christopher Moran’s revenge.

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Century Four - Disaster • Asbestos & Pollution.

– Annual Ventures & Reinsurance to Close.

• Early 1980’s - Outwaithe’s Run Off Policies.

– E&O Requirements.

• Other Disasters.

– Piper Alpha Oil Rig and Exxon Valdez.

– Hurricane Hugo, Hurricane Gilbert, Typhoon Mireille, Britain's Gales, Australian Earthquake.

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Conclusion - Patterns in History

• One recurring feature of Lloyd’s history was that the buildings never quite kept pace with the expansion of business.

• “The History of Lloyds is a history of continuous growth and change; but no step forward was ever made until its necessity had been proved by some crisis.”