Lloyd’s of London

Lloyd’s of London

• “Lloyd’s is not a company. Lloyd’s is a society of

individual and corporate members, each of
whom accepts insurance risks as members of one
or more underwriting syndicates. Individual
members are liable to the full extent of their
private wealth to meet their insurance
commitments, while the corporate entities trade
with limited liability”
 Early Days
• Lloyd’s began as Edward
Lloyd’s side coffee
house, located on Tower
Street of London
• The exact date of
establishment is
unknown, yet evidence
exists that Lloyd’s coffee
house was well known
by London business
circles in 1688
 Edward’s Coffee House
• These types of houses became commercial
meeting points, where not only underwriters
met, but also a variety of other different
businessmen
• Edward himself was not involved in insurance
• He provided premises, reliable shipping news
and a variety of services to enable ship’s
captains, merchants and other rich men to carry
on their business of insuring ships and their
cargoes
 Initial Underwriting
• Lloyd’s early underwriters were wealthy
individuals in the coffee house who agreed to
take a share of a risk by signing their names on
the policy
• They would set the amount they were willing to
cover
• In 1691, he moved his business from Tower
Street to Lombard Street
 Edward’s Accomplishments
• In the late 1690s, he published his first paper
called Lloyd’s News
• Shortly after that, Lloyd’s Weekly London
Newspaper became his second
• Unfortunately he died before his most famous
collection, the Lloyd’s List, was published
• The first editions were shipped in 1734
• Lloyd died in 1713, yet his coffee house continued
to prosper as a center for marine insurance
The Bubble Act of 1720
• Gave two newly formed
corporations the exclusive
right to transact marine
insurance as corporations:
• The London Assurance
• The Royal Exchange
 176os
• Some underwriters who • In 5 years it drove the old
disapproved gambling Lloyd’s out of business
insurance broke away
• They persuaded Thomas
Fielding, a Lloyd’s
waiter, to open a New
Lloyd’s Coffee House
 1770s
• In 1771, nine merchants, underwriters, and
brokers formed a committee which took over the
premises and appointed two masters to run them
• Lloyd´s moved into the Royal Exchange in 1773
• By 1774, the Life Assurance Act finally prohibited
gambling insurance
• The decision was successful and prosperous for
the insurance business
 The Society of Underwriters
• In 1769, a number of Lloyd’s more reputable
customers decided to break away and set up a
rival establishment that would be devoted
strictly to marine insurance
• Because of the competition, Lloyd’s was forced to
increase their underwriting standards
• Now, only members of Lloyd’s of London are
allowed to accept insurance business
• The marine insurance industry was getting a new
format, not everyone was allowed to underwrite,
but only does accepted by the committee
 Lloyd’s Act of 1871
• The Society of Lloyd’s was incorporated by the
Lloyd’s Act of 1871, which provided the business
with a legal basis and laid the foundations of
today’s market
• Lloyd’s has become an
international market for
insurance risks of almost any
type
• In 1906, Lloyd’s underwriters
met claims from the San
Francisco earthquake
 Lloyd’s List
• In 1734, Lloyd’s List was
established as a regular
weekly publication
• Lloyd's List is a British
publication that gives
details of vessel
movements, marine
casualties, and other
information of interest to
the merchant shipping
community
 Present Day
• Today, Lloyd’s has drastically changed from the
one in the past
• Now, insurance can only by written by approved
insurance brokers, known as Lloyd’s brokers
• There are nearly 29,000 individual underwriting
members, or “Names”, grouped in some 400
underwriting syndicates
• It is important to know each syndicate is not a
partnership
• Each member is liable only for a personal
fraction of any risk.
Risks of Lloyd’s

Dustin Williams
 Marine Insurance

• Marine insurance is oldest form

of insurance
• Largest marine insurer in the
world
 Marine Insurance
• Marine rates after 9/11
• War-risk charges vs.
Pakistan

• SPACEHAB laboratory
• U.S. - $8 million
• Lloyd’s - $17.7 million
 Aviation Insurance
• 40% of world aviation
insurance is in
London
• Covers losses
occurring from
manufacturing, use,
or operation of
aircraft.
Motor Insurance

• Largest provider of
private motor vehicle
insurance in UK
• 15% of all policies
written
• Least prominent non-
life line of insurance
 International Property
• Have insured US
embassies in the past
• Created first terrorist
attack policy
• Covers buildings on 10
US military bases
• Excludes loss of life and
chemical/nuclear warfare
• Being purchased by high-
risk areas in NY
Sports Insurance
• Willis McGahee injured
knee in Championship
game
• Disability coverage
began two weeks before
injury
• $20,000 in premium,
$2.5 million return (if
unable to recover and
play again)
• May collect Jan. 3, 2004
 Horse Insurance

• Lloyd’s is recognized as world’s largest

thoroughbred horse insurer
• Support Equine Disease Quarterly, publication
of equine disease occurrences
Hacker Insurance
• Joined Counterpane
Security Inc. to help
monitor losses
• Covers loss of revenue
or information assets
• Repayment and
replacement costs
• Other cyber-damage
Musician/Celebrity Insurance

• 1920s movie star Bill

Turpin insured
$20,000 against his
eyes uncrossing

• Shortly after, Jimmy

Durante insured his
“infamous schnozzola”
 Musician/Celebrity Insurance

• Fred Astaire had

$75,000 of insurance
for each leg

• A $28,000 policy was

written against Betty
Davis gaining weight
Musician/Celebrity Insurance
Christy
Turlington
And
Claudia
Schiffer
insured
their
faces
$1 million $5 million
 Musician/Celebrity Insurance

• Lord of the Dance Michael Flatley has £25 million

($39.24 million) of coverage on his legs.
 Musician/Celebrity Insurance
Black Crowes vs. Lloyd’s of London

• In Feb. 2001, the

Black Crowes filed
mulit-million lawsuit
• Claimed Lloyd’s
demonstrated bad
faith and breach of
contract
Performance of Lloyd’s

Idriss Ould
2001 Annual Statement

• Second Largest
Commercial Insurer
• Seventh Largest
Reinsurer
• 88 Syndicates
• 100+ countries
• Premiums totaled
$18 billion
 Assets
• Bonds $ 745,013,181
• Common Stocks 9,656,330
• Cash 3,905,768
• Investments 665,865,820
• Aggregate Write-Ins for Invested Assets 6,993,561,491
• Subtotals, Cash, and Invested Assets 8,414,096,822
• Premiums and Agents’ Balances in Collection (646,280)
10,648,760
• Interest, Dividends, and Real Estate Income
$
• Total
20,835,522,349
 Cash from Operations
• Premiums Collected Net of
$ (22,748,581)
Reinsurance
• Loss and Loss Adjustment Expenses
Paid 141,603,640
• Underwriting Expenses Paid
• Cash from Underwriting (3,439,249)
• Net Investment Income (160,912,972)
• Net Cash from Operations 96,891,754
(64,021,218)
 Cash from Investments
• Bonds $ 1,959,880,238
• Stocks 918,706
• Net Gains (Losses) on Cash
and Short-Term Investments 8,759,376
• Misc. Proceeds (13,409,242)
• Other Invested Assets 1,582,567,298
• Net Cash from Investments 373,581,780
 Income Statement
• Underwriting
Income
• Investment
Income
• Other Income
• Capital Surplus
• Gains (Losses)
in Surplus
 Underwriting Income
• Premiums Earned $ (18,691,571)

• Losses Incurred (140,995,360)

• Other Underwriting Expenses (3,439,249)

• Net Underwriting Gain (Loss) 125,743,038

 Investment Income

• Net Investment Income Earned $ 86,368,756

• Net Realized Capital Gain (Loss) 29,397,966

• Net Investment Gain (Loss) 115,766,722

 Sept. 11, 2001

• 9/11 - Single largest loss of any insurer

 Market Share of Premiums
SPLIT OF 2001 PREMIUMS BY BUSINESS TYPE
(source: Lloyd's of London)

35%

30%

25%

20%

15%

10%

5%

0%
Accident Motor Aviation Marine Goods Property General Pecuniar Life
 Market Share of Premiums
GEOGRAPHIC SPLIT OF 2001 PREMIUMS
(source: Lloyd's of London)

35%

30%

25%

20%

15%

10%

5%

0%
USA UK EUROPE ASI/AFR OTHERS
 Combined Ratio
INDUSTRY COMBINED RATIOS
(source: Lloyd's of London)

140

121.30% 122.4%

120
108.3%
105.10% 104%
101.7%
98.6% 97%
100

80

60

40

20

0
EUROPE US US MUNICH SWISS XL

LLOYD'S Reinsurer Reisurer P/C Re Re ACE CAPITAL

Combined Ratio: 98.6% (2000) 140.3% (2001)

Method of Accounting

• Lloyd’s operates under

3-yr. accounting system
• Results are not declared
until “closed”
• “Closed” – 3 years from
beginning of year
• Being phased out to be
comparable