Lloyd's of London is an insurance and reinsurance marketplace based in the City of London. It is not an insurance company. Instead, it is a market in which groups of capital providers, organised into syndicates, compete to underwrite risks that brokers bring to them from around the world, from ships and aircraft to energy plants, cyber attacks and natural catastrophes.
The market is run by the Society of Lloyd's, usually called the Corporation of Lloyd's, which sets standards, admits participants and holds central assets that back policies. Lloyd's is often confused with two unrelated names: Lloyds Banking Group, a retail bank that grew from a Birmingham bank founded by the Lloyd family in 1765, and Lloyd's Register, a ship classification society that also traces its roots to the same coffee house.
Lloyd's of London in plain terms
Imagine a large hall full of small teams, each with its own pot of money. Someone who wants to insure a cargo ship asks an agent to walk the hall. One team agrees to cover a slice of the risk at a price, others take further slices, and soon the whole ship is covered. If the ship sinks, each team pays its share of the bill.
The teams are the syndicates, the agents are brokers and the pots of money come from investors who hope the premiums they collect will be bigger than the claims they pay. The hall itself does not insure anything. It sets the rules, checks that every team can pay, and keeps a shared safety fund in case one of them cannot.
History
The market began in a coffee house opened by Edward Lloyd on Tower Street, which was known as a meeting place for merchants and ship owners by 1688. Lloyd moved to Lombard Street in 1691, and his customers began to write insurance on voyages there, each underwriter signing his name under the terms of a policy. A shipping newspaper, Lloyd's List, followed in 1734.
In 1774 the underwriters moved into the Royal Exchange. The Lloyd's Act 1871 gave the society a legal basis, and a further act in 1911 allowed it to write insurance of every kind rather than marine business alone. Lloyd's has occupied its building at 1 Lime Street, designed by Richard Rogers, since 1986. Marine cover remains part of its identity, working alongside the mutual clubs that provide most P&I insurance to shipowners.
How the market works
Lloyd's has several kinds of participant.
- Members. These provide the capital. Most capital now comes from corporate members, often owned by large insurance groups, while a shrinking number of individual members, known as Names, still take part.
- Syndicates. Members join syndicates, which accept risks for a given year and are run by managing agents that employ the underwriters.
- Brokers. Lloyd's brokers place business with syndicates on behalf of clients, often splitting a large risk across many syndicates.
- The Corporation. It runs the market, sets capital requirements and manages the Central Fund, the last layer of what Lloyd's calls its chain of security.
A key measure of a syndicate's or the market's underwriting result is the combined ratio:
Here claims are the losses incurred, expenses are the costs of acquiring and running the business, and net earned premium is the premium earned after reinsurance. If a syndicate earns £200 million of premium, incurs £120 million of claims and spends £70 million on expenses, its combined ratio is . A figure below 100% means an underwriting profit, before investment income.
The 1990s crisis and reconstruction
Individual Names historically backed their share of syndicate losses with unlimited personal liability. In the late 1980s and early 1990s, huge claims for asbestos and pollution, together with a run of catastrophes, produced losses of several billion pounds. Many Names faced ruin, and thousands sued the market and their agents.
Lloyd's responded by admitting corporate members with limited liability from 1994 and by its Reconstruction and Renewal plan of 1996. That plan moved liabilities from 1992 and earlier years into a new reinsurance company, Equitas, and offered Names a settlement. In 2006 Berkshire Hathaway agreed to reinsure Equitas's liabilities, a deal widely seen as closing the chapter. The episode remains a lesson in how badly unmanaged tail risk, or a black swan event, can hurt capital providers.
Regulation and role today
Lloyd's is regulated by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), and it applies its own oversight to managing agents. Each syndicate must hold capital that reflects its risks, in line with Solvency II-based rules on regulatory capital. Through licences and subsidiaries, including a Brussels insurer set up after Brexit, it writes business in more than 200 countries and territories.
The market is a pillar of the City's claim to be a leading international financial centre, and the City of London Corporation regularly promotes it abroad. Its post-crisis reforms came within a decade of the Big Bang (1986) on the stock market, as both institutions moved from closed clubs towards corporate ownership. Critics have pointed to slow modernisation, high costs of placing business and, in 2019, reports of a workplace culture problem that led to a programme of reforms. Supporters see its pooling of expertise as an effective form of risk management for risks other insurers will not take.