Lloyd's

Lloyd's of London is an international insurance market, which controls and regulates the activities of the groups offering insurance services

Street in City of London with modern office buildings
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One of the oldest of the City's institutions, Lloyd's of London is an international insurance market, which controls and regulates the activities of the groups offering insurance services under its name (Lloyds itself is now regulated by the FCA).

The capital that these groups - or syndicates - need to do business was once provided by individuals ('names') who accepted unlimited liability for the syndicate's losses. Some private names still exist but many sustained huge losses in the early 1990s, and subsequently either left the market or started to funnel their capital through corporate vehicles to limit their liability.

The roots of the Lloyd's of London market

We can trace the roots of insurance back to the 18th century BC, but the modern market is widely accepted to have started 335 years ago in Edward Lloyd’s coffee house in the City of London. Lloyd’s coffee house became a meeting point for ship captains, shipowners, and merchants and gradually, an informal market evolved whereby merchants would offer to reimburse shipowners for the loss of the ships and cargoes on a particular voyage in return for an upfront payment, or premium.

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This wasn’t the only coffee house doing brisk business in the city at that time. Jonathan’s coffee house became a prominent destination for exchanging stocks and shares in the late 1600s, eventually becoming the London Stock Exchange. Payments for the protection of cargo weren’t a novelty: there are records of Roman and Greek shipowners making similar transactions way over 1000 years before. However, when combined with other financial innovations of the time and the growing role of the British trading fleet around the world, the informal market expanded rapidly.

Over the next few centuries, the informal market became a formal entity. The merchants and moneymen providing the capital became known as Lloyd’s underwriters. As the market expanded and the size of the risks insured grew, these underwriters joined to form syndicates, which in turn began to seek money from other passive investors. These passive investors became known as names.

The insurance industry plays the same role in the economy today as it did in 1600, the numbers are just much bigger.

As the sums insured have grown, companies have taken over the role wealthy individuals used to play in the market. Businesses like Swiss Re, Munich Re and Berkshire Hathaway dominate the space. Global insurance premiums totalled $7 trillion in 2022 with around $50 billion placed in the Lloyd’s market.

All of these businesses essentially do the same thing – they provide some form of insurance – but each insurance entity is very different and how they manage risk is very different. And despite all of the change in the space over the past three centuries, Lloyd’s differentiated offering remains a unique asset.

Rupert Hargreaves

Rupert was the former Deputy Digital Editor of MoneyWeek. He's an active investor and has always been fascinated by the world of business and investing. 

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