Insurance is defined as the pooling of unanticipated losses by transfer of such risks to insurers, who agree to indemnify insured for such losses, to provide other pecuniary benefits on their occurrence, or to render services connected with the risk. (Rejda, 2011) And Lloyd’s of London is the best example of successful insurance underwriting market that services the world needs.
This seminar paper will dwell on the topic of Lloyd’s of London. It will shortly focus on the origin of Lloyd’s and its path to becoming a specific integral part in the world of insurance. Once the background is covered, it will explain how Lloyd’s is structured and organized while elaborating how participants in the market operate and interact with each other. Afterwards, several types of risks that are part of Lloyd’s business will be explained. By underwriting risk Lloyd’s take upon them to smooth the entire process and for this purpose they have developed means of insuring that all claims can be met.
Nearing the end of the paper I will cover financial performance of Lloyd’s for the last 4 years while discussing several matters and indicators related to their financial performance. Only after comprehending how, and how well, Lloyd’s operates can we discuss what is their importance, what are the main issues they face and what is the future of this specific market. The data will be collected from financial reports and rating agencies statements for additional analysis and research in order to make conclusions.
2. MAIN PART
2.1 Background: 326 Years of History
It all started in the second half of the 17th century when Edward Lloyd opened a coffee house in London in order to facilitate the ever growing shipping industry. London has always been a city of abundant trade and at that period in time, it experienced economic and wealth growth therefore creating demand for different luxurious and exotic goods. Lloyd encouraged ships’ captains, owners and merchants to share information and gradually developed a trustworthy reputation. Lloyd’s Coffee House became a place where one ship owner could insure his ships and its’ cargo with efficiency. He could consult a broker who would then find a suitable number of wealthy merchants who could meet their share of claim, until the risk was covered. This process later became known as underwriting.
Picture 1 Lloyd’s Coffee House (The Times 100 Business Case Studies, 2013)
Rising profits appealed many, driving some underwriters to more ‘speculative’ lines such as insuring highway robbery and death by gin drinking which made Lloyd’s Coffee House notorious as a gambling den. Consequently, in 1769, a group of professional underwriters decided to break away and form ‘New Lloyd’s Coffee House’ which later evolved to become the Lloyd’s we know today.
Lloyd’s of London is the world's specialist insurance market where its members join together as syndicates to insure different types of risks from all over the world. The market is...